THE INCORPORATED OWNERS OF KADOORIE AVENUE MANSION v. RISING DRAGON INTERNATIONAL LTD

LDBM 201/2013

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO 201 OF 2013

________________

___________________

D E C I S I O N

___________________

1.  This is the interlocutory application of the respondent to stay the proceedings in this case pending the final determination of another case (LDBM 202/2013).

Background

2.  The respondent is the owner of Flat 10A and Main Roof A (“the roof”) of Kadoorie Avenue Mansion (“the estate”).  It is common ground that the respondent has placed antennas and radio based stations (“RBS”) on the roof.

3.  The owners of the estate resolved, at an extraordinary general meeting held on 23 May 2013, to commence legal proceedings against the respondent in the name of The Incorporated Owners of Kadoorie Avenue Mansion (ie the applicant) for an injunction to compel the removal of those antennas and RBS.

4.  On 17 July 2013, the applicant commenced this case through a firm of solicitors Chan and Tsu (“C&T”).  According to its pleaded case, part of the antennas and RBS rested on the common parts of the estate.  The installation was without the prior written consent of the applicant and the requisite Government approval and the respondent was in breach of the applicable deed of mutual covenants (“DMC”), section 34I of the Building Management Ordinance (“BMO”) and the conditions of exchange for the grant of the Government Lease respecting the estate.  It was also alleged that the antennas and RBS constituted a nuisance to the owners and residents of the estate. 

5.  In about the same time, the respondent commenced LDBM 202/2013 against the applicant for a declaration that the applicant ought to have complied with section 20A of the BMO and the Code of Practice on Procurement of Supplies, Goods & Services (“Code of Practice”) before instructing C&T and for an injunction restraining the applicant from appointing any firm of solicitors to pursue against the respondent in respect of the antennas and RBS without due compliance.

6.  The respondent has yet to file a Notice of Opposition in this case.  Its counsel (Mr Houghton SC leading Mr Chong) highlighted in their submission the defences canvassed in the affidavit of the respondent’s director (Mr Andrew Lee), which include:

(a)   the respondent has not committed any breach or nuisance;

(b)     there was a settlement reached in 2004 so much so that the respondent should be entitled to install the antennas and RBS on the roof;

(c)   the applicant has not come with clean hands as it has turned a blind eye to other breaches in the estate; and

(d)     there has been delay and laches on the part of the applicant in pursuing against the respondent.

7.  In his affidavit, Mr Lee referred to the following record in the minutes of the meeting of the applicant’s management committee held on 18 January 2013:

“Moreover, IO intends to take legal action to the existing installation of antenna at rooftop A. Lawyer Tsu commented that it was justified to take legal proceedings, and the cost would be under HK$400,000. If IO won the lawsuit, the cost would absorbed by the other side, and 90%-100% cost would receive normally. Moreover, the legal proceedings could be stop anytime if the relative owner agreed to remove antennas.”

He complained that as C&T’s fees would likely exceed $200,000, the applicant had been in breach of section 20A and the Code of Practice in engaging C&T without a tender.

8.  In an affirmation filed in opposition to this stay application, the applicant’s chairman (Mr Jerry Chan) did not deny the fact that there had been no tender.  He said that:

“Given the stance and attitude of the Respondent in these proceedings and the commencement by it of the LDBM202 Case and the legal costs that are likely to incur by reason thereof, I have discussed with other members of the Management Committee and we are considering calling for another Extra-ordinary General Meeting of the Applicant to consider and resolve (if thought fit) to engage and to confirm to engage C&T in further conduct of the present proceedings and the LDBM202 Case in the manner the Management Committee shall from time to time see fit.”

9.  He also stated that the respondent’s unit had been used by Mr Andrew Lee’s family since the 1970s.  The respondent began placing antennas and RBS on the roof in about 1995 when Mr Lee’s father was the chairman of the applicant.  Mr Lee himself as well as his brother had also been vice-chairman.  Mr Chan said he had gone through past minutes of the applicant but could not find any authorization for the antennas and RBS in question.  He estimated that the respondent had been deriving an income of $180,000 each month from such installations. 

Discussion

10.  Mr Houghton’s submission contained two strands.  First, he addressed me on the legislative intention behind section 20A making references to the proceedings in the Legislative Council and the Court of Appeal decision in Wong Tak Keung Stanley v The Management Committee of the Incorporated of Grenville House. [1]  Secondly, he submitted on case management.  He said that LDBM 202/2013 was relatively simple and its determination should be quick whereas this case might turn out to be an expensive litigation.  He said it was desirable from the point of view of case management to have LDBM 202/2013 determined first.

11.  Mr Houghton accepted that whether the applicant had been in breach and what should flow from such non-compliance should be determined in LDBM 202/2012 and he was not pressing for an answer here.  For the purpose of this argument (and see further below), I shall take the respondent’s case to its highest and assume (without deciding) that there has been non-compliance on the part of the applicant.  Nonetheless, it would be helpful to outline the effect of non-compliance so as to put the argument in context.

12.  Section 20A provides that:

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

(2) Subject to subsection (2A), any supplies, goods or services referred to in subsection (1) the value of which exceeds or is likely to exceed—

(a) the sum of $200000 or such other sum in substitution therefor as the Authority may specify by notice in the Gazette; or

(b) a sum which is equivalent to 20% of the annual budget of the corporation or such other percentage in substitution therefor as the Authority may specify by notice in the Gazette,

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

…

(2B) Where any supplies, goods or services are required under subsection (2)(b) to be procured by invitation to tender, whether a tender submitted for the purpose is accepted or not shall be decided by a resolution of the owners passed at a general meeting of the corporation.

…

(5) A contract for the procurement of any supplies, goods or services shall not be void by reason only that it does not comply with subsection (1).

(6) Where any supplies, goods or services are required under subsection (2) to be procured by invitation to tender, a contract for the procurement of the supplies, goods or services which does not comply with subsection (2) or (2B)—

(a) subject to any resolution passed by the corporation under paragraph (b) or any order made by the court under subsection (7), shall not be void by reason only that it does not comply with subsection (2) or (2B);

(b) subject to any order made by the court under subsection (7), may be avoided by the corporation by a resolution of the owners passed at a general meeting of the corporation but only for the reason that it does not comply with subsection (2) or (2B).

(7) In any legal proceedings in relation to a contract for the procurement of any supplies, goods or services to which subsection (2) or (2B) applies, the court may make such orders (including whether the contract is void or voidable) and give such directions in respect of the rights and obligations of the contractual parties as the court thinks fit having regard to all the circumstances of the case, including (but not limited to) the following factors—

(a) whether the supplies, goods or services have been procured by invitation to tender;

(b) whether a general meeting of the corporation has been convened to consider the procurement of the supplies, goods or services;

(c) whether the Code of Practice referred to in subsection (1) has been complied with;

(d) whether the contract has been split, for the sole purpose of avoiding the compliance of the requirements in subsection (2) or (2B), from a contract which should have been made for the procurement of supplies, goods or services of greater value;

(e) whether the supplies, goods or services were urgently required;

(f) the progress of any activities or works in relation to the supplies, goods or services;

(g) whether the owners have benefited from the contract;

(h) whether the owners have incurred any financial loss due to the contract and the extent thereof;

(i) whether the supplier of the supplies, goods or services under the contract has acted in good faith;

(j) whether the supplier of the supplies, goods or services under the contract has benefited from the contract; and

(k) whether the supplier of the supplies, goods or services under the contract has incurred any financial loss due to the contract and the extent thereof.

(8) For the purposes of subsection (7), where the court makes an order that the contract is voidable at the instance of the corporation, it shall also make an order that a general meeting of the corporation be convened and held in such manner as the court thinks fit, so as to decide whether the contract is to be avoided.

(9)    For the avoidance of doubt, subject to section 29A, any person who enters into a contract for the procurement of any supplies, goods or services otherwise than in compliance with subsection (2) or, if applicable, subsection (2B) may be personally liable for any claims arising from the contract.”

13.  The Code of Practice, issued by the Secretary for Home Affairs under section 44(1)(a) of the BMO, contains an elaborate procedure for the tender exercise.

14.  In The Incorporated Owners of Jet Foil Mansion v Ying Kong Company Limited, [2] HH Judge Leung (as he then was) noted that section 20A had been amended since the Court of Appeal decision in The Incorporated Owners of Hip Wo House v Gallant King Development Limited[3] and said that:

“24. The current subsection (5) made clear that a contract shall not be void by reason only that it does not comply with subsection (1). The current subsection (6) made clear that a contract shall not be void by reason only that it does not comply with subsection (2) or (2B), unless the owners resolve at a general meeting to avoid it for that reason or the court orders otherwise under subsection (7).

25.   Under subsection (7), the court retains the discretion to still order whether the contract is void or voidable.  The court is expressly required to have regard to all the circumstances of the case including but not limited to the factors listed thereunder…”

15.  Thus, non-compliance per se does not automatically render the underlying procurement contract void but the owners may choose to avoid the contract.  The court also has the power to declare the contract void or voidable and, in the latter case, will call an owners’ meeting for the owners to decide.  Those who enter into a procurement contract without complying with section 20A and the Code of Practice may incur personal liability.

16.  Although Mr Houghton initially submitted that the result of LDBM 202/2013 would affect the validity of the proceedings here, he later clarified that the main plank of his argument was on case management.  He said that by mandating LDBM 202/2013 to go first, it would:

(a)   minimise the possibility of any satellite litigation or application on wasted costs;

(b)     clarify the position of the owners respecting C&T’s fees which could be substantial; and

(c)   make better use of judicial resources (eg avoid clash of diaries and duplication of evidence).

17.  In my view, the proceedings herein and the engagement of C&T are quite separate matters.  The applicant is under a positive duty to maintain the common parts of the estate and to do all things reasonably necessary for the enforcement of the obligations contained in the DMC for the control, management and administration of the estate: see section 18(1) of BMO.  It is the applicant’s case that the respondent is in breach of DMC and that part of the antennas and RBS rested on the common parts of the estate affecting the maintenance and repair of water pipes: see §16 of the Notice of Application.  The owners have resolved to pursue against the respondent in respect of the antennas and RBS.  The respondent does not challenge the resolution and the applicant is bound by it: see section 14(1) of BMO.  The Notice of Application in this case was confirmed by a statement of truth signed by Mr Chan as the chairman of the applicant.  The applicant could have commenced this case and proceeded with it with or without legal representation. 

18.  In the course of argument, Mr Houghton contended that if C&T’s engagement was subsequently avoided by the owners or declared void in LDBM 202/2012, that might create uncertainties over the proceedings here.  By way of example, he said that the validity of any service effected through C&T might become doubtful.  I do not agree. 

19.  Mr Houghton provided no authority in support of his contention.  The respondent is entitled, under rule 7(1)(a) of the Lands Tribunal Rules, to serve documents on the applicant via C&T for as long as C&T remains the applicant’s solicitors on the record.  No case has been made out that, taking the respondent’s contention to its highest, the outcome of LDBM 202/2013 might invalidate any of the proceedings here.

20.  This Tribunal certainly has the case management power to stay proceedings: see Order 1B, rule 1(2)(e) of the Rules of the High Court. [4] But that is discretionary and, in deciding whether to exercise the discretion, I should seek to give effect to the underlying objectives of the rules: see Order 1A, rule 2. 

21.  In my view, an order staying the proceedings here would not dissuade others from pursuing wasted costs.  There is no clear saving of judicial resources.

22.  Both parties seek to enforce the BMO against the other in their respective applications.  Majority of the owners of the estate have resolved to pursue against the respondent. They are entitled to expect this case to proceed as expeditiously as is reasonably practicable: see Order 1A, rule 1(b).  Any order staying this case will mean delay in bringing a close to the dispute on the antennas and RBS and the alleged nuisance.  Mr Houghton has accepted that the issues in these two cases are separate and distinct.  There is no obvious reason, whether as a matter of law or procedure, why the progress of this case should be dictated by the respondent’s case.  Imposing a stay in such circumstances will, in my view, instill a sense of injustice in the owners and is inconsistent with Order 1A, rule 1(d) (ie to ensure fairness between the parties). 

Conclusion

23.  There is no merit in the application and, for the reasons mentioned above, I dismiss the respondent’s summons.

24.  Before leaving the matter, I should mention two things.

25.  First,I find the waythe argument was presented unsettling.

26.  The sole basis for the stay application has always been the applicant’s failure to tender before engaging C&T – something that is required by the law. 

27.  There is no reference to any or any attempted compliance on the part of the applicant in the evidence or in the skeleton submissions. 

28.  In his written submission lodged for this hearing, Mr Houghton made the point that:

“25. In this case, there is no reason why the IO should not follow the law. They have been warned about the statutory procurement requirements as early as in June 2013. A tender exercise could have been easily carried out, and would properly take only one week to do so. There is no explanation why it was not done at all, or why they so insist only C&T can represent the IO.

…

28. As submitted above, there is no evidence before the court that the IO have formally appointed C&T, a fact which has been accepted by the IO. Therefore, C&T simply cannot act for the IO…

…

34.   The pragmatic and speedy solution is that the court should order the IO to convene a general meeting to consider whether the purported appointment of C&T should or should not be avoided with directions that the management committee should fully and frankly disclose to the owners of all relevant documents and information concerning the present litigation including the costs incurred thus far.”

29.  His oral submission was in the same vein.  That prompted Mr Tsu (solicitor for the applicant) to retort, when it came to his turn to address me, that an extraordinary meeting had in fact been held on 12 September 2013 in which the owners had considered several quotations and resolved to engage C&T.

30.  I was surprised that no one had seen fit to mention this earlier leaving the court with the impression that the applicant had somehow refused to comply with the law.

31.  Mr Houghton reassured me he had no intention of misleading the court.  He said that, this being an inter-partes application, there was no duty on either party to be full and frank.  He also took the view that the meeting had not been validly held so much so that the resolution should be invalid.  He submitted that no one would be prejudiced as those feeling aggrieved could apply to uplift the stay right away. 

32.  Surprisingly, Mr Tsu said he would not be relying on the latest development either.  He took the view that the resolution, being subsequent to the engagement of his firm, was irrelevant.  He was happy to proceed with the argument on the basis that there had been non-compliance on the part of his client.  At one stage, he even tried to find excuses in the order dated 15 August 2013 (which required leave for the filing of further affidavit) for not apprising the court of the latest development. 

33.  Given the stance adopted by the parties and the fact that there is no proper evidence on the recent meeting and resolution, I have proceeded on the basis that the applicant has failed to comply with the law.  However, the way the argument was presented does leave a bad taste in my mouth. 

34.  The fact that the applicant may have purged its failure and the fact that the owners may have approved C&T’s engagement are certainly relevant.  Had the respondent been serious about its application, it should have ensured that there is proper factual basis for a stay not only at the time of the application but also at the time of this hearing.  It would have been necessary for the respondent to deal with the fact that the applicant might have belatedly complied with section 20A.  If the owners have indeed approved the appointment, then there is no risk that C&T’s engagement may subsequently be avoided, and the resolution would provide a basis for C&T to charge its fees.  It has been a month since the meeting and the parties could have applied for leave to put in evidence to update the court on this important development.

35.  Secondly, Mr Tsu was quite unable to explain the applicant’s failure to comply with section 20A in the first place.  At one stage, he suggested that the applicant might have thought that it needed not follow the procedure.  The Court of Appeal has said in Wong Tak Keung Stanley with reference to section 20A(2) that: “When a statute declares that a thing ‘shall’ be done, the natural and proper meaning is that a peremptory mandate is enjoined.”[5] The Code of Practice begins by reiterating that all owners’ corporations shall comply with the code and section 20A.  So, compliance is mandatory and a statutory duty on the part of owners’ corporations.  The BMO is the very fabric that connects an owners’ corporation and its owners.  It would not be consistent for an owners’ corporation to, on the one hand, insist that its owners should comply with the law when, on the other hand, it is trying to shed its statutory duties.  And it would be unprofessional for any lawyer to advise or encourage his client to act in breach of section 20A and the Code of Practice.

36.  I am entitled to take into account the conduct of the parties when it comes to costs: see Order 62, rule 5.  The present application is premised on the applicant’s non-compliance which is not disputed for the purpose of the argument.  I make a costs order nisi that there be no order as to the costs of the summons. Unless an application is made to vary it, the order nisi shall become absolute 14 days after this decision is handed down.