News
News //
Property and Building Management Law Alert - November 2017
Submitted by // K Bowers, Partner / Solicitor Advocate
28 November 2017


Joint and Several Liability of Co-Owners

Wong Tak Man Stephen v Chang Ching Wai and Another [2017] HKCU 2685

Introduction

In the recent case of Wong Tak Man Stephen v Chang Ching Wai and Another [2017] HKCU 2685, the Court (notably for the first time) decided on the proper construction of section 34 of the Building Management Ordinance (Cap. 344) ("BMO").

The Plaintiffs were the joint and several liquidators of the Incorporated Owners ("IO") of Nos. 6, 6A, 6B, 8, 10, 12, 14 & 16 Wing Kwong Street ("Building"), while the Defendants were two of the owners of the Building.

Summary

Between 2007 and 2009, the IO engaged a construction company ("Company") to perform refurbishment works at the Building ("Refurbishment Work"). Subsequently, the Company brought a claim against the IO for the outstanding payment for the Refurbishment Work and obtained a default judgment in the sum of HK$1,143,567.50, together with interest and costs ("Judgment Debt"). The IO was eventually ordered to be wound up on the basis of the Judgment Debt.

Whilst the Plaintiffs had attempted to recoup contributions from the owners of the Building to settle the relevant debts and liabilities, a substantial number of the owners (including the Defendants) had failed to contribute to the Refurbishment Work and / or the contingency fund set up by the Plaintiffs. The Plaintiffs then commenced proceedings against the Defendants seeking (1) a declaration that the Defendants should be jointly and severally liable for all debts and liabilities of the IO, and (2) an order that the Defendants should pay HK$3,649,932.77 to the Plaintiffs.

The crux of the dispute surrounded the proper interpretation of section 34 of the BMO ("Section 34"). Pursuant to Section 34, "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." (emphasis added)

The Plaintiff submitted that each of the owners of the Building should be jointly and severally liable for the IO's debts and liabilities, and that each owner could then seek a contribution from the other owners of the Building. On the other hand, it was the defence's case that neither of the Defendants should be held liable to contribute where the provision is ambiguous. The sum payable for the Refurbishment Work and the apportionment of such sum between the owners of the Building was also questioned.

Decision

(1) Joint and Several Liability

In determining the proper meaning and effect of Section 34, and as a starting point, the Court considered the legislative background (including its context and purpose) of the current legislation. In essence, the Court was of the view that the addition of the phrase "both jointly and severally" after the phrase "the owners shall be liable" (in the current legislation, enacted in 1993 to replace the old legislation) "…must have intended to change the limit and extent of an owner's liability under the old regime" and evinces a clear intent to create a scheme of joint and several liability on the part of the owners.

(2) Apportionment of Liability

Having decided that owners of a building should be jointly and severally liable, the question arose as to the apportionment of their liability. As summarised by Hon. Kwan J in Re Incorporated Owners of Foremost Building, there are two possible and mutually exclusive interpretations of section 34:

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

(b) 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.

The Court accepted the Plaintiff's submission that interpretation (b) represented the correct interpretation of the meaning and effect of Section 34.

In essence, giving effect to the legislative intent, the Court held 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)".

Comment

This case provides an important, unprecedented clarification of the Court's interpretation of Section 34. It is particularly noteworthy for IO and owners of buildings in relation to their respective rights and obligations regarding contributions to refurbishment / renovation works done to their buildings.

 

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