THE INCORPORATED OWNERS OF KWAI WAN INDUSTRIAL BUILDING AND OTHERS v. CHAN KOON KEUNG AND OTHERS

HCA4083/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4083 OF 2003

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DECISION

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1. In this action, both the 2nd to 8th plaintiffs by original action, and the defendants by original action claim to be validly appointed members of the 1st plaintiff by original action, the Incorporated Owners of Kwai Wan Industrial Building ("the IO").

2. On 28 July 2004, the plaintiffs by original action ("the plaintiffs") issued the present summons seeking interlocutory injunctive relief against the defendants by original action ("the defendants'). Under paragraphs 1 to 4 of the summons, the plaintiffs seek access to the sprinkler pumping room of the building so that their contractors and workmen can carry out certain works for the purpose of complying with a Fire Hazard Order issued against the building in August 2003 by a magistrate in case no. TWS 9279 of 2003 ("the FH Order"). It would appear that two other Fire Hazard Orders had also been issued against the building, but they had already been complied with.

3. Under paragraph 5 of their summons, the plaintiffs seek, by way of alternative, an order that the defendants take all necessary steps to comply with the FH Order.

4. Although it is obvious that the parties are at odds with each other on a number of matters, there are at least the following facts that are not in dispute:

(1)	The sprinkler pumping room is a common part of the building.
(2)	A management agent engaged by the defendants currently controls the access to the sprinkler pumping room.
(3)	The initial time limit and the subsequent extension for complying with the FH Order had expired.
(4)	Two fires had broken out in the meantime.
(5)	The IO acting by the defendants, in their capacity as members of the management committee, had in August 2003, contracted with Po Fat Construction Co. Ltd ("Po Fat") to carry out renovation work to the building ("the Building Contract").
(6)	The work contracted to Po Fat includes fire service installations work. It is the defendants' case that this was in part to deal with the FH Order. Po Fat had, in turn, subcontracted the work to a subcontractor called Sun's Fire Engineering Company Limited ("Sun's").
(7)	In about April 2004, Sun's and/or Po Fat stopped the work under the Building Contract. By then the FH Order had not yet been complied with. This remains to be the position as of today.

5. The contractors and their workmen refused to continue with the work because the IO had not paid them. On the defendants' evidence, by April 2004, the work completed under the Building Contract amounts to about 42% of the work contracted for. The contract sum was some $9 million. It appears from the defendants' evidence that by April 2004, Po Fat had only been paid approximately $200,000. The payments were clearly falling behind.

6. It is against the above background that the plaintiffs want to engage a contractor and workmen to carry out the necessary work to comply with the FH Order. They are however unable to gain access to the sprinkler pumping room. There is no dispute that access to the sprinkler pumping room is required for effecting the work.

7. Before issuing the summons, the plaintiffs had through solicitors, written to the defendants on the FH Order and, in particular, had asked for access to the sprinkler pumping room. There was no response to it.

8. The defendants, on the other hand, are insistent that Po Fat and its subcontractor should be allowed to carry out the work under the Building Contract, including the fire service installations work. It is the defendants' case that it was because the IO did not receive contributions from the plaintiffs that Po Fat was not paid. But upon an examination of the evidence filed on the summons, it would appear that none of the plaintiffs or defendants had paid their due share of contributions.

9. The defendants explain their non-payment on the ground that although they had applied and been granted loans by the Building Department, the release of the loans had been withheld because of the present litigation and because of the disputes over who were the validly appointed members of the management committee.

10. However, the amount of the individual loans from the Building Department is smaller that each of the defendants' share of contribution. Therefore, notwithstanding the loans, each of them still has to pay out of his own resources, an amount equivalent to the difference between the amount of his contribution and the approved amount of the loan from the Building Department.

11. The withholding of the loans by the Building Department therefore does not explain why the defendants did not at least pay up part of their shares of contribution. A fair conclusion on the facts is that neither side had, for reasons not explained, failed to pay their contributions. It cannot be said that it is because the 2nd to 8th plaintiffs did not pay contributions that Po Fat could not be paid.

12. The evidence shows also that the Building Department had given notice in June 2003 that the loans would be released and, on 9 August 2004, Po Fat was paid $245,034 which was a cost considerably less than what 42 per cent of the contract price would be.

13. In the affirmations filed on behalf of the defendants on 17 August 2004, three days before this hearing, it was disclosed for the first time that Po Fat now agrees to continue with the fire service installations work upon receipt of a sum of $245,034. It is also said that had agreed "to complete the fire service installations work and would commence the work within this week", and that it would require 40 days to finish the fire service installations work.

14. It is against the above facts this court has to consider whether to grant any interlocutory relief. The main issue is where the balance of convenience lies. There is no real dispute that there are serious issues to be tried in this matter.

15. The 3rd plaintiffs had on 19 August 2004 made an affirmation in reply to the late affirmations from the defendant, disputing among other things, the defendants' case that Po Fat and Sun's are willing to resume and have resumed work. But to avoid the need of an adjournment, the plaintiffs are prepared not to rely on several paragraphs in the latest affirmation of the 3rd plaintiff. Hence, the summons proceeds on the basis that Po Fat and Sun's had agreed to carry out the fire service installations work. The defendants therefore say that it is not necessary for the plaintiffs to engage another contractor and workmen to do the fire service installations work. Paragraphs 1 to 4 of the present summons are therefore said to be unnecessary. Further, the defendants say that in engaging a new contractor and new team of workmen, additional time and costs would be taken up and there would be delay in completing the work and complying with the FH Order. I am inclined to agree with these analyses.

16. The defendants also refer to the risk of a claim by Po Fat for breach of contract if the plaintiffs were allowed to engage another contractor to do the work. The point in my view may require more detailed analysis of the facts. This is because it is undisputedly Po Fat had stopped the work under the Building Contract in April 2004. The legal consequences of this and of the subsequent arrangements reached between Po Fat, the defendant and Sun's would have to be examined closely before one can say with certainty what claims, if any, Po Fat may have against the IO or the defendants. It may also well be that whatever claim Po Fat may have against the IO would be limited to the fire service installations work under the Building Contract. However, I do not think it is necessary to go into the details of this.

17. On the other hand, if the plaintiffs were not granted the relief under paragraphs 1 to 4 of their summons. They would be in no position to engage another contractor to carry out the work. The result is Po Fat and Sun's will be left to carry out the work.

18. The plaintiffs say that there is a risk that Po Fat may not complete the work in view of what had happened in the past. I cannot say that this is a risk that is unreal, especially when considering that the payments so far received by Po Fat were significantly less than what they should be entitled to get under the Building Contract for the work completed. It is also not clear from the evidence how the defendants propose to do in order to be out in funds to meet the payment obligations to Po Fat. It is also to be noted that the time required for completing the fire service installations work is one of 40 days. That is not a short period of time and further intervening events may possibly happen in the interim.

19. Additionally, the plaintiffs point out that there is the risk of an outbreak of fire to the building. Again, on the evidence, this is not a risk that the court can dismiss as being fanciful. After all, there had already been two such instances.

20. Weighing the various considerations set out above in a round, I am of the view that the balance should come down in favour of allowing Po Fat to carry out the fire service installations work under the Building Contract so as to comply fully with the FH Order.

21. However, to ensure that Po Fat duly carry out its contractual duties under the building contract and to ensure that there is full compliance with the FH Order without delay, there must be a mechanism in place to oversee the progress of the work. This is to the benefit and on the interests of all the owners.

22. Given that the defendants have asserted their right as members of the management committee of the IO, and considering that the Building Contract between the IO and Po Fat and also the appointment of the Authorized Person were procured by the defendants as members of the management committee, I take the view that it is just and convenient that the defendants be required to take all reasonable steps to ensure that Po Fat carry out the necessary work to fully comply with the FH Order and without delay.

23. It has been argued that an order in terms of paragraph 5 of the plaintiffs' summons would impose an unduly onerous burden on the defendants. In counsel's submission, necessary steps for complying with the FH Order may possibly include taking steps to recover unpaid contributions from the 2nd to 8th plaintiffs. I do not agree. On the defendants' evidence, Po Fat had agreed with the IO acting through the defendants (and Sun's has in turn guaranteed to Po Fat) to carry out and complete the fire service installations work upon receipt of $245,034: see paragraph 8 of Chong Chun Yan's affirmation filed on 17 August 2004. The performance of the fire service installations work is also part of the Building Contract that Po Fat had agreed to undertake. No undue onus will be placed on the defendants by requiring them to take reasonable steps to ensure that Po Fat honour the contractual obligations that Po Fat had through Mr Chong acknowledged and affirmed.

24. On the questions of costs, the normal practice is for the plaintiff to have his costs of the application in the cause where the plaintiff succeeds on an interlocutory injunction application. Here, the plaintiffs have partially succeeded. The question is whether the circumstances justify a departure from the usual order.

25. The plaintiffs argue that they are fully justified in making the application. I accept that there is some force in that on the evidence, after Po Fat ceased the work under the Building Contract, the defendants had not been doing anything about the necessary fire service installations work. They were also not prepared to let other owners do the work at a time when Po Fat had not indicated that they were willing to return to work.

26. That remains the position up to and for a period of time after the issue of the present summons. Even though the present summons was issued on 28 July 2004, it was not until three days before this hearing on 17 August 2004 when the defendants filed the very substantial affirmations that the events took a different course. Evidently, Po Fat was only paid $245,034 and agreed to carry on the work after the plaintiffs' present application.

27. That said however, I am also mindful of the possible hardship that may occasion to the defendants by an interlocutory costs order against them, if they were eventually to succeed in this action. In such a case, they would have to pay out of their own pockets, at least initially, even though they might succeed on the dispute.

28. The defendants ask that the costs should be reserved. I do not consider this to be appropriate since the summons and the interlocutory application under it have in substance been resolved and adjudicated upon. The costs should be dealt with now. The concern about defendants having to pay out-of-pocket even if they were to win the action can be properly met by an order that the plaintiffs' costs be in the cause, which I so order.

29. In short, I make the following orders on the plaintiffs' summons:

(1)	The defendants do take all reasonable steps to enable and ensure that Po Fat Construction Company Limited and its subcontractor and workers do carry out all necessary work to fully comply with the Fire Hazard Order (TWS 9279 of 2003) pursuant to the Building Contract made between the Incorporated Owners of Kwai Wan Industrial Building and Po Fat Construction Company Limited and also the agreement mentioned in paragraph 8 of Chong Chun Yan's affirmation filed on 17 August 2004.
(2)	There be liberty to apply.
(3)	The costs of this application be the plaintiffs' costs in the cause.