KONE ELEVATOR (HK) LTD v. CONSTRUCTION INDUSTRY COUNCIL

CACV 538 /2024, [2026] HKCA 115

On appeal from [2023] HKDC 1216

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 538 OF 2024

(ON APPEAL FROM DCMP NO 4552 OF 2022)

________________________

________________________

J U D G M E N T

________________________

Hon Kwan VP (giving the Judgment of the Court):

1.  This appeal is brought by KONE Elevator (HK) Ltd (“KONE”) against the judgment of His Honour Judge Ko made on 30 November 2023 (“Judgment”)^[1]. By the Judgment, the judge dismissed KONE’s appeal under section 57(1) of the Construction Industry Council Ordinance, Cap 587 (“CICO”)^[2], brought by a notice of originating motion to set aside the decision of the Objections Board (“Board”) of the Construction Industry Council (“CIC”) made on 25 October 2022 (“Board Decision”). KONE’s objection related to a levy imposed by CIC under CICO on maintenance services for lifts and escalators.

2.  On 28 March 2024, the judge refused to grant leave to KONE to appeal against the Judgment (“Leave Decision”)^[3].

3.  This appeal is brought with leave granted by the Court of Appeal on 4 December 2024^[4].

4.  KONE’s arguments, advanced by various counsel on five occasions (before the Board; before the judge on appeal; before the judge and the Court of Appeal to seek leave to appeal; and before the Court of Appeal on appeal), raised these same contentions albeit varying in emphasis and re-cast with additional or different points in support:

(1) CIC has no authority to conduct an “estimated assessment” under section 40(1) for the purpose of making a levy on the provision of maintenance services for lifts and escalators.

(2) Maintenance services of lifts and escalators do not fall within the definition of “construction operations” as defined in Schedule 1 to CICO and are therefore not subject to levy.

(3) As an alternative to (2), some of the operations (identified by items 1.1.2, 1.2.2 and 1.5 in the statement attached to the MTRC certificate, to be defined below) do not fall within the definition of “construction operations” and are not subject to levy.

5.  The above contentions raise questions of construction of relevant provisions of CICO.  This is the first case on the scope of the levy charged under section 40 since amendment was made to the predecessor of CICO in 2004.

6.  In the appeal before this court, KONE appeared by Ms Audrey Eu, SC^[5]. CIC appeared throughout by Mr Abraham Chan, SC^[6].

Background

7.  The relevant background matters may be stated as follows and are taken largely from the Judgment and matters not in dispute.

8.  CIC is a statutory body established under CICO and it was formed in 2007.  It is funded by levies collected under CICO, of which the funds are used in upholding professionalism and integrity within the construction industry, administering registration schemes, and conducting or financing education, publicity, research or other programmes relating to occupational safety and health, environmental protection or sustainable development in the construction industry^[7]. One of the functions of CIC is to issue levy, surcharge and payment notices pursuant to Part 5 of CICO.

9.  KONE is one of the key players in the lift and escalator industry both locally and internationally.  It is currently responsible for the maintenance of about 8,000 lifts and escalators in Hong Kong.

10.  Despite the regular follow-up by CIC on cases involving maintenance of lifts and escalators, the attitude of contractors towards the levy on such services vary greatly.  Some have submitted the forms for processing payment of levy and have paid the levy, but KONE and other contractors refused to do so.  For more than ten years, KONE only paid levy on (1) provision and installation of new lifts and escalators, and (2) modernisation (ie replacement) of lifts with contract value in excess of $3 million^[8]. KONE adopted the stance that no levy should be payable on providing maintenance services^[9].

11.  From October 2021, CIC requested KONE to submit Form 2 under section 35 for maintenance contracts to give notice of payments made to it in respect of the maintenance services, for CIC to assess the levy payable pursuant to section 37.  KONE refused to submit the forms and insisted that maintenance contracts are not subject to levy.

12.  Due to KONE’s refusal to submit the forms, CIC sought information from related parties such as the authorised person and the project employer, pursuant to section 59.  By a certificate issued by the MTR Corporation Limited (“MTRC”) dated 18 February 2022 (“MTRC Certificate”), it was certified that $4,759,277.22 was payable to KONE in respect of “work executed or as required under the terms and conditions of this Contract during the period ending 31 October 2021 as set out in the attached statement”.  The MTRC Certificate identified “Contract M1176-18E(K) Maintenance Services for Lifts and Escalators (Packages A1, A2-2, A3 and B3)” as the underlying contract (“Subject Contract”) and stated it is an “Interim Payment Certificate”.  KONE has refused to adduce in evidence the Subject Contract to the Board or to any of the courts involved in hearing the objection of KONE and its appeals^[10].

13.  Based on the information supplied by MTRC, CIC made an assessment of the levy payable pursuant to its powers under section 40(1).  By an assessment/payment notice dated 20 June 2022 (“Payment Notice”), CIC notified KONE that the levy payable in accordance with CICO in respect of “the above construction operations” was assessed at $504,738.  The Payment Notice identified the Subject Contract as the “construction operations” concerned.  The “Location of Works” was stated as “Maintenance Services for Lifts & Escalators at MTR Stations & Premises along URL, ERL, WRL, KTE & SIL”.  The “Works Type” was stated as “Maintenance Works”.  The “Basis of Assessment” was “Estimated Assessment under S 40(1)”.  The Payment Notice gave the following particulars of the assessment:

	Amount ($)
Cumulative value of Construction works / operations	95,233,592.00
Less: Retention money	0.00
Cumulative net assessable value of Construction works / operations	95,233,592.00
*Levy thereon at 0.53%	504,738.00
Less: Levy previously Imposed	0.00
Levy Payable	504,738.00
*0.03% of the levy is collected in accordance with the Construction Workers Registration Ordinance, Cap 583 (“Cap 583”)[11].

14.  KONE objected to the assessment by a notice of objection dated 13 July 2022 served on CIC, with grounds of objection settled by counsel, a list of authorities and a witness statement of Wong Wai Keung^[12] (“Mr Wong”) dated 13 July 2022 with annexures.  The objection was referred to the Board in accordance with section 56(1).  KONE filed supplemental grounds of objection dated 1 August 2022, citing an additional authority and enclosing an expert report by Chan Kwok Keung (“Mr Chan”) dated 28 July 2022.  A meeting was held by the Board to consider KONE’s objection on 27 September 2022^[13] and CIC informed KONE on 25 October 2022 of the Board Decision rejecting the objection in its entirety and confirming the assessment.

The appeal in the District Court

15.  KONE advanced 11 grounds of appeal before the judge, which he grouped under these broad complaints^[14]:

(1)    “the Unfairness Complaint”: the process of objections under CICO is systemically and individually unfair to KONE; the appeal should be heard de novo to prevent any unfairness suffered by KONE and breaches of human rights law and/or common law standard of fairness;

(2)    CIC failed even to understand its statutory task that it was not empowered to conduct an “estimated assessment” and there was no “completion of the construction operations or the stage or part of the construction operations” within the meaning of section 40(1), hence the Payment Notice is invalid in limine;

(3)    CIC did not have the power or jurisdiction to issue the Payment Notice because the works under the MTRC Certificate were not “construction operations” within the meaning of CICO (section 1(c)(i) of Schedule 1); and

(4)    in any case, CIC erred in issuing the Payment Notice in respect of items 1.1.2 (Full Load Test), 1.2.2 (Fully Load Test) and 1.5 (Variation Orders) in the statement attached to the MTRC Certificate on the basis that they were “integral parts of the maintenance work” (section 1(g) of Schedule 1) and subject to levy.

16.  In respect of (1), the judge treated the appeal as a de novo hearing as a matter of statutory construction and both parties had conducted the proceedings before him on that basis, placing new affirmations before the court.  Both agreed to a hearing without oral evidence or cross-examination of any of the makers of affirmations, report and witness statement.  The Unfairness Complaint was not pursued in the course of the hearing of the appeal^[15].

17.  As regards (2), the judge rejected KONE’s contention that CIC has no power to make an “estimated assessment” under section 40(1)^[16]. He declined to accept Mr Chan’s opinion that the words “stage” and “part” in section 40(1) should have a special technical meaning such that “the completion of … the stage or part of the construction operations” in that provision would have no application to the periodical maintenance fees for lifts and escalators. He held instead the words “stage” and “part” should bear their ordinary dictionary meanings and that section 40(1) is applicable with reference to the monthly stages or parts that KONE performed its work under the Subject Contract, and completion in this instance is judged solely by effluxion of time according to the terms of the Subject Contract.  He also rejected the contention that the appointment of an “authorized person” (“AP”) in respect of any construction operations under section 66 is necessary to trigger the application for section 40^[17].

18.  The dispute in (3) turned on the construction of sections 1(c)(i) and 1(d) of Schedule 1.  There is no dispute that supply and installation of electrical and mechanical works (“E&M Works”) such as lifts or escalators in any buildings or structures forming part of land come within section 1(d).  The judge rejected the contention that the general words in section 1(c)(i) (which do not mention lifts or escalators specifically) should be read subject to section 1(d).  He held that sections 1(c)(i) and 1(d) are capable of overlapping applications.  The fact that “lift or escalator” is mentioned in section 1(d) as an example of “supply and installation of fittings or equipment in any buildings, or other structures forming part of land” and hence caught by the definition of “construction operations” in Schedule 1 is no indication that other operations pertaining to lifts and escalators may not fall within other limbs of the definition in Schedule 1, such as section 1(c)(i).  He held that section 1(c)(i) (which covers “repair, maintenance … of … any buildings, or other temporary or permanent structures forming, or to form, part of land”) applies to E&M Works such as repair and maintenance of lifts and escalators and hence the operations covered by the Payment Notice amount to “construction operations” within CICO^[18].

19.  The contention in (4) focused on section 1(g) of Schedule 1.  The judge held on the evidence that items 1.1.2 (Full Load Test), 1.2.2 (Fully Load Test) and part of 1.5 (Variation Orders) in the statement attached to the MTRC Certificate were “integral parts of the maintenance work” (within section 1(g)), or were for the supply and installation of “fittings or equipment in … structures forming part of land, including … lift or escalator …” (within section 1(d)), and are subject to levy^[19].

The grounds of appeal in the Court of Appeal

20.  Four grounds of appeal are advanced in the notice of appeal filed on 10 December 2024^[20].

21.  Ground 1 relates to the issue whether the operations covered by the Payment Notice amount to “construction operations” defined in Schedule 1 to CICO.

22.  Ground 2 is based on the contention that there was no AP appointed and no commencement or completion in relation to the operations concerned for the assessment of the levy.

23.  Ground 3 concerns the meaning of “stage or part of any construction operations” in section 40(1).

24.  Ground 4 relates to whether the operations identified by items 1.1.2, 1.2.2 and 1.5 in the statement attached to the MTRC Certificate fall within the scope of the levy^[21].

25.  Before we consider the arguments, it is appropriate to give a brief account of the legislative history, the framework of CICO and to set out for convenience the material provisions.

Legislative history

26.  This is covered in the Judgment at §§96 to 101.

27.  Prior to June 2004, the Industrial Training (Construction Industry) Ordinance, Cap 317 (“ITCIO”; repealed by CICO) imposed a levy on the value of all “construction works” undertaken in Hong Kong (section 21 thereof) and the definition of “construction works” specifically excluded inter alia:

“the installation, repair and maintenance of any –

(i) air conditioning plant;

(ii) electricity supply system, including the wiring, appliances and fittings;

(iii) lift, escalator or belt conveyor system;

(iv) fire services installation or equipment;” (section 2(3)(a) thereof).

28.  In July 2002, the Government published a paper to the Legislative Council (“LegCo”; “2002 LegCo Paper”) on the proposal to extend the existing construction industry levy to cover E&M Works in the industry^[22]:

“4. As defined under [ITCIO], the scope of ‘construction works’ which are subject to levy does not include E&M works. … When [ITCIO] was first drafted in 1975, consideration was given to including E&M works within its scope as well. However, as the scale of E&M works then was relatively small and the technical institutes (i.e. Vocational Training Council’s predecessor) and the industry itself were providing adequate training, the E&M industry objected to the proposal and E&M works were subsequently excluded from the scope of ‘construction works’.

Existing E&M Training and Trade Testing

5. With the support of government subventions, some generic and construction-related training courses and trade tests for E&M workers are currently provided by the Vocational Training Council (VTC). On the advice of its Metals Training Board and E&M Services Training Board, the VTC organizes courses in electrical, mechanical, building services, welding and gas works, and conducts trade tests for some categories of E&M workers. The majority of these training courses are subsidized and only a nominal fee is charged for trade tests.

PROPOSAL

Purpose

6. According to the Hong Kong Electrical and Mechanical Contractors’ Association (HKEMCA), the E&M services have grown in importance in the construction industry in recent years. They now constitute on average 15-20% of the overall construction cost of a building and the figure can be as high as 30% in ‘hi-tech’ and ‘intelligent’ buildings. The skills required for these services have become more complex and specialised. As a result, the HKEMCA now believes that the spectrum and capacity of E&M training courses as well as the categories and capacity of E&M trade tests need to be expanded. This would facilitate the provision of more well-trained workers to meet the needs of the industry. It would also help lift quality and productivity and improve site safety. To meet the cost of the training courses and trade tests, the HKEMCA has recommended that a levy should be imposed on E&M works in the construction industry.

7. In response to the industry’s recommendation, the Education and Manpower Bureau (EMB) agreed to take forward a proposal to extend the existing construction industry levy to cover E&M works in the construction industry so that the income so derived could be used to provide expanded training courses and trade tests for E&M workers. The purpose is to enhance the quality, industrial safety, and productivity of E&M workers…

Definition of Construction Contracts

8. It is proposed that the Construction Industry Levy, stipulated under [ITCIO] be extended to cover E&M works in the construction industry. …

9. In examining how [ITCIO] should be amended to extend coverage to E&M works, the Steering Committee noted that the current definition of ‘construction works’ had given rise to disputes over whether certain works item such as design, compensation, attendancy, etc. should be covered. To remove ambiguity and to facilitate administration of the levy collection by CITA [the Construction Industry Training Authority], the Steering Committee recommended that [ITCIO] should be amended so that levy would be imposed on the value of ‘construction contracts’ rather than the value of ‘construction works’. Modelling on existing UK legislation^[23], the Steering Committee further recommended that the definition of construction contract as shown at Annex 2 should be adopted. The definition would cover, among other items, E&M works.

…

11.     The additional levy collected from E&M works in the construction industry would be used by CITA to expand the scope of E&M training courses and to cover the costs of the corresponding trade tests.  In future, CITA will provide E&M training specific to the construction industry, while the VTC will continue to provide general training on E&M which will continue to be subvented by government.”

29.  When the Construction Industry Levy (Miscellaneous Amendments) Bill 2003 was introduced into LegCo, the LegCo Brief by the EMB dated 18 March 2003 (“2003 LegCo Brief”) accompanying the Bill carried this elaboration on the legislative intention:

“5. To extend the coverage of the levy, we propose to replace the current definition of ‘construction works’ under the ITCIO, which specifically excludes E&M works, with a new definition of ‘construction operations’, which will encompass E&M works…

…

7. The additional levy collected from E&M works in the construction industry would be used by the CITA to expand the scope of construction industry related E&M training courses and to cover the costs of the corresponding trade tests…

…

10.     An alternative option is for the government to provide direct subvention to fund the training and trade test activities.  We believe that the industry itself should bear the responsibility to fund activities which ultimately benefit the industry itself. …”

30.  When the Secretary for Education and Manpower moved the Second Reading of the Bill on 9 April 2003, this was said about the definition of “construction operations” in the Bill:

“To extend the coverage of the levy, the current definition of construction works under the [ITCIO] and the Pneumoconiosis (Compensation) Ordinance (PCO), which specifically excludes E&M works, will be replaced by a new definition of ‘construction operations’ in the Bill, which will encompass E&M works.”

31.  The above objective was repeated by the Secretary for Education and Manpower at the resumption of debate on Second Reading on 11 February 2004:

“Madam President, let me repeat here the primary objective of the Bill which seeks to amend the [ITCIO] and [PCO], so as to extend the levy imposed on the construction industry to cover E&M works in the construction industry. The additional levy collected from E&M works would be used by [CITA] to expand the scope of construction industry related E&M training courses and trade tests presently not offered by the CITA. …”

32.  The definition of “construction operations” that was adopted in the 2003/2004 amendment is, for all intent and purposes, the same as the current definition in Schedule 1 to CICO.

Legislative framework of CICO

33.  CICO was enacted in 2006.  We gratefully adopt the summary of the framework of this legislation in §§24 to 30 of the Judgment.

34.  As stated in the long title, the aims of CICO are:

(1)     to replace ITCIO which was repealed (see Part 9);

(2)     to establish CIC to replace CITA which was established by ITCIO (see Parts 2 to 4); and

(3)     to set up a system of payment of levy known as “Construction Industry Levy” by contractors in the construction industry in respect of construction operations (see Parts 5 to 6).

35.  As provided in Parts 2 and 4, the functions of CIC include advising the Government on construction-related matters, administering the Construction Industry Training Board in providing training to construction workers, and implementing the registration and management regime for construction workers under Cap 583. 

36.  Whilst its members are appointed by the Secretary for Development (“Secretary”) (section 9), CIC is not to be regarded as part of the Government (section 4(4)).  As provided in Part 3, CIC is financially independent from the Government.  Its main source of income, apart from grants, loans, donations, fees, rent or interest received, is the levy, surcharge, penalty and further penalty imposed under CICO (section 21). For each financial year, CIC has to submit a programme forecast together with financial estimates to the Secretary (section 22).  At the end of each financial year, it is to report on its activities and submit a statement of accounts (sections 25 and 27).  Its accounts are subject to audit (section 26).

37.  As provided in Part 5, contractors are required to pay a levy in respect of “construction operations” carried out by them in Hong Kong (sections 32 and 33).  That term is defined in section 2(1) and Schedule 1.  Construction operations with a total value not exceeding the statutory threshold (currently at $3 million) are exempted (section 32(3) and Part 1 of Schedule 5).  The levy is charged at 0.5% of the value of the construction operations concerned (section 32(1) and Part 2 of Schedule 5). The value of any construction operations is ascertained in accordance with the provisions in Part 6. 

38.  To facilitate an assessment of levy, contractors are required to notify CIC as follows: within 14 days after any construction operations have commenced (section 34); within 14 days after payment is received in respect of any construction operations or any stage or part of construction operations (section 35); and after the completion of any construction operations (section 36).  Surcharges may be imposed when a contractor fails to give the required notice without reasonable excuse (section 41). Penalties are imposed for non-payment of levy or surcharge (section 46).

39.  There are two means by which CIC may make an assessment of levy.  The assessment under section 37 is based on receipt of either a section 35 notice of payment or a section 36 notice of completion. Where no statutory notice is received and no information is volunteered by the contractor, CIC may still make an assessment under section 40(1).

40.  There is an elaborate procedure of objection and appeal against an assessment of CIC in Part 7.  The Board may “confirm, cancel or reduce the levy” and an objector who is aggrieved by the decision of the Board may further appeal to the District Court.

41.  For the purpose of the appeal before the judge, the parties did not dispute the following interpretive purposes of CICO^[24]:

(1)     CIC is to work for the general good of the construction industry.

(2)     The Construction Industry Levy is to fund the work of CIC.

(3)     To facilitate the above, the statutory scheme of levy must be clear, workable, efficient and cost-effective.  A levy is chargeable so long as the operation concerned falls within the scope of the scheme, which should be clear for everyone – employers, contractors, authorized persons as well as CIC.  The duty that is imposed on CIC to administer the scheme must not be onerous and must be proportionate in terms of cost.

42.  In the appeal to the Court of Appeal, the parties have not disputed the above purposes. 

Material provisions in CICO

43.  The material provisions of CICO for this appeal are as follows.

“2. Interpretation

(1) In this Ordinance, unless the context otherwise requires –

…

authorized person (獲授權人), in relation to construction operations, means –

(a) the authorized person appointed or nominated under section 4 of the Buildings Ordinance (Cap. 123) in respect of the construction operations; or

(b) if no authorized person is appointed under that section, the person appointed in accordance with section 66 in respect of the construction operations;

…

construction contract (建造合約) means a contract between an employer and a contractor under which the contractor carries out construction operations but does not include a contract of employment;

construction industry (建造業) means the industry in which construction operations are carried out;

construction operations (建造工程) has the meaning assigned to it in Schedule 1;

…

levy (徵款) means the Construction Industry Levy referred to in section 32(2);

…”

“37. Assessment pursuant to notice of payment or notice of completion

(1) On receiving a notice of payment, the Council shall assess the amount of the levy payable in respect of the construction operations or the stage or part of the construction operations to which the notice relates.

(2) If no assessment has been made under subsection (1), on receiving a notice of completion, the Council shall assess the amount of the levy payable in respect of the construction operations or the stage of the construction operations to which the notice of completion relates.

(3) If the notice of payment is given in respect of an interim payment or partial payment, subject to subsection (4)—

(a) the assessment shall be a provisional assessment; and

(b) a final assessment shall be made on the final payment for the construction operations.

(4) If an assessment made under this section is in respect of a stage or part of any construction operations, or in respect of any construction operations, which constitute a stage or part of any other construction operations—

(a) the assessment shall be a provisional assessment; and

(b) a final assessment shall be made on the completion of those other construction operations.”

“40. Powers of Council to make assessment

(1) The Council may, subject to sections 42 and 44, assess the amount of the levy payable in respect of any construction operations or any stage or part of any construction operations, after the completion of the construction operations or the stage or part of the construction operations, notwithstanding that neither a notice of payment nor a notice of completion has been given to the Council.

(2) If it appears to the Council that any assessment of levy made by it is less than the proper amount, subject to sections 42 and 44, the Council may make an additional assessment of the levy.”

“66. Appointment of authorized persons

(1) If the Government is the employer in respect of any construction operations, a person shall be appointed by or on behalf of the Government to perform the functions of an authorized person.

(2) In any other case, the employer in respect of any construction operations shall, if no authorized person is appointed under section 4 of the Buildings Ordinance (Cap. 123), appoint a person to perform the functions of an authorized person.

(3) For the purposes of enabling the Council to perform its functions under Part 5, an employer to whom subsection (2) applies shall, before the commencement of the construction operations, supply to the Council, in a form specified by it, the name of the person appointed under that subsection and the name of the contractor in respect of the construction operations.

(4) A person who fails to comply with subsection (2) or (3) commits an offence and is liable on conviction to a fine at level 1.

(5) Subsection (3) applies only if—

(a) the construction operations are carried out under a term contract; or

(b) it is reasonably estimated that the total value of the construction operations exceeds the amount specified in Part 1 of Schedule 5.”

44.  As for the meaning assigned to the term “construction operations” in Schedule 1, this is as follows:

“1. In this Ordinance, construction operations (建造工程) means operations of any of the following descriptions —

(a) building works as defined in section 2(1) of the Buildings Ordinance (Cap 123);

(b) street works as defined in section 2(1) of the Buildings Ordinance (Cap 123);

(c) construction, alteration, repair, maintenance, extension, demolition or dismantling of —

(i) any buildings, or other temporary or permanent structures forming, or to form, part of land;

(ii) any works forming, or to form, part of land;

(iii) any industrial plant or any industrial installations for the purposes of land drainage, coast protection, water supply or defence; or

(iv) any power-lines, telecommunications apparatus or pipelines,

including walls, pylons, aircraft runways, docks and harbours, railways, inland waterways, reservoirs, water-mains, wells and sewers;

(d) supply and installation of fittings or equipment in any buildings, or other structures forming part of land, including systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, refuse collection, water supply, fire protection, security or communications, lift or escalator and other extra low voltage works;

(e) external or internal cleaning of any buildings, or other temporary or permanent structures forming part of land, to the extent that it is carried out in the course of construction, alteration, repair, maintenance, extension or restoration of such buildings or structures;

(f) painting or decorating any external or internal surfaces or parts of any buildings, or other temporary or permanent structures forming part of land;

(g)     operations which form an integral part of, or are preparatory to, or are for rendering complete, any of the operations described in paragraphs (a), (b), (c), (d), (e) and (f), including site clearance and investigation, earthmoving, excavation, tunnelling and boring, laying of foundations, erection, maintenance or dismantling of scaffolding, site restoration, landscaping and the provision of roadways and other access works.”

45.  As for well settled principles on statutory interpretation, they are set out comprehensively in HKSAR v Chen Keen (2023) 26 HKCFAR 157 at §§10 to 12^[25] and will not be repeated.

Ground 1: whether operations covered by the Payment Notice amount to “construction operations” in Schedule 1

46.  Ms Eu’s arguments on behalf of KONE may be summarised as follows.

47.  First, when construing the provisions in Schedule 1, the judge refused to adopt a “strict approach” as required for the construction of taxation provisions when the imposition of a levy is akin to taxation, in that liability will only be imposed on clear words.  She prayed in aid these statements in the following cases:

“A subject is only to be taxed upon clear words, not upon ‘intendment’ or upon the ‘equity’ of an Act. Any taxing Act of Parliament is to be construed in accordance with this principle. What are ‘clear words’ is to be ascertained upon normal principles: these do not confine the courts to literal interpretation. There may, indeed should, be considered the context and scheme of the relevant Act as a whole, and its purpose may, indeed should, be regarded …” (WT Ramsay Ltd v IRC [1982] AC 300 at 323C to D, per Lord Wilberforce)

“A citizen cannot be taxed unless he is designated in clear terms by a taxing Act as a taxpayer and the amount of his liability is clearly defined.” (Vestey & Ors v IRC (No 1) [1980] AC 1148 at 1172D, per Lord Wilberforce)

“… in the context of tax legislation it is necessary to consider the legal analysis with the utmost precision, so that the taxpayer shall not become liable to tax unless that is clearly and unequivocally the effect of the statutory provisions.” (Ingram (executors of the estate of Lady Ingram (deceased) v IRC [1997] 4 All ER 395 at 414e to f, per Evans LJ)

48.  This “strict approach” for construing tax liability is consistent with the purposive interpretation espoused in the Ramsay approach, see Collector of Stamp Revenue v Arrowtown Assets Ltd (2003) 6 HKCFAR 517 at §15 which quoted Lord Wilberforce in Ramsay at 323C to D.

49.  Second, when considering the legislative history, the judge erroneously found when ITCIO was amended in 2004, the professed intention was to bring all aspects of E&M works into the scope of the levy^[26]. Adopting this as his purposive approach, he ignored the clear difference in the wording of various subsections in section 1 of Schedule 1.  He should have “strictly construed” the provisions to see which aspect of E&M works should be subject to the levy.

50.  The words “repair, maintenance” appear in subsection (c) whereas the words “supply and installation” appear in subsection (d).  The use or location of different words must be deliberate.  It is wrong for the judge to hold that according to the stated intention of the 2004 amendment “all aspects of E&M works should be covered”; that the subsections in Schedule 1 are “provisions with overlapping aims and applications” and subsections (c) and (d) are “capable of overlapping applications”; and that “the subsections should be read disjunctively and together they bring out the full flavour of the definition”^[27].

51.  Clearly there can be a difference in the scale of works.  The words “repair, maintenance” appear in subsection (c) which covers larger scale operations like power-lines, telecommunication apparatus or pylons, but not in subsection (d) which is for relatively smaller scale of works.  The judge is wrong to disregard such difference.

52.  Third, the judge failed to apply the maxim generalibus specialia derogant (special provisions override general ones)^[28]. Since lifts and escalators are expressly mentioned in subsection (d), they are not intended to be covered in general terms such as “structures forming … part of land” in subsection (c) of the same definition in section 1.  As mentioned, the appearance of the words “repair, maintenance” only in subsection (c) and not in subsection (d) is significant.  Similarly, the use of the words “construction, alteration, … extension, demolition or dismantling” only in subsection (c) and not in subsection (d) must be deliberate.  Applying the maxim, and the “strict approach”, it is clear that only the supply and installation of lifts and escalators, but not the maintenance of the same, are “construction operations” subject to levy.

53.  Had subsection (c) been intended to cover lifts and escalators, there is no need for subsection (d), as “construction … of … buildings” in subsection (c) would have included “installation of lifts and escalators”, as provided for in section 38(1)(d)(xi) of the Buildings Ordinance, Cap 123.

54.  Fourth, the judge is wrong to find that even if some of the services or variation orders under the Subject Contract do not fall within “repair, maintenance” of the lifts or escalators, once the lifts or escalators become an integral part of the building, the additional services or variation orders are “integral part of their maintenance” or “preparatory to any necessary repair” or “for rendering complete the operations” undertaken under the Subject Contract and fall within subsection (g)^[29]. Such an extended reading of a tax provision may lead to absurdities^[30]. If other items in subsection (d) (such as heating, lighting, air-conditioning, ventilation, fire protection, security or communications, etc) also need to be treated as forming part of the land and fall within subsection (c), even minor repairs such as repairing pipes or changing light bulbs or routine periodical maintenance would constitute “construction operations”.  This is an affront to common sense^[31].

55.  Had the legislature intended to cover “repair, maintenance” of the items under subsection (d), it would have been very simple to adopt these words in the opening part of subsection (d) instead of just stating “supply and installation”.  The words “repair and maintenance”, which appeared in section 2(3) of ITCIO (“ ‘construction works’ shall not include - … the installation, repair and maintenance of any … lift, escalator …”), were deliberately omitted in the 2004 amendment.  This indicates strongly that the legislature did not intend “repair and maintenance” of E&M works under subsection (d) to be included in the definition of “construction operations” and be subject to levy.

56.  Fifth, the judge wrongly applied the reasoning and analysis of Dyson J (as Lord Dyson then was) in Nottingham Community Housing Association Ltd v Powerminster Ltd (2000) 75 Con LR 65, which was based on section 105 of the 1996 Act and is different in objective and context to CICO^[32].

57.  Sixth, the judge failed to have regard to the expert evidence adduced by KONE (expert opinion of Mr Chan dated 28 July 2022) when Mr Chan was not cross-examined nor was there contrary expert evidence from CIC, or to the industry practice.  Mr Chan opined that maintenance of lifts and escalators does not fall within the levy scheme in CICO, which is premised on the completion of the construction or the stage or part of the construction operation.  Payment which accrues due by effluxion of time under a maintenance contract does not fall within the levy scheme in section 40 or section 37.

58.  The submission that provisions imposing a levy in CICO are akin to taxation and should be strictly construed on the principle that a subject is only to be taxed upon clear words and not upon “intendment” or upon the “equity” of an act had been made by two previous counsel of KONE, before the Board^[33] and before the judge on appeal^[34].  There is no reason to think that the judge was not mindful of the approach advocated by KONE.  According to the judge, he did not refuse to adopt the correct approach in Ramsay and Arrowtown, as he had “construed [CICO] purposively and analysed the facts and circumstances of the case realistically”^[35].  What are “clear words” is not confined to a literal interpretation.  Lord Wilberforce had added in Ramsay: “There may, indeed should, be considered the context and scheme of the relevant Act as a whole, and its purpose may, indeed should, be regarded.”  The judge had apparently considered the context, scheme, purpose and legislative history in construing the provisions.  We do not think there is error in his approach.  Whether he had done so correctly leads us to the other submissions of KONE.

59.  In considering the legislative history, the judge took the view that the professed intention of the 2004 amendment was that “all aspects of E&M works should be covered”.  He noted that “construction works” in ITCIO excluded E&M works, including “the installation, repair and maintenance of any … lift, escalator”^[36]. As explained in the 2002 LegCo Paper at §4, that was because the scale of E&M works had been relatively small when ITCIO was first drafted in 1975, and there was adequate training by the technical institutes.  As E&M services had grown in importance in the construction industry, and the skills required for these services had become more complex and specialized, calls were made to extend the levy to cover E&M works to fund training courses and trade tests to meet the needs of the industry, and to improve quality, productivity and site safety^[37]. This was the legislative intent of the amendment, as made manifest in the 2003 LegCo Brief^[38], the speech of the Secretary for Education and Manpower in moving the Second Reading of the Bill in April 2003^[39], and the speech of the Secretary at the resumption of the Second Reading in February 2004^[40].

60.  Ms Eu took issue with there being such an all-embracing reference in the legislative materials to cover all aspects of E&M works in the 2004 amendment.  She submitted there was discussion in the legislative materials as to what aspect of the E&M works should be subject to levy.  In support of this, she referred to the 2002 LegCo Paper §9 first sentence which read:

“In examining how [ITCIO] should be amended to extend coverage to E&M works, the Steering Committee noted that the current definition of ‘construction works’ had given rise to disputes over whether certain works item such as design, compensation, attendancy, etc. should be covered.”

61.  This does not appear to us to support Ms Eu’s reading.  What was said in the 2002 LegCo Paper as quoted above was elaborated upon in the 2003 LegCo Brief at §5:

“To extend the coverage of the levy, we propose to replace the current definition of ‘construction works’ under the ITCIO, which specifically excludes E&M works, with a new definition of ‘construction operations’, which will encompass E&M works. The proposed definition of ‘construction operations’, as shown in the new Schedule 1 to the ITCIO under the proposed Bill will also list out in detail the intended coverage of the definition and will help remove ambiguity under the current definition of ‘construction works’, which has in the past given rise to dispute over whether certain works items such as design, compensation, attendancy, etc. should be covered by the levy.”

62.  Thus, in the new Schedule 1 to the 2004 amendment, section 1 subsections (a) to (c)(i)-(v) listed out in detail the intended coverage of the definition of “construction operations”, whereas section 2 was designed to remove ambiguity under the then existing definition of “construction works” in ITCIO.  Section 2 in the Schedule to the amendment, which is the same as the current section 2 in Schedule 1 to CICO, provided as follows:

“2. Notwithstanding section 1, ‘construction operations’ (建造工程) does not include operations of any of the following descriptions –

(a) design, advice and consultation work, unless such design, advice and consultation work is incidental to any of the operations described in section 1;

(b) manufacture of plant or machinery at a site for delivery of such plant or machinery to another site where the sole or principal activity at that other site is –

(i) power generation; or

(ii) the production, transmission, processing or bulk storage of any materials or manufactured products, including chemicals, pharmaceuticals, oil, gas, steel, food or drink or vehicles, which are intended for sale.”

63.  Contrary to Ms Eu’s submission, there was no discussion in the legislative materials as to what aspect of the E&M works should be subject to levy, let alone the difference in the scale of works as suggested.  We are inclined to agree with the judge that the legislative materials do not evince any intention to exclude any particular aspect of E&M works – including repair and maintenance of lifts and escalators – from the scope of the levy proposed to cover E&M works so that the income derived could be used to fund expanded training courses for E&M workers and cover the costs of the corresponding trade tests as envisaged.  

64.  Mr Chan for CIC went further in his submissions mentioning that the actual scope of training and testing presently “overseen” by CIC (which has replaced CITA as provided in CICO) covers the installation, repair and maintenance of lifts and escalators, along with other E&M works.  Ms Eu submitted to the contrary.  She referred to various websites, the 2025 prospectus of VTC (which is subvented by government) and contended that none of the recognised training courses for qualified or specified persons for lift and escalator works are provided by CITA or CIC but by many other institutions including VTC and the universities.  This demonstrated that the premise for the judge’s and CIC’s assumption that all aspects of E&M works are “construction operations” subject to levy to enable CITA/CIC to provide training and testing is incorrect.

65.  The institutes that have actually provided training and testing regarding the installation, repair and maintenance of lifts and escalators and whether CIC has any role to play in these matters are new points not taken before the judge and are raised for the first time in the Court of Appeal.  The evidence relied on by either party is incomplete.  Whilst it would appear from the websites and prospectus made available to us that most of the recognised training courses are provided by VTC and the Hong Kong Polytechnic University, it is not correct that none of the training courses provided by the Hong Kong Institute of Construction (a member of CIC) are related to lifts, as pointed out by Mr Chan^[41]. More importantly, we note that in the 2003 LegCo Brief at §7^[42] there was mention of CITA engaging the VTC or other suitable organisations as agents to provide construction industry related E&M training courses:

“The additional levy collected from E&M works in the construction industry would be used by the CITA to expand the scope of construction industry related E&M training courses and to cover the costs of the corresponding trade tests. Hitherto, the VTC has been providing some generic E&M training and trade testing. It is conceivable that the CITA may wish to engage the VTC or other suitable training organisations, as an agent in running some of the expanded programmes. To enable the CITA to do so, we propose to include a provision to allow the CITA to use other bodies as training agents in the provision of services^[43]. In future, the CITA will provide both in-house and, if necessary, through other training agents it commissions, E&M training specific to the construction industry, while the VTC will continue to provide generic E&M training which will continue to be subvented by government.”

66.  In light of the unsatisfactory evidence before the court, Mr Chan did not press the point.  Nor do we find it appropriate to rule whether training courses in relation to installation, repair and maintenance of lifts and escalators are actually funded in whole or in part by the levy under CICO.  For the purpose of construing the relevant provisions of CICO, we would confine ourselves to the legislative intent, which, as we have found in agreement with the judge, is that all aspects of E&M works should be covered in “construction operations”. 

67.  As for the failure to apply the maxim generalibus specialia derogant, this principle of construction operates in the absence of contrary intention.  The principle does not apply where, instead of a specific provision and a more general provision, there are simply provisions with overlapping aims and overlapping applications^[44], which is what the judge has found^[45]. We could detect no error in his approach.

68.  The judge found it helpful to have regard to the manner in which section 105(1) of the 1996 Act was construed in Nottingham Community Housing Association Ltd v Powerminster Ltd^[46].  Notwithstanding that the provision concerned does not refer to lift or escalator, and the context and purpose of the English statute is to remedy the mischief of those undertaking construction contracts not being paid on time and to avoid spurious set-offs to postpone payment, we agree with Mr Chan that these differences are not to the point.  In the legislative materials on the 2004 amendment, it was acknowledged that the definition of “construction operations” is adopted from the 1996 Act.  This is borne out by a comparison of section 105(1) of the Act^[47] with section 1 of Schedule 1 to CICO.

69.  In the Nottingham case, the issue raised by Nottingham was that the contract with Powerminster for the maintenance and repair of domestic gas appliances in its properties (which comprised heating systems, gas fires and cookers) was not a “construction contract”, as the work to be carried out did not constitute “construction operations” as defined in section 105(1).  Nottingham argued that as para (c) of section 105(1) only refers to “installation” and not repair and maintenance of “systems of heating, lighting, air-conditioning, ventilation” etc., para (c) should be the governing provision and Powerminster could not rely on para (a) which refers to “repair, maintenance … of buildings or structures forming … part of the land (whether permanent or not)”.  Nottingham further argued that in para (c) the draftsman makes clear the extent to which activities concerning heating, air-conditioning and ventilation systems etc.  forming part of the land are to be regarded as “construction operations” within the meaning of the Act.  Since para (c) deals only with “installation” of such fittings, it was clearly the legislative intent that the maintenance and repair of such fittings should not be included in the definition of “construction operations”.  An argument similar to KONE was raised that had it been otherwise, the legislature could easily have included “installation, repair and maintenance” in para (c).  Nottingham also argued that if para (a) was held to cover heating systems as once installed they would become part of the building and part of the land, para (c) would be redundant.

70.  Dyson J dealt with the statutory construction in this manner^[48]. He started by considering whether, if para (c) were not present, the maintenance and repair of heating systems that have been installed in a building would be operations falling within para (a) and had no doubt that they would.  He took the view there is no warrant in para (a) for distinguishing between different types of operations carried out in relation to a building or structure.  There is no distinction in property law as once fittings are installed, they all become part of the land.  Nor is there any other basis, whether technical or founded on the ordinary use of words, for making such a distinction.  It is not a misuse of language to say that the maintenance of a building includes the maintenance of the various items in para (c).  The items in para (c) are all vital parts of a building, whose proper functioning is required if a building is to be fit for habitation.

71.  He reasoned further that on Nottingham’s arguments it is only the installation of heating systems etc that are “construction operations” and the legislature has excluded not only the repair and maintenance of all para (c) systems, but also the “alteration, extension, demolition or dismantling” of them too.  He found it difficult to see on what rational basis the legislature could have intended to include the installation of such systems, but exclude their alteration or demolition.  The same question arises in relation to the repair and maintenance of heating and other systems that have been installed in a building.

72.  He then turned to consider the significance of para (c).  He accepted that one must read section 105 as a whole.  He did not consider the meaning of para (a) to be unclear so that doubts arising would be resolved by para (c).  Nor was he persuaded by the argument that para (c) is redundant if para (a) is held to cover heating systems that have become part of the building.  Caution should be exercised in relation to arguments based on redundancy; people often use superfluous words, sometimes the drafting is clumsy and more often it is a lawyer’s desire to be certain that every conceivable point has been covered.  He concluded that effect should be given to the clear and true meaning of para (a).

73.  We do not understand Ms Eu to have argued that as a matter of language, the repair and maintenance of lifts and escalators which formed part of a building or land do not fall within subsection (c)(i) (“repair, maintenance … of any buildings, or other temporary or permanent structures forming, or to form, part of land”).  Quite clearly, repair and maintenance of structures forming part of land in subsection (c)(i) can include repair and maintenance of the items in subsection (d) where those structures form part of land, including a lift or escalator.  We see no justification for distinguishing between the repair and maintenance of lifts and escalators from the repair and maintenance of other structures that form part of the building or land.  Nor is it a misuse of language to say that repair and maintenance of a building or structure forming part of land in subsection (c)(i) include the repair and maintenance of the fittings or equipment in any building or structure forming part of land in subsection (d).

74.  As recognised in Nottingham and Staveley Industries Plc v Odebrecht Oil & Gas Services Ltd, the provisions in the definition of “construction operations” are capable of overlapping applications. Mr Chan pointed out another example of overlapping application: subsection (c)(iii) refers to repair and maintenance of “industrial installations for the purposes of land drainage, … water supply”, whereas subsection (d) refers to supply and installation of fittings or equipment in buildings or structures forming part of land including “drainage, … water supply”.  We agree with the judge that the subsections should be read disjunctively and together they bring out the full flavour of the definition.

75.  Ms Eu has emphasised that the provisions in CICO should be construed on a strict approach, not widely or liberally like construing the 1996 Act in the Nottingham case, because CICO imposes a levy on the trade.  The definition of “construction operations” applies to the terms of “construction contract” and “construction industry” used throughout CICO, not just Part 5 which relates to the levy.  As pointed out by Mr Chan, a number of provisions in CICO have nothing to do with the levy, such as sections 5 (function of CIC), 6 (supplementary functions of CIC), 7 (powers of CIC), 9 (composition of CIC).

76.  Apart from making recommendations to the government regarding the rate of the levy imposed (section 5(l)), important functions of CIC provided in section 5 include:

“(a) to advise and make recommendations to the Government on strategic matters, major policies and legislative proposals, that may affect or are connected with the construction industry, and on matters of concern to the construction industry;

(b) to reflect to the Government the construction industry’s needs and aspirations;

(c) to elevate the quality and competitiveness of the construction industry by promoting the ongoing development and improvement of the industry;

(d) to uphold professionalism and integrity within the construction industry by promoting self-regulation, formulating codes of conduct and enforcing such codes;

(e) to improve the performance of persons connected with the construction industry through establishing or administering registration schemes or rating schemes;

(f) to advance the skills of personnel in the construction industry through planning, promotion, supervision, provision or coordination of training courses or programmes;

(g) to encourage research activities and the use of innovative techniques and to establish or promote the establishment of standards for the construction industry;

(h) to promote good practices in the construction industry in relation to dispute resolution, environmental protection, multi-layer subcontracting, occupational safety and health, procurement methods, project management and supervision, sustainable construction and other areas conducive to improving construction quality;

(i) to enhance the cohesiveness of the construction industry by promoting harmonious labour relations and the observance of statutory requirements relating to employment, and by facilitating communication among various sectors of the industry;

(j) to serve as a resource centre for the sharing of knowledge and experience within the construction industry;

(k) to assess improvements made by the construction industry through the compilation of performance indicators;

…

(la) to conduct or finance educational, publicity, research or other programmes relating to occupational safety and health, environmental protection or sustainable development in the construction industry;”.

77.  If “construction operations” is construed in the manner as submitted by KONE such that repair and maintenance of lifts and escalators would fall outside the definition, the above important functions of CIC would not apply.  Apart from there being no justification for this, it would be contrary to the legislative intent that all aspects of E&M works should be covered in “construction operations”.

78.  Mr Chan made a further valid point that one of the purposes of the 2004 amendment was to extend coverage to E&M works as a category, to make them subject to levy, and this is reflected in the opening words “any of the following descriptions” in section 1 of the Schedule, rather than “any one of”.  Hence, subsections (c) and (d) are intended as non-mutually exclusive bases covering a wide span of many potential instances of E&M works.

79.  We turn to the suggestion it might lead to absurdity if minor repairs of items in subsection (d) were treated as forming part of the land and thus fall within subsection (c)(i), and extreme examples cited in KONE’s argument that would be caught by subsection (g) (operations which form an integral part of or are preparatory to or for rendering complete any of the operations in subsections (a) to (f)).  We agree with the judge that this would be dealt with by the exemption from levy if the total value of the operations does not exceed the statutory threshold, currently set at $3 million^[49]. To the contrary, KONE’s construction would lead to an odd conclusion that the supply and installation of lifts and escalators are caught by subsection (d) but their subsequent alteration, demolition or dismantling would not come within subsection (c)(i)^[50]. As remarked in Nottingham, it is difficult to see on what rational basis the legislature could have intended to include the installation of lifts and escalators but exclude their alteration or demolition.

80.  In answer to this, Ms Eu submitted it is not KONE’s stance that installation of lifts are within “construction operations” but not subsequent alteration or dismantling.  She argued this would depend on the nature and extent of the works, so if demolition of a building includes lifts and escalators, the entire demolition would fall within subsection (c) in Schedule 1 to CICO and be subject to levy.  As for “alteration”, she invoked the Lifts and Escalators Ordinance, Cap 618 (“LEO”) which contained a definition of “major alteration” in Schedule 1 for lifts and escalators, and clauses 5.6 and 5.7 of the Code of Practice for Lift Works and Escalator Works issued by the Director of Mechanical and Engineering Services under section 145 of LEO.  She submitted that if an alteration is “major alteration” as defined in Schedule 1 to LEO, this would fall within “supply and installation” in subsection (d) in Schedule 1 to CICO.

81.  We do not accept the above submissions.  As stated in its long title, LEO was enacted for a purpose different from CICO.  It is “to provide for the safety of lifts and escalators, including the registration of contractors, engineers and workers for the purposes of carrying out lift works and escalator works; and to provide for consequential, incidental and related matters”.  The term “major alteration” is deployed in LEO^[51] in a variety of situations that have no bearing to CICO.  It cannot be right to use the definition of a term in another piece of legislation enacted for a different purpose as an aid to construe provisions in a different statute. 

82.  Ms Eu relied on section 38(1)(d)(xi) of the Buildings Ordinance which provides that the Secretary for Development may make regulation to provide for “the construction of buildings including – … (xi) matters relating to the installation of lifts and escalators” to contend that had subsection (c) been intended to cover lifts and escalators, there is no need to have subsection (d) as provision is already made in the Buildings Ordinance for “construction of buildings” to include “installation of lifts and escalators”.  This seems to be another argument based on redundancy, which we do not accept for the reasons discussed earlier.  Besides, we do not see how a provision in the Buildings Ordinance could be relevant to the proper interpretation of the scope of “construction operations” as defined in CICO.

83.  As for the expert opinion of Mr Chan dated 28 July 2022 that maintenance of lifts and escalators does not fall within the levy scheme in CICO drawing on his knowledge of the industry practice of stage or part assessments or payments, this would be dealt with under Ground 3.

84.  We have covered the main arguments that Ms Eu raised.  We do not propose to deal with every single argument. 

85.  For the reasons given above, we reject KONE’s contention in Ground 1 that the operations covered by the Payment Notice do not fall within “construction operations”.

Ground 2: no appointment of AP, no commencement or completion of operations

86.  KONE’s contention here is that the judge erroneously held there was commencement and completion of construction operations despite the absence of an AP, such that CIC was entitled to issue a Payment Notice under section 40 of CICO^[52]. Further, the judge wrongly found that the requirement to appoint an AP in section 66 of CICO is satisfied by the appointment of a registered contractor (“RC”)^[53] under LEO^[54].

87.  KONE’s contention that section 66 mandates the appointment of an AP for all “construction operations” was raised at the appeal before the judge only after the lodging of CIC’s closing submissions and was not explored in evidence.  The judge allowed KONE to raise this contention notwithstanding it might be fact-sensitive^[55], as section 66 is part of the context upon which the court should construe CICO. The judge noted that the effect of section 66 was not fully debated in the appeal.  When fuller arguments were made in the application for leave to appeal, the judge did not think it right to come to a conclusion whether section 66(2) was complied with in this case^[56].

88.  Ms Eu’s arguments ran as follows.

(1)    The functions and duties of an AP^[57] are different from those of an RC^[58].  An AP supervises an RC in the execution of building works^[59].  For construction operations, the supervision plan is prepared and submitted to the Building Authority by an AP who should supervise the works carried out by an RC in accordance with the supervision plan and the approved building plan^[60].  Section 5 of the Building (Administration) Regulations, Cap 123A prohibits an AP from acting as contractor without disclosure to client.

(2)    Section 66(2) mandates the employer to appoint an AP or a person to perform the functions of an AP.  Other than notifying CIC of the commencement of construction operations (section 34^[61]) and completion of operations (section 36^[62]), the main function of an AP under CICO is to assess the total value or the stage or term value, thus enabling CIC to be aware of the construction operations and to assess the levy.

(3)    The judge failed to appreciate the independent and statutory role of an AP in contrast to the contractor who is liable for paying the levy.  There may be a conflict of interest or role between the AP and the RC.  It would also not make sense for CICO to require the appointment of an AP if an RC could have served the same function as an AP under section 66.

(4)    As an AP was not appointed by MTRC for the Subject Contract, it is strong evidence that lift maintenance work is not within “construction operations”.

(5)    As it is the employer who should appoint an AP and the contractor should pay the levy, the issue of evading the levy by deliberately not appointing an AP does not arise^[63].

(6)    The judge should have regard to industry practice and come to the conclusion that maintenance of lifts or escalators does not require an AP and hence does not amount to “construction operations”.

89.  We reject the contention there was no commencement or completion of construction operations because no AP was appointed for the Subject Contract.  We agree with Mr Chan while section 66(2) requires the employer in a construction operation to appoint a person to perform the functions of an AP (if no AP is appointed under section 4 of the Buildings Ordinance), nothing in CICO suggests that whether an appointment is in fact made determines (1) whether there is a relevant completion of a construction operation under section 40, or (2) whether there is any “construction operation” to begin with.

90.  Neither section 34 nor 36 provides there can be no commencement or completion of a construction operation absent an appointment required by section 66(2).  In addition, section 40(1) expressly enables CIC to assess the amount of levy notwithstanding that neither a notice of payment (under section 35^[64]) nor a notice of completion (under section 36) has been given to CIC.

91.  As for the contention that the fact that an AP was not appointed for the Subject Contract should constitute strong evidence that lift maintenance work is not within “construction operations”, thereby confining “construction operations” to work that requires the appointment of an AP, we agree with the judge this is not supported by the plain meaning of the text^[65]. As put succinctly by Mr Chan, the failure to appoint an AP under section 66 does not disqualify an operation from being a “construction operation” if it otherwise falls within the definition in Schedule 1.  Whether CIC could issue the Payment Notice under section 40 does not depend on whether MTRC complied with section 66(2).  The judge is right not to come to a conclusion if there was compliance with section 66(2) in this case. 

92.  We do not think it relevant to have regard to industry practice on the appointment of AP, quite apart from the fact that this was not KONE’s contention in the appeal heard by the judge^[66].  

Ground 3: meaning of “stage or part of any construction operations” in section 40(1)

93.  KONE’s contention is that the judge failed to have regard to the special meaning of “stage” or “part” in construction industry.  He erred in law to hold that the meaning of “stage” or “part” of any construction operations should be “portion or division of a whole” by referring to the ordinary dictionary meanings^[67]. As a result, he fell into error in rejecting the contention that section 40(1) is inapplicable or that there was no completion of construction operations in this case.

94.  KONE relied on the expert opinion of Mr Chan^[68], who was regarded as an industry expert.  Mr Chan explained in his report the industry practice of stage or part assessments or payments.  For new build and addition and alteration works (“A&A Works”), it is common practice for interim payments to be made to contractors, dependent on completion of works identified in the bills of quantities, ie the completion of the stage or part of the construction operation, and an independent professional is engaged to perform valuation of the stage or part as completed.  This practice does not apply to monthly payment of maintenance fee in the lift and escalator industry. Contracts for periodic maintenance of lifts and escalators are not quantified by using bills of quantities.  Maintenance work is outcome-based and is a continuing duty during the period of engagement.  Maintenance works are not “stage” sensitive or “part” sensitive as understood in the construction industry.  Mr Chan therefore opined that section 40(1), which adopts the phrases “stage or part of any construction operations” and “the completion of … the stage or part of the construction operations”, has no application to periodic maintenance fee for lifts and escalators.  Mr Chan was not cross-examined and no evidence was adduced by CIC to contradict him.

95.  Ms Eu submitted that the judge was wrong to disregard Mr Chan’s evidence, because industry practice is an important context in the interpretation of CICO, particularly when the levy scheme and assessment of payment are premised upon industry practice and the levy is for the benefit of the industry.  Further, if Mr Chan’s evidence is disputed, CIC should at least have applied to cross-examine him and KONE would be alerted and given a chance to respond^[69], especially when the burden of proving the levy is on CIC.

96.  The words “stage” and “part” are not terms of art or technical expressions.  Questions of construction, being matters of law and not of fact, belong exclusively to the court, and the opinions of experts thereon are inadmissible.  It is where the words have a special or technical meaning that expert testimony is admissible^[70].

97.  The judge has considered the evidence of Mr Chan as summarised above.  He did not think that evidence has proved the words “stage” and “part” should have a technical meaning in this context.  He did not consider Mr Chan may legitimately employ the experience in new build and A&A Works to rule out other means of dividing operations of a different nature (such as maintenance of lifts and escalators) into stages or parts^[71]. We are inclined to agree with the judge.  There is no reason why these words in the context of section 40(1) should not be understood in the common language and bear the meaning of division of a whole.  The additional authorities cited by Ms Eu^[72] on completion of work in specific stages in building contracts do not alter the position.

98.  Applying the ordinary meaning of these words, the judge noted whilst there may not be any bills of quantities in this case, the work covered by the Subject Contract is clearly broken down with reference to time periods.  As evidenced by the MTRC Certificate and confirmed by KONE, monthly payments were in fact made through effluxion of time^[73].  It is not known if there was any mechanism involving professionals to validate the work done by KONE under the Subject Contract as KONE refused to adduce the contract in evidence.  The judge found on KONE’s evidence^[74] that completion is judged solely by effluxion of time according to the terms of the Subject Contract^[75]. The judge is plainly right to reject the contention there was no completion in this case.

99.  KONE’s complaint that it should be alerted and given opportunity to respond if the judge did not accept Mr Chan’s evidence that a technical meaning should be given to the words is not justified, for the reasons given in the Leave Decision at §§46 to 50, with which we agree.  There was no unfairness to KONE.

Ground 4: whether items 1.1.2, 1.2.2 and 1.5 within scope of levy

100.  The judge held that these items (1.1.2 (Full Load Test), 1.2.2 (Fully Load Test) and part of 1.5 (Variation Orders)) were “integral parts of the maintenance work” (within section 1(g))^[76] or were for the “supply and installation of fittings or equipment in … structures forming part of land, including … lift or escalator …” (within section 1(d))^[77] and are subject to levy.

101.  The point taken here is that the judge wrongly placed the onus on KONE to convince him that those items of work did not amount to “construction operations”, when the onus should be on CIC to show why levy should be charged.  It is further contended that KONE has discharged its evidential burden and adduced evidence in the witness statement of Mr Wong why those items did not amount to “construction operations” as they were not attributable to the repair and maintenance of lifts and escalators^[78]. The judge was wrong to assume the role of an expert and find against KONE when CIC had not cross-examined KONE’s witness, nor adduced contrary evidence.  KONE also complained it was not given opportunity to explain further in cross-examination or to rebut any misunderstanding that the judge might have, and this was unfair to KONE.

102.  The above contentions are without merit.

103.  The judge has made clear that his findings did not turn on the burden of proof.  His decision and findings are based on the evidence, not by reference to burden of proof^[79]. The MTRC Certificate is prima facie evidence of the construction operations and its value.  It behoves KONE to articulate its objections clearly with the necessary evidence^[80]. The judge has scrutinised carefully the witness statement of Mr Wong and the documents he adduced, and given detailed analysis why he did not think KONE has discharged its evidential burden in light of deficiencies in the evidence^[81]. As rightly stated by the judge, it did not take an expert to realise the deficiencies in Mr Wong’s evidence.

104.  There was no procedural unfairness to KONE, for the reasons explained by the judge^[82]. KONE chose merely to rely on Mr Wong’s statement without calling him to elaborate and address the objections taken by CIC despite having been forewarned of the objections.

Conclusion

105.  We dismiss KONE’s appeal against the Judgment.  There is no dispute that costs of the appeal should follow the event.  We order KONE to pay CIC’s costs of this appeal, with a certificate for two counsel.

[1] [2023] HKDC 1216

[2] Unless otherwise stated, all references to statutory provisions in this judgment are to CICO.

[3] [2024] HKDC 365

[4] [2024] HKCA 1124 (Hon Poon CJHC and Au JA)

[5] With Mr Yeung Ming Tai

[6] With Mr Harrison Cheung and Mr John Leung in this appeal

[7] 1^st affirmation of Kwok Piu Sing Patrick (Manager – Finance of CIC) dated 7 February 2023, §3.

[8] Construction operations with a total value not exceeding $3 million are currently exempted from the levy, CICO section 32(3) and Schedule 5 Part 1.

[9] 2^nd affirmation of Lau Sin Yan (Senior Manager, Contracts of KONE) dated 3 March 2023, §§10 to 13.  There was one instance in September 2011 when KONE did pay the levy on a maintenance contract. KONE claimed it was due to mistake and the payment of levy was made under express protest and that it adopted a “commercial and pragmatic approach” due to the small amount of the levy at $7,730.

[10] Judgment, §86; Leave Decision, §63

[11] There were two types of levy demanded under the Payment Notice – the levy under CICO (s 32(1)) and the levy under Cap 583.  The judge ruled that an assessment under Cap 583 may form the subject matter of an appeal to the District Court under section 57(1) and KONE had objected to the whole Payment Notice including the Cap 583 assessment.  However, no argument was advanced by KONE pertaining solely to Cap 583.  See Judgment at §§13 to 17.

[12] Maintenance Director of KONE

[13] The draft minutes of the meeting of the Board on 27 September 2022 were disclosed by CIC to KONE in these proceedings, to counter KONE’s allegation of apparent bias of the Board.  This allegation was not pursued in the course of the hearing of the appeal in the District Court.

[14] Judgment, §§20 and 21

[15] Judgment, §50

[16] Judgment, §§62 to 75

[17] Judgment, §§76 to 89

[18] Judgment, §§90 to 110

[19] Judgment, §§113 to 137

[20] The arguments on appeal are essentially a rehash of KONE’s arguments in the appeal before the judge.  The judge set out in a table at §7 of the Leave Decision the discussions in the Judgment corresponding to the repeated arguments.  The Leave Decision only focused on new or supplemental arguments of KONE.

[21] In granting leave to appeal on this ground, the Court of Appeal refused to allow KONE to raise new points without evidential basis (that items 1.1.2 and 1.2.2 were related to advice or consultation, that item 1.5 was related to MTRC’s ordinary management or marketing) due to considerations in Flywin v Strong & Associates Ltd (2002) 5 HKCFAR 356 at §38.  See Leave Decision §§57 to 63, and decision of the Court of Appeal [2024] HKCA 1124 §9.

[22] LC Paper No CB(2)2557/01-02(03) dated July 2002 by the Education and Manpower Bureau (“EMB”) to the LegCo Panel on Manpower entitled “Extension of Construction Industry Levy to Cover Electrical and Mechanical Works in the Construction Industry”.

[23] Housing Grants, Construction and Regeneration Act 1996 (“1996 Act”), section 105. See LC Paper No CB(2)129/03-04(01) dated October 2003 by the EMB, being the Administration’s Responses to the submission from the Hong Kong Construction Association, item 1 Definition of “construction operations”.

[24] Judgment, §31

[25] Quoted in the Judgment at §23

[26] Judgment, §§101(b), 103

[27] Judgment, §103; Leave Decision, §16

[28] Judgment, §103

[29] Judgment, §§117, 126, 129, 130, 131, 132

[30] Citing Re Sng Allan, ex p Orient Securities (Hong Kong) Ltd [2021] HKCA 1847 at §15(4)

[31] Citing HKSAR v KONE Elevators (HK) Ltd [2023] 2 HKLRD 1548 at §34

[32] Judgment, §§104 to 107

[33] Grounds for Objection dated 13 July 2022, §§16 to 20

[34] Judgment, §102(c)

[35] Leave Decision, §14

[36] Judgment, §96

[37] Judgment, §97

[38] Judgment, §98

[39] Leave Decision, §18

[40] Judgment, §99

[41] One of the courses provided in 2026 is “Certificate of Enhancement in Mechanical Maintenance, Repair & Installation of Builder’s Lift”.

[42] 2002 LegCo Paper §12 is of similar effect.

[43] Section 6 of the Bill in 2003 which amended section 6(1) of ITCIO (general powers of CITA) by adding a provision to allow CITA to “engage the services of other bodies to perform any of its functions under section 5(a) and (e)”.  For provisions to similar effect in CICO, see sections 6(a) and (b) (supplementary functions of CIC), 7(1), (2)(e)(f)(n)(o)(p) (powers of CIC), 16 (delegation of CIC’s functions).

[44] Bennion, Bailey and Norbury on Statutory Interpretation (8^th ed), §21.4; cited in the Judgment at §103.

[45] Judgment, §103; Leave Decision, §16

[46] It is not correct (as submitted by KONE) that the construction approach in Nottingham was not followed by Judge Richard Havery QC in Staveley Industries Plc v Odebrecht Oil & Gas Services Ltd, No HT01/052, 28 February 2001, Lexis Transcripts.  See Staveley at §5: “Mr Rowlands submitted that the subcontract work fell within both para (a) and para (c) of section 105(1) of the Act.  There was, in my judgment rightly, no dispute that the inclusion of an operation within one of those paragraphs does not preclude it from inclusion in the other.”  It was held that the Act does not extend to shipbuilding and the fittings to be founded in the sea bed did not fall within para (a) or (c) as they would not form “part of the land” under para (a) or (c).  

[47] Section 105(1) reads: “In this Part ‘construction operations’ means, subject as follows, operations of any of the following descriptions – (a) construction, alteration, repair, maintenance, extension, demolition or dismantling of buildings, or structures forming, or to form, part of the land (whether permanent or not); … (c) installation in any building or structure of fittings forming part of the land, including (without prejudice to the foregoing) systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection, or security or communications systems…”.

[48] At §§13 to 21

[49] Leave Decision, §20

[50] Judgment, §103

[51] Sections 9, 13, 15, 21, 28, 43, 45, 46, 52, 58

[52] Judgment, §§87 to 89

[53] KONE is an RC but not an AP defined in section 2 of the Buildings Ordinance.

[54] Leave Decision, §§32 to 44

[55] Leave Decision, footnote 17: who was the RC for the Subject Contract?  What were his functions?  What were the contractual requirements?

[56] Leave Decision, §§29 to 30, 43

[57] Citing Buildings Ordinance section 4(3); Leave Decision, §37

[58] Citing Buildings Ordinance section 9

[59] Citing Affluent Construction Co Ltd v Yu Cheung Yin [2018] HKCFI 1452 at §§29 to 31; Leave Decision, §38

[60] Technical Memorandum for Supervision Plans 2009 published by the Buildings Department, §§5.1.4, 6.7, 8.1

[61] Section 34 requires the contractor and the AP to inform CIC of their roles, and state the estimated total value of the operation.

[62] Section 36 provides for notice to be given to CIC after completion of the construction operation or each stage thereof, and to state the value of the completed operation or stage.

[63] Judgment, §88

[64] Section 35 requires the contractor to give notice to CIC if payment is made to or for its benefit in respect of any construction operation or any stage or part of any construction operation.

[65] Leave Decision, §44

[66] Leave Decision, §31

[67] Judgment, §85

[68] The main thrust of his evidence is summarised in the Judgment, §79.

[69] Citing TUI UK Ltd v Griffiths [2023] UKSC 48 at §§70, 75

[70] Phipson on Evidence (20^th ed), §33-107; Judgment, §80

[71] Judgment, §82

[72] Emden’s Construction Law Hong Kong (Issue 22, 2022), §§154, 202; Spencer v Thorpe, 20 January 1982, Court of Appeal, England, unreported

[73] Judgment, §84

[74] 1^st affirmation of Lau Sin Yan dated 29 November 2022, §20 on the Subject Contract: “KONE is engaged to perform periodic maintenance on a monthly basis and is paid a monthly fee through effluxion of time.  To illustrate, if part of the tasks designated to be carried out during a particular month was not in fact carried out due to technical or emergency or other reasons, such work would not be considered as ‘completed’ for that month, and yet KONE would still receive monthly maintenance fee in full.”

[75] Judgment, §86

[76] Judgment, §§111, 112, 117, 120, 124, 126, 129, 130, 131

[77] Judgment, §§133 to 136

[78] Judgment, §119

[79] Judgment, §§55, 58; Leave Decision, §52

[80] Judgment, §§60, 74, 75, 120

[81] Judgment, §§120, 122 to 124, 125 to 127, 128 to 132; Leave Decision, §§54, 56

[82] Leave Decision, §55