Recent case confirms Joint Ventures cannot be prosecuted under the Construction Sites (Safety) Regulations

Tanner De Witt Legal Update, December 2005

On 1 December 2005, the Court of First Instance, in HKSAR – v – Hyundai Engineering Construction Company Limited and China Engineering Construction Corporation Joint Venture decided that an unincorporated joint venture could not be prosecuted under the Construction Sites (Safety) Regulations. This is an important decision which will be relevant for any contractor who carries out construction work in joint ventures.

Facts

Hyundai and CECC entered into a contractual joint venture for the construction of a container berth. The contract stated that the parties were not partners and the joint venture was not incorporated. Unfortunately during construction, a worker fell into a pit. There was no guardrail or other precautions to prevent the fall. A prosecution was brought against the “Hyundai-CECC Joint Venture” for failure to take adequate steps under regulation 38B(1) of the Construction Sites (Safety) Regulations (“the Regulations”).

The joint venture sought to argue that it could not be prosecuted because it was not a separate legal entity. This update is concerned only with the Court’s decision on this point.

The Court’s Decision

The prosecution sought to argue that the Regulations required the prosecution to identify the principal contractor and, where there was more than one contractor carrying out the works on site, there were difficulties in doing this. These difficulties justified prosecuting associations and joint ventures.

However the Court accepted that the joint venture could not be prosecuted because it was not a legal entity.

The Court’s reasons were:

• The Regulations are issued under the Factories and Industrial Undertakings Ordinance. That Ordinance defined a contractor as ‘a person’ or ‘a firm’.
• An unincorporated joint venture is not a ‘person’ and, at common law, an unincorporated association cannot be prosecuted. The argument in Court concerned whether the use of the word ‘firm’ in the definition of contractor in the Ordinance allowed an exception to the basis common law rule. The Court ruled that it did not.
• The Court’s decision concentrated on the practical realities concerning taking active enforcement steps if the Defendant is not a legal entity. The Court quoted Mr. Justice Stock, in Jiang Enzhu v. Lau Wai Hing Emily:

“To convict an unincorporated association would be a legal nonsense.”

The Judge ruled that the correct approach would have been to prosecute each of the parties to the Joint Venture separately. The Judge said:

“The two corporations that made up the joint venture were each amenable to prosecution. There would have been no problem, and none has been drawn to my attention, in prosecuting these legal entities…. It was said that only one principal contractor for a site was envisaged by the legislation. Whilst that may be so in most cases, it seems to me that a joint venture on a fifty fifty basis could be met by the prosecution of both parties on the basis of joint enterprise, applying the usual principles for joint liability in crime.”

Comment

This decision has clarified that a 50%/50% unincorporated joint venture cannot be successfully prosecuted under the Regulations and potentially under other provisions of Factories and Industrial Undertakings Ordinance. The correct approach is to bring separate prosecutions against each member of the equal joint venture. There could be both short term and long term consequences of this decision.

1. In the short term, where prosecutions have been brought against unincorporated joint ventures, these proceedings will have to be reissued. It could be that the summonses for these offences would then be out of time. The general rule is that (unless the offence carries a specific limitation period) a summons must be issued within 6 months of the date of the offence. Contractors should be aware of this potential defence.
2. In the long term, it can be expected that prosecutions under the Regulations will be brought against all the joint venture partners, at least where the partnership shares are equal. A different situation could develop with unequal partnerships. It could be that if the prosecution wishes to identify a ‘principal contractor’, then where the partners to the joint venture are not equal, it could be that prosecutions are brought only against the joint venture leader.