Posts Tagged ‘liability’

Each owner potentially liable for owners’ corporation’s entire indebtedness

November 13, 2017

In Wong Tak Man Stephen v Chang Ching Wai ([2017] HKEC 2266) Ps were the liquidators of the Incorporated Owners (‘the IO’) of a building (‘the Building’). The IO was wound up following a petition by a construction company that carried out refurbishment works at the Building. The IO had net liabilities of just over HK$3.64 million.

The first and second defendants (‘the defendants’) were two of the owners of the Building. The defendants were among a substantial number of owners who had failed to make the contributions due from them towards the cost of the refurbishment work.

The liquidators successfully sought a declaration that the defendants were jointly and severally liable for the IO’s debts and obligations. The defendants were ordered to pay the plaintiffs the sum necessary to meet the IO’s liabilities.

The basis of the plaintiffs’ claim was section 34 of the Building Management Ordinance:

‘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.’

The court was presented with two rival interpretations of section 34:

  1. The owners were individually liable but only for a proportionate share of the IO’s liabilities calculated by reference to their shares in the Building; or
  2. Each owner was jointly and severally liable for all of the IO’s debts and liabilities but with a right of recovery from co-owners.

The court (Deputy Judge Anson Wong SC giving the judgment) accepted the second interpretation:

  1. The phrase ‘jointly and severally’ was introduced in 1993 when the Building Management Ordinance replaced earlier legislation. The phrase evinces an intention that each owner is liable for all of the IO’s debts and obligations.
  2. The phrase ‘according to their respective shares’ in section 34 refers to the right of recovery from co-owners.
  3. This interpretation of section 34 is consistent with section 17(1) of the Building Management Ordinance which allows the entire indebtedness of an IO to be enforced against an individual owner with a right of recovery from co-owners. There are dicta in the Court of Final Appeal decision in Chi Kit Co Ltd v Lucky Health International Enterprise Ltd ([2000] 2 HKLRD 503) to this effect. It would be strange if this position were not to be mirrored on a winding up.
  4. The first, rival, interpretation would make liquidation expensive and time-consuming. It would pass the risk of non-payment to creditors.

Michael Lower

 

Landlord’s repairing covenant: tenant must give the landlord notice of a defect in the property in the tenant’s possession

September 14, 2016

In Edwards v Kumarasamy ([2016] UKSC 40) the UK Supreme Court had to consider the landlord’s liability in respect of physical injury caused to his tenant. The lease was of the interior of a flat in a block of flats. The landlord (K) was himself a tenant of the flat and had the benefit of the right to use the entrance hall to the flats, the car park and the paved area between the front door and the car park. K sub-let the flat together with these ancillary rights to E. E injured himself when he tripped over an uneven paving stone in the paved area.

The primary question was whether the paved area was part of the exterior of the building of which the flat formed part. If it was, then K would be liable to T under the covenant imposed on landlords by section 11 of the Landlord and Tenant Act 1985. Lord Neuberger held that the paved area was not part of the exterior of the building. The natural meaning of the words of a statute should be applied unless they produced a nonsensical result or one which was inconsistent with the intention of the legislation. Here the natural meaning of the ‘exterior’ did not extend to the paved area ([17]).

That effectively meant that the case was decided in K’s favour. Lord Neuberger went on, however, to look at another, more general issue. He referred to the rule that, ‘a landlord is not liable under a covenant with his tenant to repair premises which are in the possession of the tenant and not of the landlord unless and until the landlord has notice of the repair’ ([30]). This is an implied term. It does not normally apply where the premises to be repaired are not in the tenant’s possession ([42]). If the landlord had been subject to a covenant to repair the paved area, did the tenant have to serve notice of disrepair on him before the landlord was under any liability to repair?

The distinguishing feature of this case was that the premises to be repaired were in the possession neither of the landlord nor the tenant but was property over which they both had a right of way. The premises were the paved area over which the landlord had been granted a right of way which he had effectively passed on to the tenant. The landlord had effectively disposed of his right to use the paved area to the tenant ([50]). Lord Neuberger held that the rule requiring the tenant to give notice of the disrepair applied to this case (49]).

Michael Lower