Foo Tak Ching v. Tang Man Kit

HCMP 3361/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3361 OF 2014

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JUDGMENT

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Introduction

1.Mr Foo in his capacity as the Manager of “Wah Yan Mo Fan Heung” (“Heung”) brought these proceedings by way of an Originating Summons dated 31 December 2014 (“the OS”) for an application for the following orders against Mr Tang:

(a) that Mr Tang doth forthwith delivery up all the documents and chattels belonging to the Heung to Mr Foo or at his order and direction; and

(b) that upon due compliance with the foregoing order Mr Tang doth make and file an affirmation deposing upon the fact that he has no further documents or chattels belonging to the Heung which are or may be within his possession, custody and control.

2.Mr Tang contends that he is presently the manager of the Heung and the demands of Mr Foo have no legal basis.

3.Mr Chong, counsel for Mr Tang and himself a member of the Heung, puts his application on two bases in his skeleton submissions. First he maintains that Mr Tang as the manager of the Heung, is a trustee and fiduciary of the Heung and he is a constructive trustee and a fiduciary of the properties of the Heung. Thus, he submits that Mr Tang owes a common law duty to account its properties to the Heung.

4.Secondly, Mr Chong relies on a resolution passed at a meeting of members of the Heung on 23 August 2014 (“the 2014 Meeting”) whereby it was resolved that Mr Tang and one Mr Chan Wai Ying do return all the documents and chattels of the Heung (“the Delivery up Resolution”). Mr Chong submits that the Delivery up Resolution was passed in a duly convened meeting and is binding on Mr Tang.

5.In fact, at the 2014 Meeting, another resolution was passed. It was resolved that the Heung do confirm, ratify and approved the resolution to remove Mr Tang as manager of the Heung (“the 2^nd Removal Resolution”) passed at the meeting held on 26 October 2013 (“the 2013 Meeting”).

6.Mr Chong expressly indicates that this court is not concerned with the validity of the two resolutions relating to the purported removal of Mr Tang as manager of the Heung respectively passed at the 2013 and 2014 Meetings. He merely relies on the Delivery up Resolution in this application.

7.The present state of the OS does not allow Mr Chong to argue on the first basis. Order 7 r.3(1) of the Rules of the High Court provides that every originating summons must include a concise statement of the relief or remedy claimed with sufficient particulars to identify the cause or causes of action in respect of which the plaintiff claims that relief or remedy: Securities and Futures Commission v Tiger Asia Management LLC & Or [2011] 6 HKC 149 at §9 per Harris J.

8.The OS, strictly speaking, is defective in that there is no cause of action identified in its body at all. The Delivery up Resolution is only mentioned in the title. Whilst I am inclined to allow Mr Chong to advance his case based on the Delivery up Resolution in the absence of any objection by Mr Wong SC (appearing for Mr Tang with Mr Sezto), I cannot accept that Mr Chong can argue on an unpleaded case.

Background Facts

9.Therefore, the only issue calling for resolution is the validity of the Delivery up Resolution, which is indeed within a very narrow compass. Mr Wong submits that the 2014 Meeting was not duly convened at all and the Delivery up Resolution cannot be valid.

10.To provide the context relating to this issue, a summary of the undisputed background facts evidenced by documents is as follows.   

(1) In or about 1924, a group of developers led by one Wong Yuet Chiu and one Lui Lap Kar formed an unincorporated company to acquire lands in the New Territories for the development of a model village. Between 1924 and 1928, certain lands were acquired by them first in the personal names of the said two persons and subsequently transferred to the Heung and/or its managers. The Heung is essentially a business t’ong.

(2) Mr Tang together with one Mr Chan Kam Cheung became the managers of the Heung on 28 January 1989 and Mr Tang was duly registered with the District Office under the New Territories Ordinance, Cap.97. From 1984 to January 1999, Mr Tang also assumed the position of the secretary of the Heung.

(3) In 1984, Mr Tang prepared a list of the members of the Heung under the direction of Mr Wong Tat To, the then manager of the Heung (“the 1984 List”).

(4) The development project intended by the Heung never got off the ground and the lands acquired remain vested in the Heung and/or its managers. In the 1980s, the Government resumed some of such lands and as a result substantial compensations were paid to the Heung. Dispute arose as to whom and how such compensations should be distributed. Verification of membership of the Heung has become an issue.

(5) In 1989, Mr Tang compiled another member list of the Heung (“the 1989 List”) based on the 1984 List.

(6) Mr Chan Kam Cheung passed away in January 1997. On 17 December 1999, Mr Foo too became one of the managers of Heung.

(7) Mr Foo and Mr Tang are the plaintiff in High Court Action under HCA 8000/1990 suing as managers of the Heung against Hip Hing Timber Company Limited for recovery of possession of certain lands belonging to the Heung (“the Hip Hing Action”).

(8) Three members of the Heung commenced a High Court Action under HCA1342/2013 in July 2013 against Mr Tang alleging breach of fiduciary duty as the manager of the Heung (“the 2013 Action”).

(9) On 26 October 2013, Mr Foo convened the 2013 Meeting. There, the attending members purportedly passed a resolution to remove Mr Tang as manager of the Heung (“the 1^st Removal Resolution”) and another one to appoint Ms Pat Wong to be an additional manager of the Heung (“the Appointment Resolution”) despite the objection of Mr Tang.

(10) On 14 January 2014, Mr Foo and Ms Pat Wong commenced a High Court action under HCA 83/2014 against Mr Tang and other persons alleging his breach of fiduciary duty as the manager of Heung (“the 2014 Action”).

(11) Mr Foo on 17 July 2014 gave notice to members of the Heung to convene the 2014 Meeting. The notice was also posted in Sing Tao Daily and South China Morning Post on 25 July 2014  (“the 1^st Notice”). The 1^st Notice made no mention about any obligation of delivery up of Mr Tang.

(12) On 7 August 2014, Mr Foo gave further notice in respect of the 2014 Meeting setting out the proposed resolution to demand Mr Tang and Chan Wai Ying to deliver up all documents and chattels of the Heung (“the 2^nd Notice”).

(13) At the 2014 Meeting, the Delivery up Resolution was purportedly passed by the members in attendance.  

(14) Despite repeated demands made by Mr Foo’s solicitors to register the purported removal of Mr Tang as manager and the purported appointment of Ms Pat Wong as an additional manager, the Yuen Long District Office has not yet agreed to act pending further investigation of this matter.

11.I should make it clear that the foregoing summary is made with my full awareness of the core contention of Mr Tang. Mr Tang does not accept the propriety of the 2013 and 2014 Meetings and the validity of all resolutions purportedly passed at the two meetings.

Discussion

12.The parties’ debate is centred on the propriety of the 2014 Meeting including the adequacy of the 1^st and 2^nd Notices and the membership of the Heung.  

13.It, however, appears to me that there is a fundamental problem with the Delivery up Resolution. In the 2^nd Notice, the first sentence of the proposed Delivery up Resolution, to be followed by a list of documents and chattels of the Heung, read:

“That Tang Man Kit, the former Manager of the Heung and Chan Wai Ying, the former employee of the Heung, shall return to the Heung…” (emphasis supplied)

14.In the 1^st Notice, the proposed resolutions tabled for the 2014 Meeting included a resolution for the confirmation of the 1^st Removal Resolution (the removal of Mr Tang as the registered manager of the Heung). Eventually, the 2^nd Removal Resolution was passed together with the Delivery up Resolution.

15.In the Delivery up Resolution, Mr Tang was described as former Manager of the Heung. It is clear that the Delivery up Resolution was premised on the purportedly valid removal of Mr Tang. The members voted in favour of the Delivery up Resolution on the basis that Mr Tang was merely the former manager of the Heung and had ceased to be a manager by reason of the 1^st and/or 2^nd Removal Resolutions. Since Mr Tang came into possession of the documents and chattels of the Heung only by reason of his office, it seems only logical that Mr Tang should return them to the Heung upon his removal as manager of the Heung.

16.It is worthy of note that for the purpose of these proceedings, Mr Chong asks this court to disregard the issue of validity of the 1^st and 2^nd Removal Resolutions. However, without my determination of this validity issue, this court cannot uphold the validity of the Delivery up resolution predicated upon the valid removal of Mr Tang as manager.

17.On this ground alone, this court should dismiss Mr Foo’s application by the OS.

Adequacy of the 1^st and 2^nd Notices

18.I shall nevertheless proceed to consider the validity of the complaints raised by Mr Wong in regard to the adequacy of the 1^st and 2^nd Notices. First, concerning the governing legal principles, Mr Wong accepts that by reason of the nature of the Heung, Chinese law and custom are relevant. All the common law principles in respect of meetings of corporations expounded in the authorities cited do not really assist this court.

19.Mr Chong relies on the expert report of Wejen Chang filed by Mr Tang and Mr Foo in the Hip Hing Action for the general principles. There is no contrary evidence. Mr Wong expressly relies on the same too.

20.The relevant part of the expert evidence is set out as follows:

“A business tong needs someone to oversee its regular operation. For this reason a manager is appointed. Where the work is heavy, a tong may appoint more than one manager. But the members of the tong always retain the power of making the most important decisions, including the election and dismissal of the rnanager(s). The decision is usually reached by a process known as bing-gong yi-ding 秉公議定 or simply gong-yi 公議，meaning ‘to decide after open and fair discussion’. No formal procedural rules govern this process. The reasonable basic requirements are, of course, that the members are notified of a meeting where the important issues are to be decided and that the meeting is attended by a majority of the members who are reasonably expected to respond to the notification. (Those who without an acceptable reason fail to respond can be lawfully assumed uninterested in the issues and willing to let those who do attend the meeting to decided.) Ideally a decision of the meeting reflects a consensus but, in practice, it is usually an agreement among the majority of the members present. When a decision is thus made and presented as that of the tong,no one outside the tong is in a position to challenge it.”

21.I accept his evidence quoted above. It can be seen that the overriding concern is still very much fairness, as with the common law principles. Members must be given an adequate notice of the issues to be decided so that they can make an informed decision as to whether to attend the meeting and take part in the decision making process. If they are not interested in such issues to be decided, they are at liberty not to respond to the notice and allow other members attending the meeting to make the decisions for them.

22.In light of the agreed expert evidence, the 1^st and 2^nd Removal Resolutions underpinning the Delivery up Resolution were the most important decisions in a business t’ong. All members must have been duly notified beforehand so that they could opt to take part in the meetings and had an open and fair discussion about the issues.  

23.The evidence of Mr Foo in relation to the 1^st and 2^nd Notices is that for the 1^st Notice, he not only gave it to members of the Heung but also published it in the two local newspapers. As regards the 2^nd Notice, it was not posted in any newspaper.

24.Mr Foo explained further that he sent the 2^nd Notice by post to all the members who are traceable through their corresponding addresses kept by the Heung in the 1984 List.

25.Thus, it is apparent that there are members who are not traceable by reason of the absence of knowledge of their valid correspondence address on the part of the Heung.    

26.Probably due to the existence of such untraceable members, Mr Foo found it necessary to publish the 1^st Notice in the newspapers by way of substituted service of the same. 

27.Mr Wong helpfully draws my attention to the fact that previously the Heung had also published notices to its members in the newspapers on the following occasions:

(1) On 6 January 1989, the notice for the meeting to be held on 28 January 1989 was published in local newspapers;

(2) On 15 November 1999, the notice for the meeting to be held on 17 December 1999 was published in two local newspapers; and

(3) In a consent order made by Le Pichon J (as she then was) on 16 January 1998 in an action against Mr Tang and Chan Kam Cheung by the members of the Heung, it was ordered that notice of a general meeting in both the English and Chinese languages be published in the South China Morning Post, the Sing Tao Daily and the Ming Pao Daily.

28.It is thus clear to me that for an effective notice to be given to all of its members regarding important resolutions to be decided at a forthcoming meeting, the Heung should publish the relevant notice in local newspapers in good time ahead of the meeting.

29.It is not in dispute that the proposed Delivery up Resolution was not mentioned in the 1^st Notice. It only appeared in the 2^nd Notice, which was not published in any local newspapers. It cannot be disputed that no effective notification of the proposed Delivery up Resolution was given despite the 2^nd Notice. 

30.I therefore come to the conclusion that the Delivery up Resolution cannot be valid for want of the requisite notice to be given to all the members of the Heung.

31.Mr Chong argues that there was no conflicting votes casted in respect of the Delivery up Resolution. Be that as it may, this could not cure the deficiency of the 2^nd Notice. This does not begin to show that all the members who were interested in the resolution opted to appear at the 2014 Meeting and voted on the resolution after an open and fair discussion.

32.Mr Chong further highlights to me that the members who attended the 2014 Meeting and voted in favour of the Delivery up Resolution were substantially the same members who attended the 1989 Meeting and resolved to appoint Mr Tang as manager of the Heung.

33.With respect, I do not think this has any bearing on the validity of the 2^nd Notice at all.

34.Mr Wong mounts another challenge to the adequacy of the 2^nd Notice. He draws my attention to the fact that the actual term of the Delivery up Resolution included the additional phrase “若失責鄕則採取適當的法律行動” (my English translation: in case of default, Heung would take appropriate legal actions). Mr Wong argues that the Delivery up Resolution cannot be valid because the 2^nd Notice made no mention about the possibility of legal actions in case of Mr Tang’s non-compliance of his delivery up obligations.

35.Given my conclusion about the effectiveness of the 2^nd Notice above, this challenge is academic. In any event, I cannot agree to Mr Wong’s submission.

36.In my judgment, it must be clear that the proposed Delivery up Resolution in the 2^nd Notice, if passed, should be legally binding on Mr Tang. It must be implicit in the 2^nd Notice that if Mr Tang did not comply with the resolution, the Heung might take legal action to enforce the resolution.   

37.In the circumstances, I do not find anything untoward about the inclusion of the additional phrase in the Delivery up Resolution after further discussion by the members present at the 2014 Meeting. It was only an express record of a logical and reasonable course to be taken in case of the default of Mr Tang.

38.Mr Wong has another point to make about the propriety of the 2014 Meeting. He argues that membership of the Heung is in a “complete state of flux” and so there cannot be a collective expression of the wishes of the members of the Heung in the Delivery up Resolution.

39.He first refers to me a letter of Mr Foo’s solicitors issued to the Yuen Long District Office dated 12 April 2014. A copy of the 1984 List was enclosed with the letter and it had the following to say about the 1984 List:

“We enclosed herewith a copy list of members of the Heung for your attention. The Heung had previously obtained advice from Mr Robert Tang of Senior Counsel (now Tang PJ of the Court of Final Appeal) that the Heung should apply to the Court for determination as to the status of its members since some of the members only possess a share certificate of Chap Shing Co. (集成公司), the management company of the Heung, but without owing any land lots within the Heung while some members own land lots within the Heung but without possessing any share certificate of the said company. Therefore, the exact status of people whose names appeared on the said list will be subject to the determination by the Court as to whether they are members of the Heung pursuant to an application to be made by the Heung in due course. However, the said list will suffice for your purpose.”

40.Indeed in the legal advice referred to therein, which was obtained 29 November 1996 pursuant to a court order made in HCMP 1173 of 1996, it was advised that an enquiry was necessary to determine the membership of the Heung and who the beneficiaries of the assets of the Heung were.

41.It is common ground that no such enquiry has ever been made despite the lapse of almost two decades.

42.On the other hand, the membership issue has been complicated by the fact that after the creation of 1984 List, there were sale transactions whereby the shares in and hence the membership of the Heung were transferred. Examples include the purported sale by Kwong Pui Kiu to Tonkit Development Limited on 19 April 1991 and the purported sale by Wong Kwan Fat to Tang Chi Man on 23 August 2012.

43.It should also be noted that even in the 1^st Notice which was published in local newspapers, it was expressly stated that the Heung reserves all its rights to challenge and seek the determine of the court as to who are members of the Heung, in particular, the identity of any attendee of the meeting unless and until such membership of the Heung will have been determined and confirmed by the court.

44.This court, very rightly, is not called upon to determine the membership of the Heung. It is not within the ambit of the OS to start with. Absent such a determination, this court can hardly be satisfied that all the members of the Heung were given notice of the 2^nd Notice and hence the proposed Delivery up Resolution. This is an additional reason why the Delivery up Resolution cannot be upheld.

45.Mr Chong seeks to persuade this court that the change in the membership of the Heung is irrelevant for the present purposes by giving his detailed analysis of the compositions of the members of the Heung. He submits that the members of the Heung cannot go beyond the 3 categories set out in Mr Foo’s 2^nd affirmation. Mr Chong can however only go so far as to submit that there has been no material change in membership of the 2^nd and 3^rd categories.  He has to accept that there were indeed changes in the membership albeit they are allegedly not material and confined to the two categories only.

46.I am far from convinced by his submissions in light of the foregoing matters. So long as the fact that not all the members of the Heung (traceable and untraceable) were given notice of the proposed Delivery up Resolution in the 2^nd Notice, the requisite notice requirement was not met and the 2014 Meeting was not properly convened to pass the Delivery up Resolution.

47.Mr Chong lastly submits that it would be absurd if the administration of the Heung could only be carried out with the final determination of its membership. I disagree. For important decisions to be decided by members collectively such as the removal of Mr Tang as manger, it is imperative to first determine the membership of the Heung and worthwhile to wait for such a determination. There is a valid reason why the Yuen Long District Office has persistently refused to act on the Removal Resolutions and the Appointment Resolution.

Alternative position

48.Mr Chong argues as his alternative case that Mr Foo as one of the beneficiaries of the Heung is entitled to sue for the wrong done to the Heung by Mr Tang. In this regard, he relies on the dicta of DHCJ Johnson Lam (as hse then was) in Leung Kuen Fai v Tang Kwong Yu Tso [2002] 2 HKLRD 705.

49.Mr Wong points out that factually it is incorrect. Mr Foo’s wife and not he himself is one of the beneficiaries.  Moreover, there is not any alleged wrongdoing identified to support any cause of action in the OS and the OS does not permit such a course to be taken.

50.Thus, I do not accept Mr Chong’s submission.

Undertaking offered

51.The upshot is that Mr Tang remains one of the registered managers of the Heung and he is entitled to equal possession to the documents and chattels of the Heung with his co-manager, of course for the purpose of the Heung only.

52.Very sensibly, Mr Tang in his affirmation (§26) offers an undertaking so as to allow Mr Foo equal access to the documents and chattels of the Heung. Though I shall not impose such an undertaking upon Mr Tang, I expect Mr Tang with the good advice of Mr Wong would agree to act reasonably with such properties of the Heung together with Mr Foo.

Conclusion and Order

53.For the reasons given above, I am not convinced of the merits of the application. I dismiss the OS accordingly.

54.I see no reason why costs should not follow the event. I make a costs order nisi that Mr Tang’s costs of the OS be paid by Mr Foo.

55.I have no doubt that both Mr Wong and Mr Szeto have done a lot to resist the present application successfully. However, after all, this matter is not complicated in terms of facts and law. In the circumstances, I am not inclined to grant certificate for two counsel despite the fact that Mr Foo is represented by two counsel as well.

56.It remains for me to thank all counsel for their able assistance.

Mr K M Chong and Mr Alvin Chong instructed by Au, Thong & Tsang for the plaintiff

Mr Ronny F. H. Wong SC and Mr Patrick Szeto instructed by Shum Wong & Co. for the defendant