Case Update – Application dismissed for leave to appeal a statutory appeal against a construction industry levy

On 28 March 2024, the District Court dismissed an application (the ‘Application‘) by KONE Elevator (HK) Ltd for leave to appeal the Court’s previous decision on KONE’s Statutory Appeal (as defined below) against a levy imposed by the Construction Industry Council (‘CIC‘).

The previous decision

Under the Construction Industry Council Ordinance (Cap. 587) (‘CICO‘), a ‘Construction Industry Levy’ has to be paid by contractors to the CIC in respect of construction operations with a value exceeding $3 million.  The levy is calculated as a percentage of the value of the construction operations in question.

KONE, a prominent player in the lift and escalator industry, objected to a levy imposed on them regarding certain lift and escalator maintenance works.  This objection was referred to the Objections Board established under the CICO, which affirmed the levy.

Dissatisfied with the Objections Board’s decision, KONE appealed further to the Court, which was the first-ever statutory appeal against a levy decision made by the CIC pursuant to section 57 of the CICO (the ‘Statutory Appeal‘).

In the Statutory Appeal, KONE had 3 broad complaints – (1) allegations of bias and procedural unfairness against the Objections Board, (2) challenge to the constitutionality of the Objections Board’s proceedings, and (3) claims that the CIC did not have power or jurisdiction to issue the levy payment notice as the works performed by KONE were not ‘construction operations‘ within the meaning of the CICO.

Previously, the Court dismissed KONE’s Statutory Appeal in a decision dated 30 November 2023.  KONE subsequently applied for leave to appeal on the below 4 grounds, as well as on the ‘some other reason in the interests of justice‘ ground pursuant to section 63A(2)(b) of the District Court Ordinance (Cap. 336).

The Application

The grounds pursued by KONE and the Court’s reasoning are set out as follows:

  1. Ground 1: KONE criticised the Court’s approach in determining whether the lift and escalator maintenance operations covered by the levy payment notice qualified as ‘construction operations‘ under the CICO. KONE considered that the Court should have taken a more strict approach to interpreting Schedule 1 of the CICO, which lists the types of work included in the definition of ‘construction operations‘. The Court rejected this ground, holding that it had taken a correct approach by construing the CICO purposively, and realistically analysing the particular facts and circumstances.  KONE also claimed that the Court failed to take into account industry practice or expert evidence, but the Court held that whether lift and escalator maintenance operations were ‘construction operations‘ was a matter of statutory interpretation based on a faithful construction of the relevant provisions, not of industry practice or expert evidence.
  2. Ground 2: KONE claimed that ‘construction operations‘ were limited to works requiring the appointment of an ‘authorized person‘ pursuant to the Buildings Ordinance (Cap. 123), and that as no authorized person had been appointed, the relevant works were not construction operations. The Court held that KONE’s contention was based on a misreading of the definition of ‘authorized person‘ at section 2(1) of the CICO, which was not limited to only authorized persons appointed under the Buildings Ordinance.  The Court also expressly rejected KONE’s proposed definition of ‘construction operations’ as confined to work requiring the appointment of an authorized person.
  3. Ground 3: KONE criticised the Court’s rejection of its expert evidence on the industry meaning of the terms ‘stage‘ or ‘part‘. KONE’s expert had not been cross-examined in the earlier Statutory Appeal and the CIC had not adduced contrary expert evidence.  The Court held this complaint without merit, as it had already held in its previous decision that the relevant point was a matter of law for which expert evidence was inadmissible.  KONE also complained that it should have been notified that the Court did not accept KONE’s expert evidence and given a chance to respond, but the Court found that this had been addressed during the oral closing.
  4. Ground 4: Regarding whether certain identified items fell within the definition of ‘construction operations‘, KONE argued that the Court erred by placing the burden of proof on KONE to demonstrate why the works were not ‘construction operations‘, instead of on the CIC to justify charging a levy. The Court referred to its previous decision on this issue, in which it held that the CIC did bear the burden of justifying the levy, but that there was sufficient evidence before the Court to make a finding one way or another without having to refer to burden of proof.  KONE also argued that it had given sufficient factual evidence whether certain items did not amount to ‘construction operations‘.  The Court referred to numerous deficiencies in the witness statement that had been identified in its previous decision, and rejected this argument.

The Court overall found no merit in KONE’s arguments, considering them a rehash of their previous trial positions.  It further concluded that there was no justifiable reason to hear the appeal on the ‘some other reason in the interests of justice‘ ground, despite KONE’s assertion that the case may be ‘the first of its kind‘ and could have ‘far-reaching consequences for other contractors or property owners‘.

The Court’s dismissal of the Application and its previous decision may nonetheless provide useful judicial guidance as to various aspects of the construction regulatory regime in Hong Kong, particularly as CICO cases seldom come before the courts.  The definition of ‘construction operations‘ is often a contested issue in matters under the Construction Workers Registration Ordinance (Cap. 583), which is also administered by the CIC.  The CIC’s regulatory role and the practices of the Objections Board were also discussed at some length in the previous decision, which may have implications on various similarly-structured appeal procedures for other CIC-run schemes.

The full judgment can be accessed here.

19 April 2024