Wong Chung Hon and Another v. Tse Wai Shum and Others

HCCW 181/2020

[2021] HKCFI 313

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 181 OF 2020

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D E C I S I O N

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APPLICATION

1.This is the application of the Respondents, by a summons dated 3 September 2020 (the “Striking Out Summons”), to strike out the winding up petition presented by the Petitioners on 19 June 2020 (the “Petition”), on the grounds that: -

(1)     The Petitioners have no locus standi to present the Petition; and

(2)     The Petitioners are acting unreasonably in seeking winding up relief when there are alternative remedies available.

2.The Respondents no longer take issue with the locus standi of the 2^nd Petitioner.

MATERIAL FACTS

3.Chungshan Commercial Association, Hong Kong (the “Association”) is a clansmen association of Chungshan natives which has a history of over 108 years. There is no dispute that the Association is solvent and active in its social and charitable activities.

4.The Association currently has about 1,300 members.

5.The Petitioners seek to wind up the Association on the grounds of that there is a lack of confidence in management, loss of substratum and that the conduct of the 1^st and 2^nd Respondents falls entirely outside the members’ contemplation and/or puts an end to the basis of the Association.

LOCUS STANDI

6.On 18 October 2014, the Association held its annual general meeting for the year 2013 (the “2013 AGM”).

7.During the 2013 AGM, the 1^st Petitioner publicly alleged that the board of directors of the Association at the time had breached their directors’ duties and embezzled the assets of the Association.

8.On 10 November 2014, the Association issued a letter to the 1^st Petitioner, warning the 1^st Petitioner that what he said during the 2013 AGM was defamatory to the Association and requested the 1^st Petitioner to provide a written explanation in that regard (the “10 November 2014 Letter”).

9.In response to the 10 November 2014 Letter, the 1^st Petitioner wrote another letter to the Association on 26 November 2014 (the “26 November 2014 Letter”), seeking to provide basis for his statements.

10.On 22 December 2014, the Association issued another letter to the 1^st Petitioner which stated that there might be misunderstanding on the part of the 1^st Petitioner and requested him to make clarifications. Articles 6 and 7 of the Articles of Association were referred to. Article 7 gives power to the Association to expel its members from the Association on the grounds of, inter alia, misconduct (the “22 December 2014 Letter”).

11.On 3 March 2015, about two months later, the 1^st Petitioner wrote to the Association to resign from all posts, including his membership of the Association with immediate effect (the “Resignation Letter”).

12.On 27 March 2015, the Board of Directors of the Association resolved to accept the resignation of the 1^st Petitioner from membership of the Association.

13.The locus standi issue is simply this: whether the 1^st Petitioner has effectively resigned from the Association. If the answer is in the affirmative, then the 1^st Petitioner is, presently, no longer a member of the Association and thus has no locus standi to present the Petition against the Association.

14.Mr Ho for the Petitioners submitted that a member’s resignation from membership in a company limited by guarantee is effective if he has sufficiently manifested his decision to cease membership.  In 2015, the 1^st Petitioner responded forcefully to the Respondents’ intimidation against the 1^st Petitioner’s exposure of the Respondents’ misappropriation of the Association’s assets, and emphatically ended his protest letter by saying he resigned in the Association. But the 1^st Petitioner, in fact, did not intend to cease membership.

15.Mr Ho for the Petitioners helpfully drew to the attention of the Court the following established legal principles:

(1)     Membership in a company limited by guarantee is primarily a matter for the company’s articles (see Ma Po Chim, Percy v Lee Tung Hai, Leo HCMP 3253/2004, unreported, 19 January 2007).

(2)     As a matter of common law, a member may also resign his membership unilaterally and his resignation will be effective if he has sufficiently manifested his decision to cease to be a member. In Re Sick and Funeral Society of St John’s Sunday School, Golcar [1973] Ch 51, Megarry J. at 62C-D said:

“…It seems to me that the answer, or an answer, lies in the decision of the Court of Appeal in Finch v Oake [1896] 1 Ch. 409, which I mentioned in the course of argument. This established that a member of a society has the unilateral right, not dependent on acceptance by the society, to resign his membership at any time, even though the rules contain no provision as to resignation. In that case, the member wrote a letter saying that he desired to withdraw his name as a member of the society, and that was held to be sufficient. There can be no magic in the word “resign,” nor in whether the resignation is written or oral. The essence of the matter seems to me to be whether the member has sufficiently manifested his decision to be a member no more. I cannot see why such a manifestation should not be by conduct instead of by words: the only question is whether the member’s decision has been adequately conveyed to the society by words or deeds…” (Emphasis added.)

(3)     In determining whether a member has effectively resigned, the Court takes into account the following principles:

(a)     A person’s intentions are ascertained not by reference to his subjective intentions but objectively, by reference to how a reasonable man would interpret them. His intentions will therefore be ascertained by reference to a consideration of the words used, whether written or oral, in the context in which he used them.

(b)     Even where a person uses unambiguous words of resignation, special circumstances may make it unreasonable for the recipient to assume a resignation. Such special circumstances include situations where the words of resignation were expressed in anger, in the heat of the moment or under extreme pressure (see: Lam Sin Yi Sindy v Leung King Wai William t/a William KW Leung & Co. [2020] HKCFI 2525 at §§20-24 per Mimmie Chan J.)

16.I agree with the above legal propositions. Applying the same to the facts of the present case, I am of the view that the 1^st Petitioner has sufficiently manifested his decision to cease being a member of the Association.

17.In the Resignation, the 1^st Petitioner reflected on his position and calmly stated that it was his decision to cease as a member of the Association. In the said letter, he said, inter alia, that:

“縱被得志小人妄加威嚇施壓。吾何患焉。吾以筆墨為能事不圖宦達只矜名節。況吾醉心書藝二十多年。蜚聲遠播。自應摒除一切雜念干擾。專心致志。冀於書法藝術上揚名立萬。故頓萌高吟歸去來兮之念想。頤養天年乃人之常情。嘯傲於林泉之下。醉心於翰墨之間。視權勢如糞土。等富貴如浮雲。其樂也故。斷然決定辭去所有社團之名銜。包括我於六十年代初以信安織造司理人之名義加入僑商會會員之虛名。並由即日生效。持此函告諸君。社會賢達。新春之際。如意吉祥。順頌。” (Emphasis added.)

18.I am of the view that an objective reading of the above letter from a recipient’s perspective is that the 1^st Petitioner had carefully thought about his position in the Association and preferred to spend more time in his artistic pursues rather than to continue to be a member of the Association. It was a considered and matured decision.

19.Mr Ho for the Petitioners prayed in aid of the words 縱被得志小人妄加威嚇施壓”. However, I am of the view that the words have to be read in context. His decision to resign from membership of the Association was not as a result of a heat of the moment. He had had more than two months to deliberate on it and then came to a decision. No special circumstances exist in the present case.  His decision was not the result of any intimidation or expression of angry, in the heat of the moment or under extreme pressure.

20.This is also made clear by the two letters he wrote on 3 March 2015.

“香港中山社團聯合會主席大鑒：

余王中漢時年八十二矣。懶於交際應酬。況吾向來潛心於書法藝術研究。苦練不懈而成效日進。今已薄有聲名。為諸同好所認同也。為使能專注於筆墨之雅好。摒除雜念。平心靜氣游弋於字裡行間。再上百尺之竿頭。故請辭本會會員之名。並由即日起生效。專此函告。謹祝會務興隆。新棋叶吉。敬頌春安。”

“香港中山隆鎮同鄉會會長大鑒：

第二十八屆會董諸公

余王中漢自六十年代初支持貴會條爾半世紀有餘。蒙諸鄉賢俊彥垂愛。尊重有加。十分感恩。吾亦於眾鄉彥之模範義舉導引下略又有捐施。稍盡綿力。所喜者會務日隆。能為眾鄉親排憂解難。揚我鄉人之志氣。觧我窮困者於倒懸。自念已過杖朝之期。體衰而力有不逮。且自幼醉心書藝。晨昏砥礪。所幸略有所成。更思於有限之餘年再上層樓。為能專心一致於翰墨功夫。故由即日起辭去本會會員之名。持此函告。謹祝會務昌隆。順頌春安。” (Emphasis added.)

21.In the circumstances, I am of the view that the 1^st Petitioner does not have the relevant locus standi to present the Petition.

ALTERNATIVE REMEDIES AVAILABLE

22.It is established law that the remedy of winding-up on a contributory’s petition is a remedy of last resort. (See Fulham Football Club (1987) Ltd v Richards & Anor [2012] Ch 333 at §§54-57; Tsang Woon Ming v Lai Ka Lim & Ors [2020] HKCFI 1503 at §§113-115; and Wong Tin Chee v Wong To Yick & Anor [2001] 2 HKLRD 683 at 687E).

23.Further, it is clear that a contributory’s petition for winding-up can be struck out if, assuming that the petitioner proves all the facts in the petition, it is clear that there is no real possibility or prospect of a winding-up order being made. In the circumstances, it is not just for a company to have the threat of a winding-up order hanging over its head like the Sword of Damocles. (See Wong Tin Chee (supra) at p.687I to 688C; and Re Sun Light Elastic Ltd [2013] 5 HKLRD 1 at §3).

24.It is incumbent on the petitioner to point to particular matters he was concerned which might make the winding-up order the appropriate or only practical relief. He should state in his petition why he had sought the winding-up order and adequately set out the grounds relied on (Re Sun Light Elastic Ltd (supra) at §§9-12)

25.I am of the view that there is no realistic prospect that the Court will make a winding-up order against the Association even if all the allegations in the Petition are proved to be correct and true. First, all the allegations concerned about the delinquent directors (the 1^st and 2^nd Respondents) who caused, procured, authorized and/or recklessly sold seven real properties of the Association at an undervalue and to connected parties, the delinquent directors controlled the management and caused the depletion of assets and caused expenditures to overtop incomes and the delinquent directors obtained improper travelling benefits for themselves or for persons connected to them.

26.For the purpose of the striking out application, this Court will assume all the allegations to be true and the 2^nd Petitioner has legitimate complaints. However, all the complaints are misconduct of the delinquent directors, namely, the 1^st and 2^nd Respondents. The Association can always sue the delinquent directors for the loss and damages that the Association has suffered as a result of the misconduct of the 1^st and 2^nd Respondents, by derivative action or by unfair prejudice petition. I cannot see how even if all the allegations are made out, the Court will wind up the Association simply because of the wrongful conducts of two directors.

27.I also cannot see how if all the allegations are made out, there is a loss of substratum or that two delinquent directors’ wrongful exercise of powers would put an end to the basis of the Association. Mr Pow SC for the Respondents are correct that there are about 1,300 members and they elect about 100 directors, out of the 100 directors, a further 20 odd executive directors were elected. The 1^st and 2^nd Respondents were only two of the executive directors. The members can vote the 1^st and 2^nd Respondents out and sue them for their misconduct. This is not a reason to put the Association into liquidation.

28.Mr Ho for the Petitioners submitted that election is not a solution as history shows that members of the Association always elect the 1^st and 2^nd Respondents as directors. That may be so. But it does not mean that the Association and the Petitioners do not have a legal remedy if indeed the 1^st and 2^nd Respondents have committed wrongs against the Association.

29.Secondly, the relief that the Court can grant under section 725 of the Companies Ordinance, Cap.622 are very wide. It includes an order to direct the Association to make a claim, an appointment of receivers and/or removal of the 1^st and 2^nd Respondents as directors of the Association. There is no need to resort to the remedy of winding up so as to address the complaints of the Petitioners.

30.Mr Ho for the Petitioners submitted that the affairs of the Association call for investigation because there are matters that need to be unearthed and clarified. I agree that the need for an investigation, under some circumstances, is itself a sufficient advantage to justify the making of a winding up order. (see Cypress House Capital Ltd v Hua Han Health Industry Holdings Ltd [2019] HKCLC 623 at §77; Haw Par Pharmaceutical Holdings Pte Ltd v Hua Han Health Industry Holdings Ltd [2019] 4 HKLRD 286). However, it is does not means that a need for investigation by itself is sufficient to justify the making of a winding up order. In the present case, it is equally open for the Petitioners to apply for the appointment of a receiver or an appointment of independent directors to investigate the affairs of the Association without putting the same into liquidation.

31.Thirdly, Mr Ho for the Petitioners submitted that the rationale for winding up relief being a remedy for last resort is because normally a company limited by shares would suffer commercial loss if a winding up order is made. However, the same consideration does not apply to a company limited by guarantee. Whilst it is true that the normal commercial considerations do not apply to the present case, I am of the view that it is a fortiori that a company limited by guarantee, particularly, a charitable organization should not be put into liquidation unless there are very strong reasons to do so. The Association has a history of over 108 years. It has made invaluable contributions to society over the years. I agree that it is one of the important Chungshan clansmen associations in Hong Kong. The interests of all other members have to be taken into consideration.

32.Further, the Association is solvent and active in its social and charitable activities with about 1,300 members in Hong Kong. A winding up order would prejudice the interest of all other members as well as those benefitting from the charitable activities of the Association.

33.Mr Ho for the Petitioners submitted that the Association can be dissolved and its members can join other Chungshan clansmen associations. I am not convinced that is the right approach. There are members who inevitably have emotional attachment to the Association. Unless there are strong reasons, there is no reason why the Association should be liquidated.

34.Mr Ho for the Petitioners relied on the case of Re Ting Wai Monastery Ltd [2018] 1 HKLRD 346 to advance a proposition that the Court can wind up a charitable organization if the Court is satisfied that there is a need for investigation into the affairs of the organization. However, I am of the view that Re Ting Wai Monastery Ltd is clearly distinguishable because first, in that case there was an entirely unsatisfactory state of the records of the organization and the uncertainty about its membership and directors. Secondly, it was a creditors’ winding-up petition.

35.Mr Ho has put forward the best possible case for the Petitioners. The Petitioners’ complaints might well have merits. However, on the fact of the present case, I do not see any realistic prospect that the Court will make a winding up order against the Association. There are many alternative remedies which the Petitioners can pursue against the 1^st and 2^nd Respondent without putting the Association into liquidation.

DISPOSITION

36.For all the reasons stated above, I will make an order in terms of paragraphs 1 and 4 of the Striking Out Summons.

37.As far as costs is concerned, I make a costs order nisi that costs of and occasioned by the Striking Out Summons to be paid by the Petitioners to the 1^st to the 2^nd Respondents forthwith, to be taxed on a party to party basis, if the parties cannot agree. The costs order nisi will be made absolute within 14 days from the day of the order herein unless the parties take out an application to vary the same within the 14-days period.

38.Finally, it remains for me to thank Mr Ho for the Petitioners and Mr Pow SC and Mr Wan for the 1^st and 2^nd Respondents for their helpful assistance.

Mr Look Chan Ho, instructed by Jingtian & Gongcheng LLP, for the Petitioners

Mr Jason Pow SC and Mr Vincent Wan, instructed by K F Chan & Co, for the 1^st and 2^nd Respondents

Attendance of Chan, Evans, Chung & To, for the 3^rd Respondent, was excused

Official Receiver was absent