WONG TAK MAN STEPHEN v. CHANG CHING WAI AND ANOTHER

HCMP 2430/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2430 OF 2016

________________________

________________________

_____________

JUDGMENT

_____________

A. INTRODUCTION

1.  This case concerns the proper construction of section 34 of the Building Management Ordinance (Cap 344) (“BMO”). 

2.  As far as I am aware, the provision is unique in Hong Kong and there is no direct authority on the point.  The issue was touched upon in Re Incorporated Owners of Foremost Building [2005] 3 HKLRD 509 (per Kwan J (as she then was) at paras 38 – 46), but was left open by the Court.  Hence, this case is the first one to decide the issue.

B. BACKGROUND

3.  The Plaintiffs are the joint and several liquidators of the Incorporated Owners (the “IO”) of Nos 6, 6A, 6B, 8, 10, 12, 14 and 16 Wing Kwong Street (the “Building”).

4.  The 1^st Defendant and the 2^nd Defendant (who is the father of the 1^st Defendant) are two of the owners of the Building.

5.  The IO was registered on 2 May 2000 under the BMO. 

6.  Between 2007 and 2009, the IO engaged Chi Fu Construction Company (“Chi Fu”) to perform refurbishment work of the Building (the “Refurbishment Work”). 

7.  Later, Chi Fu brought a claim in HCA 1286/2009 for the outstanding payment of the Refurbishment Work, and obtained a default judgment in the sum of HK$1,143,567.50, together with interest and costs, against the IO (the “Judgment Debt”).  

8.  On 9 November 2009, a winding‑up petition was presented in HCCW 663/2009 against the IO on the basis of the Judgment Debt.

9.  On 13 January 2010, the IO was ordered to be wound up under the then Companies Ordinance (Cap 32) and the BMO.

10.  As at the date when the Originating Summons in these proceedings was issued (ie 13 September 2016), the debts and liabilities due from the IO was HK$4,477,546.34; whereas the amount of cash available to settle such debts and liabilities was only HK$827,613.57.  Hence, there was a shortfall in the sum of HK$3,649,932.77[1].

11.  In order to settle the said debts and liabilities, the Plaintiffs have previously taken various steps to recoup contributions from the owners of the Building.  For the present purposes, it is unnecessary to go into the details of such steps.  Suffices it to say, a substantial number of the owners of the Building (including the 1^st and 2^nd Defendants) have failed to make their contributions to the Refurbishment Work and/or the contingency fund set up by the Plaintiffs with leave of the court.

12.  By an order made by Harris J on 10 November 2015 in HCCW 663/2009, the Plaintiffs were granted leave to commence legal actions and enforce judgments against each and every owner of the Building for contributing to the assets of the IO to an amount sufficient to discharge its debts and liabilities.

13.  Pursuant to the leave granted by Harris J, the Plaintiffs issued the Originating Summons in these proceedings against the 1^st and 2^nd Defendants seeking the following relief:

(1) a declaration that the 1^st and 2^nd Defendants shall be jointly and severally liable for all debts and liabilities of the IO; and

(2) an order that the 1^st and 2^nd Defendants do pay the sum of HK$3,649,932.77 to the Plaintiff.

C. THE PARTIES’ RESPECTIVE SUBMISSIONS

14.  BMO section 34 provides that:

“In the winding up of a corporation under section 33, the owners shall be liable, both jointly and severally, to contribute, according to their respective shares, to the assets of the corporation to an amount sufficient to discharge its debts and liabilities.”

15.  Dr William Wong SC (leading Mr Tommy Cheung) submits on behalf of the Plaintiffs that on the proper interpretation of BMO section 34, each of the owners are jointly and severally liable for the corporation’s debts and liabilities, and that he/she can then seek contribution from the other owners of the building.  The reasons given by Dr Wong in support of his submission will be discussed below.

16.  As far as the 1^st and 2^nd Defendants are concerned, only the 1^st Defendant appeared before me in person.  According to the 1^st Defendant, his father (ie the 2^nd Defendant) is of advanced age and cannot appear in court.

17.  The 1st Defendant does not make any submission on the interpretation of BMO section 34. He simply stresses that neither he nor the 2^nd Defendant should be held liable where the provision itself is ambiguous.  He further questions the sum payable for the Refurbishment Work and the apportionment of such sum amongst the owners of the Building.

18.  I will first deal with the issue concerning the proper interpretation of BMO section 34, before moving on to deal with the issue of quantum (if I may so describe it) raised by the 1^st Defendant.

D. INTERPRETATION OF BMO SECTION 34

D1. Approach

19.  The correct approach in statutory interpretation is laid down by the Court of Final Appeal in HKSARvCheung Kwun Yin (2009) 12 HKCFAR 568 (at paras 11 – 14). 

20.  In summary, the court’s task in interpreting a statute is to engage in the objective exercise of ascertaining the intention of the legislature as expressed in the language of the statute.  The modern approach is to adopt a purposive interpretation, ie the statutory language is construed, having regard to its context and purpose.  The context of a statutory provision should be taken in its widest sense and includes the other provisions of the statute and the existing state of the law. 

21.  Dr Wong draws my attention to various principles of statutory interpretation set out in leading texts of Bennion on Statutory Interpretation (6^th ed) and Craies on Legislation (11^th ed).  I do not find it necessary to set out all of those principles in full, other than stressing that an ordinance should be read as a whole (Bennion at p 1030), and the court assumes that every word used by the legislature is intended to have meaning and legislative effect (Craies at pp 782 – 783).

D2. Two possible interpretations

22.  The question concerning the meaning and effect of BMO section 34 was touched upon in Re Incorporated Owners of Foremost Building.  Kwan J (at para 38) of her reasons for decision succinctly summarizes the two possible and mutually exclusive interpretations of section 34:

(1) The section allows the owners to be pursued individually, but only to the extent of his proportionate ownership of the shares in the building; or

(2) The owners are jointly and severally liable for all of the corporation’s debts and liabilities, and may be pursued individually for the whole amount.  They then have the right to sue each other for contribution so that at the end of the day, they have only paid a proportion of the liability equivalent to their shares in the building.

23.  As astutely pointed out by Kwan J (at para 39), the difference between the two interpretations lies in where the risk of non‑payment falls. Interpretation (1) effectively reads out the reference to “joint and several” liability, so the risk of some owners not contributing to the corporation’s debts would lie with the creditors of the corporation.  On the other hand, interpretation (2) ignores the limitation imposed on liability “according to [the owners’] shares”, so the risk of some owners not contributing would lie with their co‑owners.

24.  Dr Wong submits that interpretation (2) represents the correct interpretation of the meaning and effect of BMO section 34.  For the reasons explained below, I agree with his submissions.

D3. Analysis

25.  As a starting point, it is important to note the legislative background of the current BMO section 34.

26.  BMO section 34 was enacted in 1993 to replace the old section 34 of the Multi‑Storey Buildings (Owners Incorporation) Ordinance, which read as follows:

“In the winding up of a corporation under section 33, the owners shall be liable to contribute, according to their respective shares, to the assets of the corporation to an amount sufficient to discharge its debts and liabilities.”

27.  Although he and his team cannot locate any legislative material to shed light on the purpose of the 1993 enactment, Dr Wong submits that the addition of the phrase “both jointly and severally” after the phrase “the owners shall be liable” evinces a clear intent to create a scheme of joint and several liability on the part of the owners.

28.  I agree with Dr Wong’s submission. 

29.  Under the old section 34, the liability of the owners to contribute to the assets of the corporation was quite clearly limited to their respective shares in the building.  The addition of the phrase “both jointly and severally”, in my view, must have intended to change the limit and extent of an owner’s liability under the old regime.

30.  I have considered whether the said phrase was added, as Kwan J put it in Re Incorporated Owners of Foremost Building(at para 38(1)), to “allow the owners to be pursued individually”.  I, however, have difficulty in accepting that to be the purpose of the enactment.  Under the old section 34, it was already envisaged that each owner’s liability would be different, depending upon his/her share in the building.  If each owner’s liability could be different, it must also have been envisaged in the old section 34 that an owner could be pursued “individually” in respect of his/her share of liability.

31.  I have also considered whether the interpretation advocated by the Plaintiffs would give rise to a situation where no effect is given to the phrase “according to [the owners’] shares” in the section.  In this regard, I accept Dr Wong’s submission that the said phrase does not denote limitation of an owner’s liability vis‑à‑vis the creditors of the corporation; rather, it seeks to spell out the contribution liabilities amongst the owners inter se.

32.  In addition to the above literal analysis, I also take the view that the Plaintiffs’ interpretation (ie interpretation (2)) is consistent with the meaning and effect of BMO section 17(1).

33.  BMO section 17(1) provides that:

“If a judgment is given or an order is made against a corporation, execution to enforce the judgment or order may issue –

(a) against any property of the corporation; or

(b) with leave of the tribunal, against any owner.”

34.  At this juncture, it is pertinent to note that regarding the enforcement against any owner of judgment made against a corporation, BMO section 17(1)(b) does not provide that the owner’s liability is limited to his/her share in the building.

35.  On the contrary, there are dicta in the Court of Final Appeal decision of Chi Kit Co Ltd & Anor v Lucky Health International Enterprise Ltd [2000] 2 HKLRD 503 supporting the proposition that the entire judgment made against the corporation can be enforced against a particular owner under BMO section 17(1)(b), leaving that owner to seek contribution from his/her co‑owners.

36.  The issue before the Court of Final Appeal in Chi Kit is whether a judgment entered against the incorporated owners of the building constituted a blot on title of the vendor’s property on the ground that such judgment could be enforced personally against the vendor (as one of the owners of the building) under BMO section 17(1)(b). 

37.  In discussing the issue, Litton PJ observes (at 512G–I) that:

“… The Lands Tribunal is empowered under s.17(1)(b) to give leave to enforce judgment against an owner who becomes owner after the date when the originality liability was incurred. The Tribunal’s discretion is wide. … Conceivably, there might be circumstances where it would be proper to give leave for a larger proportion or even the entire judgment to be executed against one owner, leaving it to that owner to seek contribution from his co‑owners.”

(emphasis added)

38.  Similarly, in the joint judgment of Bokhary PJ and Sir Anthony Mason NPJ, the learned judges also observe (at 514H–J) that:

“ The consequence of this interpretation is that the liability to meet a notice of contribution fixed by the management committee goes with the unit and is imposed upon the owner for the time being. The contribution liability, though proportionate to the share of the owner, has the potential to merge into a joint and several liability on a winding‑up for an amount sufficient to discharge the corporation’s liabilities. Moreover, there is the potential liability under s.17(1)(b) to suffer an execution for a judgment against the corporation. That liability is not expressedto be limited to the proportionate share of an individual owner.”

(emphasis added)

39.  The above dicta show that when a creditor seeks leave to execute a judgment against the corporation under BMO section 17(1)(b) against any owner, that owner’s liability is not limited to his/her proportionate share in the building.  A fortiori, where the corporation is wound up on the ground of it being unable to pay its debts, BMO section 34 could not have the effect of limiting or restricting an owner’s liability to his/her proportionate share; for otherwise, the creditors would be placed in a less advantageous position by putting the corporation into liquidation, which in my view simply cannot be right.

40.  This conveniently brings me to another argument of the Plaintiffs.  

41.  Dr Wong submits that where there is no corporation established under BMO, the owners of the building are jointly and severally liable for third party liabilities relating to the common parts: Merry, Building Management in Hong Kong (3^rd ed), para 8‑113.  Since a corporation established under BMO is to exercise such rights and perform such duties on behalf of the owners, there is no reason why its existence would change the rule of joint and several liabilities of the owners.

42.  Dr Wong further points out that interpretation (1) would have the effect of rendering the liquidation process very expensive and time consuming and, more importantly, passing the risk of non‑payment by some owners to the creditors of the owners’ corporation.  Dr Wong submits that as between the co‑owners and the creditors, the risks should fall on the shoulder of the co‑owners since the creditors are clearly the more innocent parties.  Thus, this Court should favour interpretation (2).

43.  I tend to agree with Dr Wong’s observations.  In my view, the fact that there is no limitation of owner’s liability for judgment against corporation under BMO section 17(1)(b) supports Dr Wong’s submission that the legislative intent is to favour the interest of the creditors, as compared with that of the owners.  Only interpretation (2), but not interpretation (1), would give effect to such legislative intent.

44.  Hence, for the above reasons, I am satisfied that interpretation (2) is the proper interpretation of BMO section 34 such that the owners are jointly and severally liable for all of the corporation’s debts and liabilities, and that such liabilities are not limited to their respective shares in the building (even though they would have the right to seek contribution from other co‑owners afterwards).

E. QUANTUM OF THE PLAINTIFFS’ CLAIM

45.  In the affirmations filed in support of this application, the Plaintiffs give detailed evidence as to how the shortfall in the sum of HK$3,649,932.77 comes about.

46.  In his statement and affirmation filed in opposition to this application, the 1^st Defendant raises question concerning the sum payable for the Refurbishment Work and the apportionment of such sum amongst the owners of the Building.  He further refers to the contract for the Refurbishment Work and submits that the IO should not be held liable for such work since the liabilities to pay the same should fall on each of the owners and be apportioned amongst them by reference to their respective shares in the Building.

47.  Dr Wong, in response, points out that the sum claimed by Chi Fu for the Refurbishment Work has subsumed long ago in the judgment in HCA 1286/2009, and no application has ever been made to set aside such judgment.  Further Dr Wong also points out that the petition to wind up the IO has been presented by Chi Fu on the basis of such judgment, and the Plaintiffs have also admitted the proof of debt submitted by Chi Fu.  In the circumstances, Dr Wong submits it is not now open to the 1^st Defendant to question the sum claimed by Chi Fu for the Refurbishment Work. 

48.  In this regard, I agree with Dr Wong.  I cannot see any basis for the Court in these proceedings to re‑open any question concerning the IO’s liabilities for the Refurbishment Work, which has already merged into a court judgment that remains valid and binding.

F. DISPOSAL

49.  Whilst I sympathise with the Defendants, I must apply the law. For the above reasons, I would make a declaration in terms of paragraph 1 of the Originating Summons, and an order in terms of paragraph 2 of the Originating Summons.

50.  As far as costs are concerned, since the Plaintiffs is the successful party, it should be entitled to costs.  That said, I am not minded to order certificate for two counsel.  I would make an order nisi that the 1^st Defendant (who is the only defendant participating in these proceedings) do pay the Plaintiffs’ costs of these proceedings, to be taxed if not agreed.

51.  I am grateful for the assistance offered by Dr Wong and Mr Cheung.

52.  Lastly, I wish to mention that the hearing was conducted and this judgment is written in English for the reason that this case involves a technical question of statutory interpretation, and that I find it more appropriate to deal with it in English.  That said, as I mentioned at the hearing, the Court would arrange an interpreter to orally interpret the contents of this judgment to the Defendants at the time of its handing down.