The Garden Vista Scandal: Legal Issues of Tender-Rigging in Building Management Projects
It came as a shock for homeowners of Garden Vista when they received a hefty bill for renovation work amounting to some HK$260 million. It is later revealed that bribery arising from tender-rigging practice is the likely culprit behind the exorbitant renovation cost. Yau Shun-tin, a former proprietor of an engineering company has been charged by the ICAC with conspiracy to offer about HK$45 million in bribes in securing consultancy and renovation contracts in relation to renovation projects in Garden Vista and two other residential estates/buildings.
Tender-rigging or bid-rigging refers to prior agreements among stakeholders of a tendering process with the purpose to create favourable results to a particular candidate. Owing to the highly technical nature of building maintenance work, building owners often hire consulting firms to specify the requirement for tendering documents and assist them in evaluating the credentials of contractors. A typical tender-rigging syndicate for building maintenance would involve personnel from consulting firms, renovation contractors, property management companies, and the Chairman of Incorporated Owners. Management companies and Chairman of Incorporated Owners often hold crucial roles in the appointment of consultants and selection of contractors. Consultants and contractors who wish to secure the contract for building maintenance works may be tempted to offer some advantage to management companies and Chairman of Incorporated Owners in return for their favourable disposition.
While tender rigging may give rise to various civil and criminal liabilities, this article will focus on one of the criminal aspects in contravening Prevention of Bribery Ordinance (Cap. 201).
Five counts of conspiracy to offer an advantage to an agent were pressed against Yau Shun-tin (“Yau”) pursuant to Section 9(2)(a) of the Prevention of Bribery Ordinance (“POBO”) (Cap. 201) and Section 159A of the Crimes Ordinance.
In relation to Garden Vista renovation project, Yau was alleged to conspire with three other persons working in various consultancy firms and renovation contractor to offer approximately 16 per cent of the total project fee to two staff in the project management company and the Chairman of Incorporated Owners. In return, the two staff from the management company and the Chairman of Incorporated Owners gave Yau’s group insider information of the project, and assisted them to secure Garden Vista’s consultancy and renovation contracts.
As the Garden Vista case just entered into judicial process, it would be premature to provide a detailed analysis of the case. However, it would be helpful to look at the case Yu Po Leung v HKSAR [2001-2003] HKCLRT 507 and see the court’s consideration in relation to bribery offence against persons offering advantage to chairpersons of the Incorporated Owners.
The Yu Po Leung case is similar to the present case as both involve offering advantage to the Chairman of the Owners’ Corporation (“Corporation”) or Incorporated Owners. Yu Po Leung (“Yu”) was charged with one count of offering an advantage to an agent, contrary to Section 9(2)(b) of the POBO. Yu rewarded Liu Wan Yee (“Liu”), the Chairperson of the Corporation for her assistance in securing a lift maintenance contract by paying for her two “Turkey, Greece and Egypt 13-day tour” packages with a value of approximately HK$40,000. Yu was convicted after trial in the Magistrates’ Court and was sentenced to imprisonment for 6 months.
In Yu’s appeal to the Court of First Instance, Yu first argued that the lower court erred in deciding Liu was an agent of the Corporation as the Building Management Ordinance (Cap. 344) (“BMO”) did not provide that the power of granting contracts was conferred on the Chairperson nor providing the specific circumstances where the Chairperson would be deemed as an “agent” of the Corporation. Secondly, Yu argued that the Chairperson should not be deemed as an “agent” as she did not have the power to enter into a maintenance contract which would be binding on the Corporation.
Judge Barnes dismissed Yu’s appeal on two grounds. First, the Court held that the essence of the relationship of agent and principal arose “where a fiduciary relationship existed between the persons”. It was held that BMO clearly set out the function of the Corporation and stipulated that the Chairperson is the person who acts on behalf of the Corporation. Hence, a principal-agent relationship arises as the Chairperson is holding a position of trust. Second, Section 11(2) of the POBO provides that it shall be no defence that the person receiving an advantage “does not have the power, right or opportunity” to bind his/her principal in relation to the principal’s affairs or business. Hence, Liu is still considered as an agent even if she cannot bind the Corporation in its decision in granting contracts.
The Garden Vista tender-rigging scandal is undoubtedly a wake-up call for homeowners to stay vigilant in scrutinising the fairness and integrity in the tendering process for maintenance contracts. As for consultancy firms and renovation contractors, it is important to note from the Yu Po Leung case that any offer of advantages to the chairperson of the owners’ corporations with the intention to be considered favourably in renovation projects is likely a contravention of the POBO. Therefore, it is prudent for consulting firms and contractors for renovation projects to review their standard tendering procedure and internal compliance regime.
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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.
Published by ONC Lawyers © 2015