NGO KEE CONSTRUCTION CO. LTD. v. THE HONG KONG HOUSING AUTHORITY

HCAL1927/2000

-----------------------

H E A D N O T E

-----------------------

Following the discovery of short piling by the piling contractor in a Housing Authority building project, the Housing Authority decided to demolish two of the multi-storey buildings under construction with serious foundation defects. It also removed the piling contractor from its list of approved contractors for piling and demolition work and suspended the applicant, which is an associated company of the piling contractor, from its list of building contractors.

HELD :

1) The decision of the Housing Authority is not amenable to judicial review. It was a private commercial decision, not involving any element of fraud, corruption or bad faith.

2) The World Trade Organization Agreement on Government Procurement and Article 33 of the Basic Law do not render the decision to be amenable to judicial review.

3) The alternative course proposed by the applicant of turning the proceeding as if it had begun by writ and granting final judgment to the applicant is not appropriate.

4) Even if the matter is amenable to judicial review, the application would still have to be refused. This case is an exceptional one, although the applicant was not involved with the piling work, the Housing Authority was entitled to suspend entering into contracts with entities in whom it lacks trust and confidence and when it is concerned that there would be too great a risk of damage to the public interest.

HCAL1927/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST
NO.1927 OF 2000

-------------

-----------------------

J U D G M E N T

-----------------------

Facts

1. In December 1999, two of the five multi-storey residential buildings that were being constructed for the Housing Authority in a housing project in Yuen Chau Kok, Shatin, were found to have excessive settlement. Investigation by the Housing Authority discovered that the foundation of these two blocks had serious defects in that -

By this time, the superstructures of these two blocks had been constructed to levels 32 and 34 respectively. The construction work on the superstructure was suspended on 8 January 2000. The piling contractor was Zen Pacific Civil Contractors Limited ("ZPCCL"). ZPCCL had already completed the piling work in December 1998. As a result of the discovery of defects, consultants were instructed by the Housing Authority to investigate the matter. They recommended that the partially completed superstructures of these two blocks be demolished due to the extremely severe defects to the large diameter bored piles and the risk and difficulties in carrying out remedial works to the piling work given that the superstructure works were well advanced. There would be a serious risk that these two blocks could have collapsed.

2. In March 2000, the Housing Authority adopted the recommendation to demolish the two buildings. The Housing Authority further set up an independent investigation panel ("the Strickland Panel") under the chairmanship of Mr John Strickland to produce a report ("the Strickland Report") on this case. The Panel produced the report on 27 April 2000. Among the recommendations of the Strickland Report was that compensation be sought by the Housing Authority from the parties responsible for the problem. Further, the Housing Authority should not award any further contracts to the parties from whom compensation was sought, to members of the same corporate group, or to other contracting companies with directors in common with the group.

3. ZPCCL is a member of the Wai Kee Holdings Ltd ("Wai Kee"). The applicant is also a member of this group. The applicant specialises in building works whilst ZPCCL's focus is mainly on civil engineering projects. Both of these two companies are approved contractors on various contractors lists maintained by the Housing Authority.

4. On 24 August 2000, the Housing Authority announced that ZPCCL would be removed from the Housing Authority Lists of Large Diameter Bored Piling Contractors and Demolition Contractors. It would never be given any Housing Authority projects in the future. Further, the applicant would also be suspended from tendering for all Housing Authority projects for a period of 24 months. Uplifting of the suspension would be subject to review and approval by the Building Committee after the expiration of the 24 months period of suspension. The applicant now applies by judicial review to quash the decision to suspend it from the list.

Is the decision subject to judicial review?

5. The first issue in these proceedings is whether the decision of the Housing Authority is subject to judicial review. This issue is to be considered in the context of the common law, the World Trade Organization Agreement on Government Procurement and the Basic Law.

Common law position

The applicant's case

6. The applicant's case based on common law is as follows. The Housing Authority is established by the Housing Ordinance, Cap.283. The powers and duties of the Housing Authority are set out under section 4 which provides, among other things, that :

Section 7 further provides that :

7. The Housing Authority's primary statutory function, relevant to these proceedings, is the power "to construct new buildings" under section 4(2)(b), which must be exercised "so as to secure the provision of housing" within section 4(1). Acting to perform those primary statutory powers, and in accordance with the ancillary powers under section 4(2)(k), and not otherwise, the Housing Authority has produced a list of contractors who are eligible to submit tenders for contracts. There is an express power to enter into contracts and to vary and rescind them: section 4(1)(ga). The admission to the List, and the power to take disciplinary action against contractors admitted to entry onto the List, is regulated by the "Rules for Administration of the List" ("the Building Rules"). Rule 38(a) provides that :

The Housing Authority, by its Building Committee, has taken disciplinary action under rule 38(a) of those Rules, to suspend the applicant from tendering for a period of time. The "right" to take such disciplinary action, is an exercise of the Housing Authority's public law functions and, as such, is amenable to judicial review on the usual grounds of unlawfulness, irrationality, and/or procedural unfairness : Council of Civil Service Unions v. Minister for the Civil Service [1985] AC 374.

Authorities relied by the applicant

8. The applicant relied on R. v. The London Borough of Enfield ex parte T.F. Unwin (Roydon) Ltd (1989) 46 BLR 1 a case concerning a building contractor which had been on the list of approved contractors maintained by a local authority. The authority decided to suspend the contractor from the list of approved contractors. The contractor was only told that there were enquiries into the conduct of the staff of the local authority. The contractor commenced proceedings for judicial review, seeking orders of mandamus requiring reasons for the decision to suspend it from the list of contractors and not to invite it to tender for new works and an order of certiorari to quash the decision. The court granted the relief. The relevant section of the Local Government Act 1988 requires a public authority to give reasons for its decision. The decision includes, in relation to an approved list and where a person has asked to be invited to tender for the contract, a decision not to invite him to tender.

9. In R. v. Avon County Council, ex parte Terry Adams Limited [1994] Env LR 442, challenge by judicial review was made on the grounds that the statutory tendering process conducted by a local council had not been conducted fairly. The Court of Appeal distinguished the earlier authority of R. v. Birmingham City Council, ex parte Mass Energy [1994] Env LR 298 in which the Court of Appeal held that a commercial dispute between a successful and an unsuccessful tenderer in which there is no element of public law, is not a subject for judicial review. It held that there was a public law element where any error of law on the part of the local council and the conduct by it of the tendering process, caused a breach of the statutory provision which provided that the relevant contract made by the local council was to be obtained by process of obtaining tenders.

10. In R. v. Legal Aid Board, ex parte Donn & Co. (a firm) [1996] 3 All ER 1 where a firm of solicitors had submitted a tender to the Legal Aid Board for a contract to represent the plaintiff in an action, the Board refused the applicant's tender. The applicant applied for judicial review of their tender. On the question whether there was any public law element involved, Ognall J, at page 11, held that :

11. In de Smith, Woolf & Jowell, Judicial Review of Administrative Action, 5th Edn at para.6-036, it is stated that :

Cases of other jurisdictions

12. The applicant also relied on cases in other jurisdictions in submitting that the decision of the Building Authority is subject to judicial review. In The State of Victoria v. The Master Builders Association of Victoria [1995] 2 VR 112, the Victorian Government of Australia established a non-statutory task force to deal with collusive tendering and other corrupt practices in the building industry. This body sent letters to building contractors requiring them to provide a statutory declaration denying involvement in collusive practice in the past six years. The task force later sent to Government departments and agencies and municipal councils a blacklist of names of 240 building contractors who, in the task force's assessment, had not responded satisfactory to their letter and who, as a result, were not to be allowed to tender or be awarded government building contracts. The Builders' Association brought proceedings on behalf of the blacklisted building contractors for judicial review. The Supreme Court of Victoria, Appeal Division, held that the action of the task force amounted to a public law action. Eames J held that the elimination of corrupt practices is a matter of public importance; the State, in acting through the task force, is acting pursuant to a perceived public duty; the task force is applying the coercive force of the State, thus benefiting from the position of dominance in the industry which the State has and which no individual corporation, of whatever size, or any individual, possesses.

13. In Transnet Ltd v. Goodman Brothers (Pty) Ltd, Case No.373/98, Transnet is a limited company owned by the Government. It asked for tender for the purchase of gold watches to be awarded to employees. Under the South African Constitution, every person has the right to lawful administrative action where any of their rights or interest is affected or threatened. Schutz JA of the Supreme Court of Appeal of South Africa held that the actions of Transnet in calling for and adjudicating tenders constituted administrative action, whatever contractual arrangements may have been attendant upon it. Olivier JA held that :

He held that Transnet's decision to request tenders amounted to administrative action, the threshold requirement is that it exercised a public power or performed a public function.

14. Two other decisions of the South African courts followed the same approach. In Claude Neon Ltd v. Germiston City Council and Another 1995 (3) SA 710, Zulman J of Witwatersrand Local Division held that the decision to award tender to a contractor instead of to the applicant qualifies for judicial review since it had the 'consequences' which deprived the applicant of the benefit or advantage of submitting a tender in time and having such tender considered, on its merits, by the first respondent, and not simply rejected out of hand as being late, without its merits being evaluated. The case is concerned with the contract to erect street signs in a municipal area.

15. In ABBM Printing & Publishing (Pty) Ltd v. Transnet Ltd 1998 (2) SA 109, Schwartzman J of the Witwatersrand Local Division held that when an organ of the State called for tenders and adjudicated on the tenders it received, the action was in the nature of an administrative act.

The other approach

16. Despite the rather robust approach of the South African courts, there is a long line of English and Hong Kong cases which held that matters relating to tendering required by a public body is not subject to public law. The starting point is Mass Energy Ltd v. Birmingham City Council [1993] Env LR 298. The Court of Appeal in England refused to grant leave for judicial review. Glidewell LJ at page 306 held that :

Scott LJ held that it is open to a person inviting tenders, unless he has contractually barred himself from doing so, to choose one tenderer in preference to the others and to endeavour to negotiate with the chosen tenderer an improved deal within the ambit of the invitation to tender. To hold that the public authority is barred from proceeding in this way would inflict upon the authority a statutory scheme of a rigidity that no private individual inviting tenders for a comparably complex contract would be likely to accept. Evans LJ held that, "In commerce, life is not always fair".

17. In R. v. Lord Chancellor's Department, ex parte Hibbit & Saunders (a firm) and Another, March 12, 1993, The Times Law Report and transcript. This case concerns the Lord Chancellor's Department in inviting tenders for court reporting services. The Court of Appeal recognized that the procedure adopted were in part unfair. However, the applicants who were a firm of shorthand writers and who had tendered for the contract was not entitled to judicial review. Rose LJ held that :

The statutory provisions relevant to that case were the Criminal Appeal Act and Rules and also the Rules of the Supreme Court relating to the provision of transcript of proceedings. Rose LJ held that the statutory provisions provide the background which emphasized the importance of shorthand writers to the administration of justice, but they provide no framework for the employment of shorthand writers and other recorders of proceedings. The absence of any alternative remedy, like the presence of an alternative remedy in private law is immaterial to the question of whether a public law remedy exists. The fact that a commercial function being performed does not take the case outside the ambit of public law. But it is not appropriate to equate tendering conditions attendant on a common law right to contract with a statement of policy or practice or policy decisions in the spheres of Inland Revenue, immigration and the like, control of which is the especial province of the State and where, in consequence, a sufficient public law element is apparent. Waller LJ held that the tendering procedure was no different from any other procedure adopted in ordinary contract situations. The application cannot be accurately characterized as seeking to review a policy decision or a failure to adhere to a policy decision. If what was being sought to be reviewed was a policy decision, for example, not to allow shorthand writers who employed trade union members to tender, that would be a very different matter.

18. In R. v. Bridgend County Borough Council, Ex parte Jones (trading as Shamrock Coaches) CO/873/1999, the applicant seeks judicial review of the decisions of a local council not to award to the applicant's contracts providing for subsidized local bus services and to award them instead to others. Kay J dismissed the application. Reliance was made of the case of Mass Energy.

19. In Mercury Energy Ltd v. Electricity Corporation of New Zealand Ltd [1994] 1 WLR 521, the defendant is a state enterprise responsible for generating and distributing electricity to local electrical supply authorities. By written agreements, it undertook to supply electricity to the plaintiff on specified terms and at prices agreed until the end of March 1993. In March 1992, the defendant gave the plaintiff 12 months' notice of termination of the contractual arrangement, but nevertheless continued to supply the plaintiff conceding that it was bound to do so at fair and reasonable prices. The plaintiff commenced an action against the defendant claiming that it had no power to determine the contractual arrangements, and also applied for judicial review against the defendant's decision to terminate the contractual arrangement. The Privy Council recognized that decisions of the defendant are amendable in principle to judicial review. Decisions made in the public interest by the defendant, a body established by statute, may adversely affect the rights and liabilities of private individuals without affording them any redress. However, Lord Templeman who delivered the judgment held that :

20. Similar approach is adopted in Hong Kong. In Matteograssi SPA v. Airport Authority [1998] 3 HKC 25, seven contractors tendered for contract to provide work at the Chek Lap Kok Airport. The applicant's tender was the lowest, but the contract was awarded to another contractor. Mortimer VP held that :

The court referred to Mercury Energy and there was no allegation of fraud, corruption and bad faith in that case.

21. In Kwok & Chu (a firm) v. The Hong Kong Housing Authority 1996, MP No.4346, the applicant tendered for conveyancing work under the Housing Authority's Home Ownership Scheme and was unsuccessful. Its application for judicial review was dismissed. Keith J (as he then was) held that the Housing Authority in operating the Home Ownership Scheme is performing a public function, namely the provision of low cost housing to lower income earners. However, the engagement of solicitors to undertake conveyancing work is merely an administrative step in the process by which low cost housing is provided to the public. The conveyancing that has to be performed is not the subject of any statutory underpinning greater than that which applies to private sector conveyancing.

22. In Woo Cheng Mechanical Engineering Factory Ltd v. The Director of Marine HCAL 1008/2000, the applicant was awarded a contract by the respondent to carry out repairs to one of the government vessels. The respondent alleged that the applicant had carried out the repair negligently causing the vessel to sink. The respondent had a scheme which appraised the performance of contractors : demerit points would be given for unsatisfactory performance. When a contractor incurs 10 demerit points, his eligibility to bid for work from the respondent is suspended. The applicant was given eight demerit points by the respondent. It applied for judicial review against the decision. Hartmann J, following Matteograssi, concluded that the nature of the scheme was commercial. He found that a private organization, dissatisfied with work done for it, is entitled in its own commercial interests to refuse to deal further with that contractor either permanently or until sufficient time has been given to allow the contractor to put its house in order. He found that the respondent's performance appraisal system attempts to do no more than that.

The nature of the decision

23. There is no single test for identifying whether judicial review applies : R. v. Panel on Takeovers and Mergers ex parte Datafin Plc [1987] QB 815. On a review of the cases, they show that judicial review does not apply to decisions of a public body where -

24. The Housing Authority is a public body set up by legislation. However, not everyone of its decisions is amenable to judicial review.

One can envisage three situations. The first being a decision in connection with its public duty of providing low cost housing to the public. If, for example, it makes a decision on the criteria in which the individuals are entitled to acquire the houses, without going too deeply into the issue, one would have thought that this is a matter that is subject to judicial review because of the public element involved. On the other end of the scale, to use the example relied upon by Mr Pannick QC, counsel for the Housing Authority, when it purchases office stationery such as elastic bands, its decision is unlikely to be amenable to judicial review since this is in its nature a commercial decision and subject to private law. Between these two extremes, if, for example, the Housing Authority, in order to discharge its statutory function of providing low cost housing requires building contractors to carry out the construction work, and maintains a list of approved contractors who are entitled to bid for its work, the tendering process cannot be a matter of judicial review because of its commercial nature. Likewise the decision to suspend an approved contractor from tendering for contract is, in my view, also a commercial decision and is not subject to judicial review. If the failure to obtain a contract after tendering is not subject to judicial review, I fail to see how a decision to suspend the applicant from tendering would make him so entitled. It is still part of the tendering scheme which, in the absence of statutory underpinning, a public body is entitled to make up its own mind on who should be awarded the contract. The mere fact that the applicant was told in advance that for the next 24 months it would not be allowed to tender is clearly no different from a situation where each tender by the applicant would not be accepted. After all, the underlying rationale is that it is a commercial dispute.

The correctness of the cases

25. Mr Pleming QC, counsel for the applicant, asked me not to follow the line of cases in which the court refused to grant judicial review in commercial decisions. This is a departure which I am not prepared to do. Mr Pleming submitted that Mass Energy was wrongly decided when it sought to equate a public law provider (such as the Housing Authority) with a private commercial organization. In my view, one must look at the function that was being challenged. If the function is a commercial one, then the matter is not subject to judicial review. The fact that the Housing Authority has adopted rules for the administration of the List of Contractors does not create a liability for judicial review. Other private bodies also have rules in relation to the tendering process. In the absence of statutory underpinning, judicial review is not applicable.

26. In relation to the authorities relied upon by Mr Pleming, the case of T.F. Unwin did not involve arguments on the amenability of public law; Terry Adams was a case in which the tendering process was underpinned by statute while Donn & Co seems to be a decision on its own, it is a decision in which the judge had not really analyzed why the case falls within the public law domain.

27. Of the other cases relied by the applicant, in R. v. Lewisham London Borough Council, ex parte Shell UK Ltd [1988] 1 All ER 938, the applicant was part of a multi-national group of companies which had subsidiaries operating in South Africa which then adopted the apartheid policy. The local council decided, as part of its duty under section 91 of the Race Relations Act 1976 to promote good race relations, adopted a policy of boycotting the applicant's products. It also sought to persuade other local authorities to follow suit and so maximize pressure on the parent company of the group to withdraw from the interest from South Africa. The Court of Appeal held that the purpose of the council's decision was not simply to satisfy public opinion or promote good race relations in the borough, but to exert pressure on the company and the group to which it belonged to severe all trading links with South Africa. That was not a case in which the court had actually considered whether the decision by the council was a commercial decision and hence not subject to judicial review. Further in that case, there was statutory requirement that standing orders made by local council with respect to contracts for the supply of goods or materials shall include provision for securing competition. In other words, there was statutory underpinning of the decision.

28. Likewise in Wheeler & Others v. Leicester City Council [1985] 1 AC 1054, the city council had a policy of withholding support for and discouraging sports links with South Africa. A football club sent a team to South Africa and the council passed a resolution banning the club from using the recreation ground for 12 months. Members of the club sought judicial review of the decision. The court held that in the absence of any infringement of the law or any improper conduct by the club, the resolution penalizing it for its failure to support the council's policy by complying with the insistence on a public condemnation of the regime was unreasonable and was a breach of the council's duty to act fairly. In that case, there were statutory provisions under which the council had power to set aside pitches for the purposes of football being played thereon and to exclude the public from such pitches whilst in such actual use. Again the decision to ban the club from using the recreation ground had a statutory underpinning.

29. In Cannock Chase D.C. v. Kelly [1978] 1 WLR 1, the local authority terminated the tenancy of a tenant by notice. The tenant claimed to be a good tenant and the local authority had failed to act in good faith in evicting her. Lawton LJ held that the abuse or excessive use of statutory power by a local authority acting as a housing authority can provide a defence for a council tenant against a claim for possession. The case proceeded on the assumption that such a defence is available to the tenant, there was no argument about whether the decision was a private and commercial one. It may well be that the Housing Act which gave the power of the local authority to "manage, regulate and control" houses owned by them provided the statutory underpinning for public law principles to be invoked in that case.

Mercury Energy

30. The case of Matteograssi is binding on me and according to it, unless it can be shown that the commercial decision is tainted with fraud, corruption or bad faith, public law challenge is not open to the applicant. Mr Pleming referred to R. v. National Lottery Commission, ex parte Camelot Group Plc (CO/3085/2000) (23 September 2000) in which the court was of the view that the categories of unfairness in public law were not closed, the precedent should act as a guide, not a cage. Mr Pleming argued that fraud, corruption and bad faith are only different aspects of Wednesbury unreasonableness. In Mercury, Lord Templeman stated that the principles upon which the court is permitted to interfere are to be found in the definitive judgment of Lord Greene MR in Associated Provincial Picture Houses Ltd v. Wednesbury Corporation [1948] 1 KB 223 where at page 229, Lord Greene held that :

While this passage does go some length in supporting Mr Pleming's arguments, this is a matter that is not free from doubt. If fraud, corruption and bad faith are merely different facets of the Wednesbury unreasonableness, then Lord Templeman did not have to single these three items out as the basis for challenging a commercial decision. In my view, before the question of fairness comes in, one has to ascertain whether the decision is one which is amenable to judicial review. A private, commercial decision is not amenable to judicial review. If commercial decisions are amenable to judicial review in the first place, then there is really no need to specify the three categories at all. Otherwise the statement is inherently contradictory. Clearly the tenor of the speech is that because the decision is a commercial one, therefore the public law principles do not apply unless the decision falls within the three categories mentioned by him. This is how I read the judgment, and if I may say so respectfully, this is how the Court of Appeal in Matteograssi read the judgment as well. In the present case, there is no suggestion that when the Housing Authority suspended the applicant from its lists of contractors, fraud, corruption or bad faith was involved.

Commentaries

31. Support for this view can be gathered from the textbook writers. In Supperstone & Goudie on Judicial Review, 2nd Edn, para.5.13(h), the authors stated that not all powers or public bodies have a sufficient public law content to be amenable to judicial review, and many decisions taken by public bodies in the exercise of their powers have a sufficient effect on the private law rights of individuals for the appropriate remedy to be in private law rather than by way of judicial review. Disciplinary action taken by public bodies against employees has generated the most case law on this issue in recent years, but it also applies to purely commercial decisions by public bodies such as decisions by public utilities as to contracts of supply with particular customers. The authors cited Mercury Energy and stated that the possibility of a public law challenge for Wednesbury unreasonableness was not ruled out, but the Judicial Committee considered that such a challenge would in practice only be possible on grounds of fraud, corruption or bad faith.

32. Taggart in his essay on "Corporisation, Contracting and the Courts" 1994, Public Law 351 stated that the passage of Lord Templeman "narrowed Wednesbury review considerably". This passage "at best creates considerable uncertainty as to the amenability of SOE, (i.e. the respondent) contracting decisions to judicial review and at worst renders the judgment internally inconsistent and ultimately hollow". Likewise in Arrowsmith on the Law of Public Utilities Procurement 1996, the author referred to the passage by Lord Templeman and commented that "this indicates a very narrow scope of review for contractual activities of a commercial nature".

33. It is to be noted that in Kwok & Chu, Keith J held that if he had found that the engagement of solicitors to undertake conveyancing work came within the public functions of the Housing Authority, he did not think that it would have been right to decline jurisdiction simply because the decisions challenged were not actuated by fraud, corruption or bad faith.

The relevance of the Strickland Panel

34. The applicant submitted that the Strickland Panel was set up by statute either under section 7(1) or section 4(2)(k) of the Ordinance. The Housing Authority had implemented the Strickland Report. Hence the decision is subject to public law. I do not think this is a matter that would assist the applicant because the Strickland Panel only make recommendations. The decision that is being challenged is not that of the Strickland Panel but of the Housing Authority. The fact that the Strickland Panel may be set up under section 7(1) or section 4(2)(a) will not render the decision under challenge to be a public interest decision.

Financial consequences

35. The applicant as of 31 March 2000 had about HK$2,537 million worth of public sector works on hand. It has been established for over 50 years. As at 31 July 2000, it employed 295 full time employees and 51 daily rated labourers in Hong Kong. After the release of the Strickland Report, the bank had terminated a HK$465 million term loan facility which had already been granted to one of the subsidiaries of Wai Kee. Wai Kee was requested by the Stock Exchange of Hong Kong to suspend trading of its shares for two days. On resumption of trading, the share price lost more than 20%. The Wai Kee group was requested by the MTRC to withdraw its companies from pre-qualification tenders for three contracts in the Lantau-Airport Railway Project. None of the Wai Kee group had been successful in their application to pre-qualify to tender for 11 contracts relating to KCRC and MTRC extensions. The applicant had decided not to submit an application to be confirmed on the Housing Authority's List of Approved Contractors for Building Works. There were press speculation that the applicant would be affected if the Panel's recommendation were implemented in full.

36. The fact that the applicant might have suffered financial consequences as a result of the decision did not turn the decision into a subject-matter of judicial review. Many cases would illustrate this point such as Hibbit v. Saunders, Mass Energy, and also R. v. Derbyshire County Council, ex parte Noble [1990] ICR 808 where Dillon LJ held (at page 823) that "but that cannot warrant providing relief by way of public administrative law just because no relief in private law is available." As Evans LJ in Mass Energy Ltd observed "in commerce, life is not always fair".

Section 4(2)(k)

37. As to section 4(2)(k) of the Ordinance, Mr Pleming argued that the word 'reasonably' is the gateway to Wednesbury unreasonable challenge. The Housing Authority is a creature of statute and cannot act irrationally. Keith J in Kwok & Chu stated that this general enabling power cannot be construed as constituting any statutory underpinning of the process by which solicitors are engaged. I agree that the observation applies equally to the suspension of contractors from the list.

Caution in adopting foreign decisions

38. In relation to decisions of other jurisdictions, the need for caution is apparent. Even in jurisdictions which apply the common law, diametrically opposed views are often found. This does not mean that the view of one jurisdiction is necessarily right or wrong. All that it means is that the jurisprudence of that particular country chooses to proceed in that direction. Cross-fertilization is a healthy development, but ultimately there is bound to be differences in the approach.

World Trade Organization Agreement on Government Procurement

39. Since 5 December 1996, Hong Kong has been a member of the World Trade Organisation Agreement on Government Procurement 1994 ("AGP"). The preamble of the AGP provides, among other things, that -

Application

40. Article I of AGP provides that AGP applies to any law, regulation, procedure or practice regarding any procurement by entities covered by AGP, as specified in Appendix I. In Hong Kong, the Housing Authority is one of the entities which procured in accordance with the provisions of AGP (Annex 3 to Appendix 1 of AGP). Article VII provides that each Party shall ensure that the tendering procedures of its entities are applied in a non-discriminatory manner and are consistent with the provisions contained in Articles VII through XVI.

Qualification

41. Article VIII provides that in the process of qualifying suppliers, entities shall not discriminate among suppliers of other parties or between domestic suppliers and suppliers of other parties. Qualification procedures shall be consistent with the following :

Sub-paragraph (h) of Article VIII provides that nothing in subparagraphs (a) through (g), i.e. the conditions for qualification, shall preclude the exclusion of any supplier on grounds such as bankruptcy or false declarations, provided that such an action is consistent with the national treatment and non-discrimination provisions of this Agreement.

Selection

42. Article X provides for the selection procedures. Paragraph (1) provides that entities shall select the suppliers to participate in the procedure in a fair and non-discriminatory manner. Paragraph (2) provides that Entities maintaining permanent lists of qualified suppliers may select suppliers to be invited to tender from among those listed. Any selection on those on the list shall allow for equitable opportunities for suppliers on the lists.

Challenge Procedure

43. The relevant rules relating to challenge in Article XX are as follows :

The impact of AGP

44. The applicant's case on AGP is that in agreeing to accept the terms of the AGP, the Hong Kong Government was engaged in a public function. By the imposition of the AGP on all public construction tendering exercises, the Hong Kong Government is recognizing that public sector procurement is fundamentally different from public sector commerce. In tendering processes which are subject to the terms of the AGP, the public bodies are engaged in a regulated, public function. Article X guarantees fair and equal access to tenders from contractors which appear on the list. If the applicant was on the list and unfairly denied access to the opportunity to tender for works, the applicant would have a AGP review body remedy with the possibility of judicial review of that body's decision. The applicant submitted that consistent with Article X, it is entitled to complain that it has irrationally and unfairly been excluded from the list by the 24-month suspension. The forum for dealing with that complaint is judicial review.

International treaty and legitimate expectations

45. The AGP is an international treaty in which Hong Kong is a party. The provisions of AGP is not yet part of the domestic legislation in Hong Kong. Mr Pannick, relied on J.H. Rayner (Mincing Lane) Ltd v. Department of Trade and Industry and Others [1990] 2 AC 419 which affirmed the view that a treaty is not part of the domestic law until and unless it has been incorporated into the law by legislation. Individuals cannot derive rights from the treaty and by which they cannot be deprived of rights or subject to obligations. It is also outside the purview of the court not only because it is made in the conduct of foreign relations but also because, as a source of rights of obligations, it is irrelevant.

46. The High Court of Australia in Minister of State for Immigration and Ethnic Affairs v. Ah Hin Teoh [1994-1995] 183 CLR 273 held that the rectification of a convention by the Australian Government is an adequate foundation for a legitimate expectation, absent statutory or executive indications to the contrary, that administrative decision-makers will act in conformity with the international treaty.

47. In Chan Mei Yee v. The Director of Immigration, HCAL 77/1999, I was of the view that the approach of the High Court of Australia should be adopted in Hong Kong. In Mohammed Hussain Ahmed and Others v. Secretary of State for the Home Department [1999] Imm AR, Lord Woolf MR referring to Teoh stated that the judgment is one "which I find wholly convincing".

Applicant not assisted

48. In the present case, even if the approach in Teoh is to be adopted, I am not convinced that it would assist the applicant on the primary question of whether the decision of the Housing Authority is a public decision. The rules set out in the AGP have not become part of the domestic legislation which would otherwise serve as the underpin for the Housing Authority's tendering process.

49. In the Notification of National Implementing Legislation dated 7 April 1999, the World Trade Organization, Committee on Government Procurement set out the communication from the Hong Kong Government on public procurement. It is stated that in relation to central government entities -

In relation to sub-central entities (of which the Housing Authority is one) :

Item III.I.IV stated that the central level, the sub-central level and Annex 3 entities have their respective procurement procedures. However, there are no significant differences, in substance and with respect to the Agreement, in their procurement procedures.

50. Mr Pleming argued that it would be absurd if the central government procurement process is subject to the AGP whereas the process by the Housing Authority is not. He submitted that judicial review is available from 1997 onwards to contracts governed by the AGP.

51. In my view, irrespective of the position concerning central government entities whose procurement process is underpinned by the subsidiary legislations under the Public Finance Ordinance, one must look at the wording of the AGP to see whether the decision to suspend a contractor by the Housing Authority is covered by the AGP as well. The AGP itself does not prohibit a public entity from removing a contractor from the list. In my view, there is force in Mr Pannick's submission that the AGP is a product of discussion and compromise by members of the world community. In the absence of provision relation to suspension of contractor, it is wrong to write into AGP something which is not there.

52. In any event, rule 38 of the Building Rules expressly deals with disciplinary actions to remove a contractor from the List and rule 40 provides for the review mechanism where disciplinary action contemplated in rule 38 is taken. If the AGP, as implemented by the Building Rules, covers the present situation of suspending a building contractor from the List, then the applicant should have availed itself of the review procedure under the Building Rules and not by way of judicial review.

The European Community

53. Mr Pleming had also referred to decisions of the European Community. In my view, I should refrain from commenting on this issue in view of the rather limited submissions I have heard. Many of the European Community directives had been implemented in England whereas in Hong Kong, there is no domestic legislation incorporating the AGP.

Article 33 of the Basic Law

54. Article 33 of the Basic Law provides that Hong Kong residents shall have freedom of choice of occupation.

55. The applicant's case is that if a public body exercising public, or contractual power does so in a way that inhibits the freedom of choice guaranteed by Article 33, then the guarantee provided may be breached if the decision is unfair or unreasonable. The applicant relies on the jurisprudence of the Indian courts to illustrate its argument. Article 19 of the Constitution of India provides, among other things, that all citizens shall have the right to practise any profession, or to carry on any occupation, trade or business (Article 19(1)(g)). In Ramana v. I.A. Authority of India [1979] AIR 1628, the Airport Authority of India called for tender to operate a restaurant and snack bars at the airport. The notice of tender stipulated the qualifications for the tenderer. The Airport Authority awarded the contract to someone who did not have the qualification. Challenge was made against that decision. Bhagwati J (as he then was) of the Supreme Court of India proceeded on two bases. First, he relied on the rule of administrative law that "every action of the executive Government must be informed with reason and should be free from arbitrariness". He stated that, "That is the very essence of the rule of law and its bare minimal requirement. And to the application of this principle it makes no difference whether the exercise of the power involves affectation of some right or denial of some privilege". He found that government contracts are in the nature of largess. He adopted previous decision of the Supreme Court of India which stated that "some interests in Government largess, formerly regarded as privileges, have been recognized as rights while others have been given legal protection not only by forging procedural safeguards but also by confining/structuring and checking Government discretion in the matter of grant of such largess. The discretion of the Government has been held to be not unlimited in that the Government cannot give or withhold largess in its arbitrary discretion or at its sweet will." Second, the judge held that this administrative rule also flows directly from the doctrine of equality embodied in Article 14 of the India Constitution which provides that "The State shall not deny to any person equality before the law or the equal protection of the laws within the territories of India". He held that Article14 strikes at arbitrariness in state action and ensures fairness and equality of treatment. It requires that state action must not be arbitrary but must be based on some rational and relevant principle which is non-discriminatory: it must not be guided by any extraneous or irrelevant consideration, because that would be a denial of equality. The judge stated that "... the democratic form of Government demands equality and absence of arbitrariness and discrimination in such transactions ... The activities of the Government have a public element and, therefore, there should be fairness and equality. The State need not enter into any contract with anyone, but if it does so, it must do so fairly without discrimination and without unfair procedure.".

56. In M/s. Police Uniform Production Centre v. The Director General and Inspector General of Police, A.P. [1990] AIR, AP 9, the appellant carried on the business of supplying uniform and shoes to the police department. There was no default in his performance of the contracts, however, it was blacklisted because some of his close relatives carrying on similar business were defaulters in payment of sales tax. It was held by the court in Andhra Pradesh that -

The case of Ramana was referred to in the judgment.

My observation

57. As can be seen from Ramana, the case is concerned with Article 14 and not Article 19(1)(g) of the Indian Constitution. Whereas the Police Uniform case is concerned with Article 19(1)(g), the wording of Article 19(1)(g) is different from Article 33 of the Basic Law in that the former includes the right to carry on trade or business which is not expressly provided for in the Hong Kong Basic Law. Even assuming, but without deciding, that Article 33 is to include the right to be given to body corporates and to be extended to trade and business as well, at this stage of the proceedings, I am only concerned with whether a commercial decision of the Housing Authority has nonetheless become a public one by reason of Article 33. I am not convinced that Article 33 can achieve such a purpose. It may well be that Article 33 may be considered under both private law or public law, but certainly it does not have the function of turning a commercial decision into a public one.

58. As to the rule in administrative law referred to the Indian decisions, these two cases obviously are not concerned with the issue now faced by this court, namely, whether the decision is a commercial one which precludes the view by the court. From the rather limited knowledge one have on Indian constitutional development, it is apparent that the Indian Supreme Court has taken an extremely pro-active approach in administrative and constitutional affairs. It may well be that the distinction between private, commercial decision and public decision by a public body, is something that the Indian courts do not need to be concerned with. But whatever may be the position, it is necessary to tread carefully in applying the foreign cases when the distinction is clearly entrenched in Hong Kong cases.

The alternative route

59. The applicant submitted that if the matter is not subject to judicial review, then it would apply to amend Form 86A claiming a declaration and damages and seek leave for the claim to proceed as if begun by writ. Order 53, rule 9(5) clearly confers the power on the court to continue the proceedings as if they had begun by writ where the relief sought is not appropriate to be granted judicial review. The applicant had submitted a proposed amendment to the notice of application for leave to apply for judicial review (Form 86A). The amendment pleads :

The cause of action in the draft Statement of Claim is based on contract. Mr Pleming submitted that if I am minded to turn the proceedings as if it had begun by writ, then I should proceed to grant judgment to the applicant.

Payment of fees

60. Under rule 21 of the Building Rules, admission to the Lists of Contractors is conditional upon the contractor paying the application fee. However, payment of the fee is not an indication that the contractor has any contractual right in relation to the tendering of the contracts because under rule 21, fees will not be refunded even if admission to the List is refused. Further, subsequent annual renewal of listing is subject to satisfactory compliance with these rules, acceptable performance, and the payment of the annual fee appropriate to the group in which a contractor is listed. Under rule 4, the Housing Authority further reserved the right to amend the rules and any criteria pertaining to the administration of the List, including financial criteria and the level of fees and charges without reference to the contractors in the List to serve the Housing Authority's procurement requirements. Rule 21 shows that the contractor is only on the List for one year because the applicant is on probationary status, it cannot bid for contract for this year and is only entitled to do so in 2001. There really is no loss of benefit for this year.

61. However, in my view, this clearly is not the appropriate place to consider whether the applicant has a valid cause of action under contract. Certainly the Housing Authority should be given the opportunity to consider the proposed cause of action and make the appropriate response by filing a defence and availing itself of the usual procedural steps such as discovery and other interlocutory applications in the action. This is not an appropriate case for summary judgment. In my view, it would serve no useful purpose to adopt the course as suggested by Mr Pleming. The better approach is to dismiss the application for judicial review leaving the applicant to decide on whether it should proceed with the action for breach of contract.

Merits

62. Even if the matter is amenable to judicial review, I am of the view that the applicant has not made out a case for judicial review.

The applicant's case

63. The underlying theme of the applicant's case is that it has done no wrong at all, thus it should not be punished by the Housing Authority. The decision to suspend it from the list is not allowed under the Building Rules. There was no basis to support the conclusion that the applicant had done anything that would cause any reasonable person no longer to have trust and confidence in it. The decision to suspend the applicant was for a collateral purpose, namely to secure an economic advantage in the litigation between the Housing Authority and ZPCCL. Further, the decision was in truth made to punish the Wai Kee group for its subsidiary ZPCCL's failure to perform the piling contract. The decision was unreasonable and irrational.

The Events

The Strickland Report

64. The Strickland Report stated the following. The contract between the Housing Authority and ZPCCL required ZPCCL to take full responsibility for the work of any subcontractors it employed. From the investigations carried out by the consultants, it is clear that the construction failed to meet the essential requirements of the contract. ZPCCL entered into an agreement with Hui Hon Contractors Limited ("Hui Hon") on 28 November 1997 to prepare and submit a tender to the Housing Authority under the name of ZPCCL. By a subcontract purportedly signed in February 1998, the whole of the works were subcontracted to Hui Hon.

65. ZPCCL failed to supervise the work performed by Hui Hon. It had no full-time representative on the site over the period when the piling work were constructed from May to August 1998. ZPCCL said that they relied upon the Housing Department to check both the quality and the quantity of the work completed (in spite of expecting to retain some HK$3.2 million of Housing Department's payments as administration fees).

66. In July 1998, Hui Hon had financial problems and this was known to ZPCCL. Works continued to be carried out by Hui Hon in August. It was only in September that ZPCCL terminated its agreement with Hui Hon after all the seriously defective work had been completed. Thereafter, ZPCCL continued to use the Hui Hon site staff team to complete the project, including the procurement of the relevant test results for the piling work. It should be noted that although ZPCCL had satisfied the criteria necessary to be on the Housing Department List of Contractors approved to tender for the piling construction, the Strickland Panel was unable to find evidence that Hui Hon satisfied them, event though the ZPCCL/Hui Hon subcontract agreement imposed the obligation on them to do so.

67. The key employees in ZPCCL involved in the agreement with Hui Hon and the overseeing of the construction work were one Mr Lo Yuen Cheong, Contract Manager and Mr Francis Pau Fuk Wing, Project Quantity Surveyor. Mr Lo claimed that he visited the site two or three times a week as well as attending two meetings there each month, one with the Housing Department and Hui Hon, and one with Hui Hon only. Mr Lo was aware of :

Mr Pau did not do what was normally expected of a project quantity surveyor. The applications for payment were prepared by Hui Hon and submitted under cover of letters signed by Hui Hon staff. These two staff were no longer working for ZPCCL.

68. The Strickland Report further stated that : "The panel sees it as inevitable that the dispute between the Housing Authority and ZPCCL will be resolved by arbitration. The panel therefore does not consider it appropriate to comment on the extent to which ZPCCL may or should have been aware of the malpractices that occurred during 1998".

69. In recommending that while the claim against the responsible parties is underway, no further contract should be awarded to members of the same corporate group, the Panel further stated that : "... Anything less would be an insufficient deterrent to others who might be tempted either to put themselves in the same position or to attempt to evade the consequences of their actions by a) stripping assets and allowing companies to fail or b) starting up or acquiring other company names to trade under".

The Building Committee

70. On receipt of the Strickland Report, the Building Committee of the Housing Authority decided to conduct its own review of the matter. The Wai Kee group, including the applicant and ZPCCL, were asked to attend a meeting on 7 June 2000. Five representatives attended : Mr William Zen and Mr Derek Zen who hold a controlling interest in Wai Kee, they were each directors of both ZPCCL and the applicant at the time the defects were discovered, Mr Steve Wong, a director of Wai Kee, Mr David Gem, a director of both ZPCCL and the applicant, and Mr Andrew Aglionby, the solicitor for the Wai Kee group.

71. After considering the representations at various meetings, the Building Committee decided on 3 July 2000 to take actions against ZPCCL for breach of contract, to recommend to the List Management Committee of the Housing Authority that ZPCCL be removed from the Housing Authority's List of Piling Contractors and Demolition Contractors, and to recommend to the List Management Committee that the applicant be suspended from tendering while legal action was in progress against ZPCCL. The decision to recommend the suspension of the applicant was taken because, according to the affirmation of Mr Daniel Lam Chun ("Mr Lam"), the Chairman of the Building Committee of the Housing Authority :

Invitation to make submissions

72. The Housing Authority, by letter dated 11 July 2000, gave notice under rule 38 of the Building Rules to the applicant that the Housing Authority proposed to suspend the applicant from tendering for the Housing Authority. The letter stated, among other things -

By another letter of the same date, the Housing Authority invited the applicant to make written submissions.

The List Management Committee

73. The List Management Committee then considered the written submissions from ZPCCL and the applicant. It recommended to the Building Committee that ZPCCL be removed from the list of contractors and that the applicant be suspended from tendering until the legal action between the Housing Authority and ZPCCL had been concluded.

The decision

74. The recommendations of the List Management Committee were referred to the Building Committee at its meeting on 24 August 2000.

75. According to the evidence of Mr Lam, the Building Committee reviewed the case generally and the submission of ZPCCL and the applicant to the List Management Committee. The Building Committee concluded that ZPCCL's serious breaches of contract at the Project site had caused the Building Committee to have grave doubts on ZPCCL's management capability as a whole and to conclude that it had no trust and confidence in ZPCCL. It was therefore decided that ZPCCL should be permanently removed from the Authority's Lists of Large Diameter Bored Piling Contractors and Demolition Contractors. Although the case was confined to one site, it was a very serious case of default which could have had catastrophic consequences. As a result, the Authority had suffered very serious damage in not only monetary terms but also in terms of public image and good will as a result of this case. With regard to the applicant, at all relevant times, ZPCCL and the applicant had five common directors. Two of the common directors, Mr William Zen and Mr Derek Zen, were together the controlling shareholders of Wai Kee which owned both ZPCCL and the applicant. In view of the similarity between the controlling interests and management of ZPCCL and the applicant and ZPCCL's very serious failure in executing the piling works at the Project site, members had no trust and confidence in the applicant so as to be able the Building Committee to entrust further works to them. The Building Committee believed, however, that the sanction against the applicant should not be as severe as that against ZPCCL and hence a suspension rather than a complete removal from the List was appropriate. The Building Committee decided that the applicant would be suspended from tendering for all Housing Authority projects for a period of 24 months with immediate effect. Uplifting of the suspension after the expiry of the period of 24 months would be subject to review and approval by the Building Committee. Taking into account the current listing status of the applicant (which is a New Works 2 Probationary Contractor limited to holding two contracts at any one time) and taking into consideration that the applicant currently held two building contracts, the first of which was to be completed in the middle of 2001 and the second in the middle of 2002, it was considered that a period of 24 months' suspension should be imposed. In reality this meant a 12 months' suspension after the completion of the first contract the applicant currently had in hand.

76. Mr Lam further stated that the Building Committee was also wary of any impact on the applicant which might arise from the legal action between the Housing Authority and ZPCCL and hence it was decided that the uplifting of the suspension should be subject to review and to approval by the Building Committee at the end of 24 months' suspension period. The 24 months' period was considered to be reasonable for monitoring and for keeping in view the future development of the Wai Kee group to see if the trust and confidence in Ngo Kee could be regained. The decision was not taken as alleged by Ngo Kee to exert pressure on the Wai Kee group and/or ZPCCL to settle the legal action with the Housing Authority. The suspension was for a fixed period of 24 months, reviewable by the Building Committee at the end of the 24 months period.

Overview

77. In considering the challenge, it is necessary to take an overview of the matter. This is an exceptional case. The gravity of the short piling scandal is almost unprecedented. Two blocks of almost completed high-rise residential buildings have to be demolished because of defective foundation. This must be an action of the gravest kind affecting public interest. The decision to suspend the applicant was taken by the Building Committee on the advice of technical consultants, the Strickland Panel and also the List Management Committee. The decision does not interfere with any existing contractual interest or licence, it is merely concerned with the applicant's hope to be awarded further contracts to which it has no legal entitlement. There is no statutory restrictions on how the Housing Authority selects building contractors. The Housing Authority is making a decision in the commercial context. It is making a judgment concerned with avoiding possible future risk to the public, protecting against a repetition of the type of danger caused by defective work and assessing whether a company enjoys the trust and confidence of the Housing Authority. As Mr Pannick submitted, there is no right or wrong answer to such a judgment.

78. In Puhlhofer and Another v. Hillingdon London Borough Council [1986] 1 AC 484, Lord Brightman at page 518 stated that :

79. In my view, the Housing Authority in this case clearly has a wide discretion. I am not convinced, having carefully considered the arguments advanced by the applicant, that the decision is so unreasonable or irrational that it ought to be quashed. In my view, in the context in which this decision was made, the Housing Authority cannot be said to be acting perversely when it made the decision to suspend the applicant.

The Building Rules

80. Rule 38 of the Building Rules provides that the Housing Authority has the right to remove any contractor from the List or make the following disciplinary actions against a contractor. This includes suspension from tendering for a period of time. Before deciding on such action, a contractor may be given adequate warning of that action proposed, advice of the reasons for it and given the opportunity to present its view on the matter at the discretion of the Housing Authority.

81. Rule 39 provides that circumstances which may lead to the taking of disciplinary actions include (my emphasis) but are not limited to -

Trust and confidence

82. From the wording of rule 39, it is clear the rule does not give an exhaustive list of circumstances in which a contractor may be disciplined. Considering the gravity of the short piling, the Housing Authority is clearly entitled to take steps to suspend entering into contracts with persons in whom it lacks trust and confidence and when it is concerned that there will be too great a risk of damage to the public interest.

83. In In re Smith Kline & French Laboratories Ltd [1990] 1 AC 65 there is a dispute between the manufacturer of medicine and the licensing authority on whether the licensing authority can take into account information known to it, Dillon LJ at page 80 stated that :

This view was approved by Lord Templeman in the House of Lords at page 108 where he stated that :

84. Clearly the Housing Authority in discharging the function of providing low cost housing to the public is entitled to take into account the question of public interest and the loss of confidence in the operation of the group of companies in which the applicant belongs. The rules does not prevent the Housing Authority from making such a decision, nor does it oblige the Housing Authority to continue to enter into contracts with such a company when it has clearly lost trust and confidence in that company and has grave concern that there will be a substantial risk and damage to the public interest.

85. Mr Pleming referred to the case of Bedfordshire County Council v. Fitzpatrick Contractors Ltd, 62 Con LR 64 in which Dyson J held that there was no need to imply into a contract for the maintenance of the highways a term that the parties owed each other duties of trust and confidence. He argued that the source of power to refer to and rely upon this concept of trust and confidence remains unclear.

86. The question of trust and confidence in the context of this case clearly is not something that arises by the implication of contract. In my view, it is something that the Housing Authority takes into account in exercising the discretion to suspend the applicant. The circumstances in which the Housing Authority can take disciplinary action against a contractor is not based simply on the fault of the contractor but includes a situation such as the present one. There is indeed no allegation of fault on the part of the applicant, but this is an unique case. The Housing Authority has to ensure that the buildings it built for the public are free from defects. In the light of what happened to the foundations of the buildings, in my view the Housing Authority is justified to conclude that there will be too great a risk to the public interest if the applicant is allowed to continue to bid for contracts in the future.

87. The case of Shell U.K. does not assist the applicant. In that case, the local council was not acting for a proper purpose since there was no reason for refusing to trade with Shell other than political objections to the company's link with South Africa. That amounted to a punishment of a person who had done no wrong. In the present case, the issue is not one of punishment but a loss of confidence in the ability of the applicant to perform the contracts.

The fault of ZPCCL

88. The applicant argued that on any fair reading, the faults of ZPCCL were acts of omission and not commission. At its highest, ZPCCL failed to detect the fraud perpetrated by its subcontractor, which it believed to be trustworthy and reliable, with the connivance of officers of the Housing Authority's own executive arm, the Housing Department. ZPCCL had in fact, on its own initiative, reported the matter to the Independent Commissioner Against Corruption.

89. The court is not concerned with a challenge to the decision to remove ZPCCL from the List of Contractors or with the faults of the staff of the Housing Department. The Strickland Report has recommended that actions be taken against them. Certainly based on the Strickland Report, the Housing Authority has the legitimate basis in concluding that there were serious failures by ZPCCL in properly performing its contract. Based on that, the Housing Authority was entitled to conclude that they had lost faith and confidence in ZPCCL to properly perform contracts and had very serious concerns about the risk to public interest of entering into further contracts with ZPCCL. Based on this, the Housing Authority is entitled to the view that they have lost trust and confidence in an associated company of ZPCCL, namely the applicant. The reason why such a view can be taken is because of, as Mr Pannick submitted, the risk that any such associated company would be infected by the deficient corporate culture resulting in ZPCCL in performing its contractual duties in such a derelict manner. Although this reason is not fully articulated either in the Strickland Report or in the Building Committee or List Management Committee meetings, in my view, this is indeed the underlining reason in taking the action against the applicant.

Common management

90. The applicant argued that Wai Kee is a publicly listed company. It is unclear what the reference to controlling means in this context. Wai Kee is accountable to all its shareholders for its actions and is supervised by a board of directors which includes independent directors who safeguard the interest of minority shareholders. It would be incorrect to base any judgment on the assumption that the two Mr Zens can direct the affairs of Wai Kee or its subsidiaries to suit personal preference. The applicant had also relied on the separate corporate entity principle as laid down in cases such as Saloman v. Saloman & Co. [1897] AC 22.

91. The basic common law principles are not disputed by the Housing Authority. The real question is given the close association between the applicant and ZPCCL, who are members of the same group of companies, and given at one stage, namely at the time of discovery of the defects, there were common directors, was the Housing Authority not entitled to take these matters into account in assessing whether there was a risk that the applicant might be infected by the same deficient corporate culture? In my view, the Housing Authority, on the facts of this case, is clearly entitled to come to such a view bearing in mind the gravity of the defects for which ZPCCL had been responsible.

92. The Housing Authority recognized that four of the common directors resigned as directors of the applicant on 28 June 2000. If the Housing Authority was justified in losing confidence in the applicant, it cannot be right that it should be obliged to reach a different decision simply because certain directors had since resigned. In my view, this clearly is a case, given the catastrophic events that had taken place, that the Housing Authority is entitled to take a cautious approach in entrusting another member of the same group of companies with further contracts in the immediate future. The issue is not simply whether, for example, who of the common directors were actually responsible for the defects. What is at heart goes beyond the question of simply relying on company law or criminal law principles. There is a much broader public interest issue at stake.

Collateral purpose

93. The applicant submitted that the suspension of the applicant is merely to implement the Strickland Report. The die is cast and there can be no turning back from the recommendation of the Strickland Report. The Strickland Report referred to deterrence and punishment. This can be seen from the minutes of the meeting of the Building Committee on 3 July 2000 in which one member stated that in order to uphold the spirit of the Strickland Report, Housing Authority contracts should not be awarded to the applicant while the legal process was underway. Another member was of the view that during the process of arbitration, ZPCCL might come up with an offer the Housing Authority would not refuse. If that settlement was reached, the Committee would reconsider its position vis-à-vis the other players.

94. Likewise in the minutes of 16 August 2000 of the List Management Committee, the tone of the discussion was on punishment, for example, the members considered that a 12 months suspension would not have significant impact on the applicant. Members also considered the effective period of suspension to be imposed should be longer than 6 months which Members noted was the usual period of suspension imposed against a contractor for lesser offence. Mr Pleming further drew my attention to this minute in which the legal adviser dealing with the submission of the applicant on "Punishment because of common management" stated that -

Mr Pleming submitted that based on this, it can readily be shown that the decision to suspend the applicant is not based on any proper ground, it was an irrational decision.

My view

95. The Housing Authority did not simply adopt and implement the Strickland Report, the ultimate decision is different from the one recommended by the Strickland Report. It was reached after representations made by the applicant and after consideration by the Listing Management Committee and the Building Committee. On no account can it be said that this is a foregone conclusion.

96. Although in the discussions some members may have considered the issue of punishment, ultimately these were discussions. The basis of the decision to suspend the applicant is one of lack of trust and confidence as set out in the letter of 11 July 2000 from the Housing Authority to the applicant.

97. The applicant further suggested that the decision to suspend the applicant was for the purpose of bringing pressure to bear on ZPCCL to settle the litigation between the parties. As stated by Mr Lam, the Housing Authority did not act for the purpose of putting pressure on the applicant to compromise legal proceedings. There is nothing to suggest that he was not telling the truth. Further, as indicated in the minutes of 16 August 2000 meeting of the List Management Committee, there was nothing to show that pressure was intended to be brought on the applicant to settle the proceedings. On the contrary, members were said to be "wary of any impact on the applicant which might arise from legal actions between the Housing Authority and ZPCCL and therefore decided that the uplifting of the suspension should be subject to review and to approval by the Building Committee".

Length of the suspension

98. As to the length of the suspension, the Housing Authority is clearly entitled to take into account that a 24-month suspension which actually meant a 12-month suspension after the completion of the first two of the existing contracts by the applicant, was reasonable for monitoring developments to form a view on whether trust and confidence in the applicant could be re-established.

99. It is submitted that the decision is irrational in itself because the applicant is still entitled to complete the two contracts that had been awarded to it. I do not consider that the decision to suspend and at the same time to allow the applicant to complete the two contracts is so irrational that the court should intervene. Afterall, the decision to suspend does not affect existing contractual rights between the parties. This will not be the case if the applicant is not allowed to carry on with the existing contracts.

Basic Law

100. As to whether Article 33 is engaged, the test is whether the decision to exclude the applicant is an arbitrary one. In view of the reasons I have stated, I am not convinced that the decision is so arbitrary that it impinges on Article 33.

Conclusion

101. Accordingly, the application is dismissed with costs nisi to the Housing Authority.