Lam Kin Fong and Others v. Cheung Wai Ting and Others

HCA 1457/2021

[2025] HKCFI 2901

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1457 OF 2021

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JUDGMENT

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A.  Introduction

1.This action concerns the sale and purchase of the interests in Ha Wan Wui (下灣會) (“HWW”), which is an unincorporated Chinese customary association.

B.  Material Background

B1.  HWW and the Lands

2.HWW is a “wui”, being a form of “tong” referred to in section 15 of the New Territories Ordinance (Cap.97). It is the Plaintiffs’ case that HWW is a business tong.

3.HWW has been registered under section 15 of the New Territories Ordinance. The 1^st and 2^nd Defendants were at all material times (and still are) HWW’s managers.

4.HWW is the registered owner of Lots 39RP, 58RP, 69RP, 72, 79B, 80, 81 and 753RP in Demarcation District 99 (the “HWW Lands”).

B2.  Membership of HWW

5.The membership of HWW is recognized in the following manner:-

(1)  Members of HWW are owners of the “land shares (田份)” in HWW.

(2)  These land shares (田份) are freely transferrable (whether as between pre-existing members of HWW or as between pre-existing members and non-members).

(3)  The land shares (田份) held by the members are stated in the list of members (the “List of Members”), which shall be updated whenever there is a transfer.

(4)  The proportion of each member’s land shares (田份) is expressed in terms of weights of rice crops, namely (i) 擔 (dan); (ii) 斗 (dou); and (iii) 升 (sheng). In this connection:-

(a)  one “dan” is equivalent to ten “dou”; and

(b)  one “dou” is equivalent to ten “sheng”

6.The Plaintiffs say that:-

(1)  HWW’s managers, namely the 1^st and 2^nd Defendants (who are registered under section 15 of the New Territories Ordinance), hold the HWW Lands on trust for HWW’s members in proportion to the land shares (田份) that they hold.

(2)  The members of HWW are entitled to (i) receive the rental income arising from the HWW Lands in proportion to their land shares (田份); and (ii) attend and vote in HWW’s meetings of members.

B3.  The Sale and Purchase Agreements

7.Whilst the 1^st and 2^nd Defendants are HWW’s managers, they also own and/or hold land shares (田份) in HWW.

8.The 3^rd, 4^th, 5^th, 6^th, 7^th and 8^th Defendants are merely members of HWW, who own and/or hold land shares (田份) in HWW.

9.On 18 and 21 December 2013 庄建華 (“Mr Zhuang”) and the 2^nd, 3^rd, 4^th and 8^th Plaintiffs agreed to purchase the Defendants’ land shares (田份) in HWW pursuant to seven sets of sale and purchase agreements (the “SPAs”), the terms of which are by and large identical.

10.Subsequently, Mr Zhuang assigned the interests under the SPAs with the 3^rd, 4^th, 5^th and 6^th Defendants in favour of the 1^st, 5^th, 6^th and 7^th Plaintiffs.

11.The transactions between the parties are set out in the following table:-

Vendors	Original Purchasers	Assignees of the Purchases	Land Shares in HWW
4th Defendant	Mr Zhuang	5th Plaintiff	5 dou, 9.7 sheng
3rd Defendant	Mr Zhuang	7th Plaintiff	1 dou, 9.88 sheng
5th Defendant	Mr Zhuang	6th Plaintiff	1 dan, 5 dou, 9.1 sheng
6th Defendant	Mr Zhuang	1st Plaintiff	1 dan, 5 dou, 9.1 sheng
7th and 8th Defendants	8th Plaintiff	N/A	3 dou, 9.8 sheng
2nd Defendant	2nd Plaintiff	N/A	9 dou, 9.5 sheng
1st Defendant	3rd and 4th Plaintiffs	N/A	7 dou, 9.6 sheng

12.For present purposes, the SPAs contain the following material terms:-

(1)  Clause 1 sets out the agreed purchase price in respect of the subject land shares (田份).

(2)  Clauses 2 and 3 set out the payment schedule in respect of the purchase price:-

(a)  A 10% deposit should be paid at the time when the SPAs were signed (Clause 2).

(b)  Clause 3(2) envisages that upon execution of the SPAs, HWW shall apply for approval from the Government for the sale of the HWW Lands. Thus, the vendors agree to sign the necessary documents for HWW to sell the HWW Lands, and apply for the Government’s consent.

(c)  In the premises, clause 3(1) provides that the balance of the purchase price shall be paid within 45 days after the Government approves the sale of the HWW Lands.

(d)  Clause 3(3) provides that if the application for selling the HWW Lands is not made within 2 months after the SPAs were signed, 85% of the purchase price shall be paid within 2 months of the SPA and the remaining balance shall be paid within 1 month after the Government’s approval is granted.

(3)  Clause 4(1) provides that the vendors would assist the purchasers to be registered as HWW’s members and sign all necessary documents for that purpose.

(4)  Clause 4(2) provides that the vendors shall (i) execute trust deeds to hold the land shares (田份) that are being transacted on trust for the purchasers; and (ii) execute powers of attorney to authorize the purchasers to exercise the rights relating to such land shares (田份).

(5)  Clause 6(1) provides that pending the registration of the purchasers as members of HWW and as owners of the land shares (田份), the purchasers are entitled to attend HWW’s meetings on behalf of the vendors and have full discretion in voting.

B4.  The Plaintiffs’ Complaints

13.Pursuant to the terms of the SPAs:-

(1)  The balance of the consideration had been paid, except 5% of the purchase price has been stakeheld by the Plaintiffs’ solicitors pending the Defendants’ performance of the duties under SPAs.

(2)  The Defendants had, via solicitors, delivered seven sets of trust deeds in favour of the Plaintiffs declaring that the transacted land shares (田份) in HWW are held on trust for the Plaintiffs.

(3)  The Defendants had, via solicitors, delivered seven sets of powers of attorney in favour of the Plaintiffs authorizing them to exercise their rights and powers in relation to the land shares (田份) being transacted.

14.On 7 December 2018, the Defendants further executed seven sets of deeds of sale and purchase of land shares (田份) confirming and affirming the transactions under the SPAs.

15.However, the Plaintiffs complain that:-

(1)  HWW’s List of Members has not been updated, and they have not been recognized as members of HWW; and

(2)  the 1^st and 2^nd Defendants, as managers of HWW, have refused to convene a members’ meeting to (i) report the progress of HWW’s application to the Government for selling the HWW Lands and (ii) elect new managers for HWW.

16.In the premises, the Plaintiffs commenced the present action on 24 September 2021. They seek the following reliefs against the Defendants:-

(1)  there be declarations that the Plaintiffs are lawful members of HWW holding the land shares (田份) that were purchased from the Defendants pursuant to the SPAs;

(2)  there be an order that the 1^st and 2^nd Defendants do cause HWW’s List of Members to be updated;

(3)  there be a declaration that the Plaintiffs are entitled to request and/or convene a members’ meeting for the purposes of (i) appointing new managers; and (ii) reaching a consensus regarding the sale of HWW’s Lands; and

(4)  there be an order that the 1^st and 2^nd Defendants do convene a members’ meeting for the purposes of (i) appointing new managers; and (ii) reaching a consensus regarding the sale of HWW’s Lands

C.  Procedural History

17.None of the Defendants has filed notice of intention to defend nor defence.

18.As such, by summons dated 12 April 2022, the Plaintiffs applied for default judgment.

19.On 6 June 2022, DHCJ Winnie Tsui (as she then was) dismissed the Plaintiffs’ application for default judgment (see [2022] HKCFI 1741). In short, the learned Judge was of the view that (i) in the circumstances of the present case, the court should not grant declaratory and/or injunctive reliefs when the Plaintiffs’ assertions were not investigated and tested at trial (see decision at paras 58 to 60); and (ii) there was no urgency to grant the declaratory and/or injunctive reliefs sought by the Plaintiffs (see decision at paras 70 to 74).

20.In the circumstances, the Plaintiffs continued to prosecute these proceedings. They have filed:-

(1)  the witness statement of Man Shu Fai[1] dated 31 August 2023, which sets out the relevant factual events and the documentary evidence; and

(2)  the expert report of Professor Michael Palmer dated 23 September 2024[2], which addresses various issues on Chinese customary law.

D.  Deliberation

D1.  The Plaintiffs’ status as members of HWW and lawful holders of land shares (田份)

21.Professor Michael Palmer opined that:-

(1)  There are two types of Chinese customary trusts (ie “tso” and “tong”). HWW, being a “wui”, is a type of “business tong”. This arrangement was typically adopted for the purpose of land-holding or agriculture.

(2)  As a business tong, the memberships of HWW are freely transferrable and may be acquired by purchase of the land shares (田份) from existing member. The “purchaser” or “acquirer” shall by virtue of his/her ownership of the land shares (田份) automatically become a member of HWW.

(3)  The persons who have acquired land shares (田份) in HWW are entitled to request that HWW’s List of Members be updated, and the managers of HWW owe a fiduciary duty to keep the List of Members updated.

(4)  The Plaintiffs may request that a meeting of HWW be convened. If there is a clear majority of members seeking a meeting, the managers must respond positively to such a request.

(5)  The managers act as agents of HWW. They owe fiduciary duties to its members, and must apply diligence and reasonable care in managing its affairs. They must also act reasonably and honestly. Their failure to respond to the Plaintiffs’ request for convening a meeting would hold up the business of HWW. This constitutes a breach of the duties owed to HWW’s members.

22.I accept Professor Palmer’s opinion. In particular, I accept Professor Palmer’s opinion that:-

(1)  the land shares (田份) or membership in HWW (which is a “business tong”) are freely transferrable;

(2)  a “purchaser” or “acquirer” shall, by virtue of his/her ownership of the land shares (田份), automatically become a member of HWW and

(3)  HWW’s List of Members shall be updated from time to time to record the transfer or succession of the land shares (田份).

23.Professor Palmer’s opinion is supported by the joint affirmation dated 21 December 2013 made by the 1^st and 2^nd Defendants. There, the 1^st and 2^nd Defendants mentioned that although HWW had never passed a constitution to regulate its affairs[3], the practice or custom was such that the land shares (田份) held by HWW’s members were recorded in the List of Members, and following a succession or transfer of the land shares (田份), the List of Members should be updated.

24.Further, Professor Palmer’s opinion is also consistent with the parties’ dealing under the SPAs and the documentary evidence in relation thereto (which is, in my view, incontrovertible). Whilst the Plaintiffs have plainly purchased and/or acquired the Defendants’ land shares (田份) in HWW, there is no evidence showing that the transactions were subject to any restriction.

25.In the premises, I am of the view that HWW’s List of Members should be updated, such that the Plaintiffs could be properly recognized as HWW’s members.

26.In this connection:-

(1)  There is no evidence showing that the managers of HWW are empowered to (i) restrain HWW’s members from transferring their land shares (田份); or (ii) refuse to recognize the membership of a person who has acquired land shares (田份) from a pre-existing member.

(2)  Further, having entered into the SPAs, the 1^st and 2^nd Defendants as well as other Defendants must have agreed and accepted that the Plaintiffs be recognized as members of HWW and that the List of Members be updated accordingly. As mentioned, under clause 4 of the SPAs, the Defendants agreed to assist the Plaintiffs to be registered as HWW’s members and to sign all necessary documents for that purpose.

27.As pointed out by Kwan VP in Convoy Global Holdings Ltd v Kwok Hiu Kwan [2022] 1 HKC 551 at para 29, a plaintiff who seeks to invoke the court’s discretionary jurisdiction to grant a declaratory relief has to satisfy the court that (i) he has a real interest in the subject matter; (ii) he has a real interest in obtaining a declaration against the adverse party; and (iii) the adverse party is a proper contradictor.

28.I am satisfied that each of these requirements are satisfied. The Plaintiffs, being the purchasers or transferees of the land shares (田份) in HWW, have a real interest in obtaining a declaration against the adverse parties (ie the Defendants). Otherwise, they may not be properly recognized as members of HWW, and their interests relating to the land shares (田份) in HWW may not be acknowledged.

29.In the premises, I will make the declaration sought by the Plaintiffs under prayers (1) to (7) of the amended statement of claim.

30.I am also satisfied that it would be necessary to make an order compelling the 1^st and 2^nd Defendants to update the List of Members within 28 days:-

31.In this connection,

(1)  Under the SPAs, the 1^st and 2^nd Defendants (in the capacities as vendors) owe the 2^nd and 3^rd/4^th Plaintiffs (in the capacities as purchasers) a contractual duty[4] to assist them to be registered as members of the HWW and all necessary documents for such purpose should be signed. I see no reason why the 1^st and 2^nd Defendants may not exercise their powers as managers to update the List of Members. Having acquired a bundle of rights relating to the membership in HWW pursuant to the SPAs, I am satisfied that damages would not be an adequate remedy for the 2^nd and 3^rd/4^th Plaintiffs, and they are entitled to seek an order for specific performance: see Chitty on Contracts (35^th Ed) at para 31-020.

(2)  Insofar as the 1^st, 5^th, 6^th, 7^th and 8^th Plaintiffs are concerned, for the reasons set out above, I am of the view that by acquiring the Defendants’ land shares (田份) in HWW, they have become members of HWW. Having said that the 1^st and 2^nd Defendants, as managers, owed HWW’s members a fiduciary duty to manage HWW diligently and reasonably, they could not seek to put a halt to the affairs of HWW by refusing to update the List of Members. This constitutes breach of fiduciary duties. I am of the view that the 1^st, 5^th, 6^th, 7^th and 8^th Plaintiffs are entitled to invoke the court’s equitable jurisdiction and seek a mandatory injunction compelling the 1^st and 2^nd Defendants to purge their breach of fiduciary duties by updating the List of Members. Having said that the Plaintiffs had acquired a bundle of rights relating to the membership in HWW pursuant to the SPAs, I am not of the view that damages would not be an adequate and/or appropriate remedy: see Spry on Equitable Remedies (9^th Ed) at pp. 396 and 401 to 402.

32.In the premises, I will grant the mandatory injunction and/or order for specific performance sought by the Plaintiffs under prayer (9)(a) of the amended statement of claim.

D2.  Convening Meeting of HWW

33.I accept Professor Palmer’s opinion that:-

(1)  The Plaintiffs or HWW’s members may request for a meeting.

(2)  If the 1^st and 2^nd Defendants fail to entertain the Plaintiffs’ request for convening a meeting, this would constitute a breach of their fiduciary duties owed to HWW’s members.

34.Professor Palmer’s opinion makes ample commercial sense. If the 1^st and 2^nd Defendants were entitled to ignore members’ request, they could completely and perpetually hijack HWW’s affairs by putting a halt to its operation and the deadlock would never be resolved. This would be absurd. Unsurprisingly, there is not a shred of evidence showing that HWW’s managers are empowered not to convene meetings despite members’ requests.

35.For completeness, it should be pointed out that clause 3(2) of the SPAs envisages that HWW might apply for approval from the Government for the sale of the HWW Lands. In my view, the parties implicitly agreed and/or acknowledged that a members’ meeting of HWW would be convened to discuss and decide the proposal.

36.On the evidence, I cannot see any bona fide reason why the 1^st and 2^nd Defendants may wish to put a halt to HWW’s affairs by refusing to convene a members’ meeting for discussing and deciding the proposal to sell the HWW Lands. This is a matter in respect of which HWW’s members are entitled to express their views and make a decision.

37.In the premises, it does not appear to me that the 1^st and 2^nd Defendants have reasonably and honestly managed the affairs of HWW. I am of the view that they have breached their fiduciary duties owed to the members and in light of the 1^st and 2^nd Defendants’ conduct, it is also reasonable for the Plaintiffs to propose that at the meeting to be convened, the members should discuss whether new managers for HWW should be appointed.

38.In my view, it would be appropriate for the court to grant a mandatory injunction compelling the 1^st and 2^nd Defendants to purge their breach of fiduciary duties by convening a members’ meeting of HWW within 28 days for the purpose of (i) discussing and deciding the proposals to sell or dispose of the HWW Lands; and (ii) appointing new managers for HWW.

39.Whilst I am satisfied that damages would not be an adequate remedy in the circumstances of the present case, I am also of the view that it is necessary to redress the injustice suffered by the Plaintiffs by requiring the 1^st and 2^nd Defendants to perform their fiduciary duties (ie to convene a members’ meeting pursuant to the Plaintiffs’ request): see Spry on Equitable Remedies (9^th Ed) at pp. 396 and 401 to 402.

E.  Order and Disposition

40.For all the above reasons, I am satisfied that the Plaintiffs are entitled to the reliefs sought under prayers (1) to (9) of the amended statement of claim. I will enter judgment in their favour accordingly.

41.For the avoidance of doubt, I order that:-

(1)  the List of Members be updated within 28 days;

(2)  the members’ meeting of HWW be convened within 28 days; and

(3)  there be liberty to apply.

42.In my view, the Plaintiffs need to pursue the claims in the present action because the 1^st and 2^nd Defendants (being HWW’s managers) wrongfully and unreasonably refused to (i) update HWW’s List of Members by recognizing and acknowledging their membership and land shares (田份) in HWW; and (ii) convene a members’ meeting of HWW pursuant to their request.

43.Whilst the 3^rd to 8^th Defendants are under a contractual obligation to assist the Plaintiffs to be registered as members of HWW, I fail to see what they could have done to avail the Plaintiffs when the 1^st and 2^nd Defendants were determined not to take any action. It appears to me that by signing, inter alios, the trust deeds, powers of attorney and deeds of sale and purchase, the 3^rd to 8^th Defendants had already performed their side of the contractual bargain.

44.In the premises, I am inclined to the view that it would be fair to order the 1^st and 2^nd Defendants to pay the Plaintiffs’ costs in this action, and I make a costs order nisi to such effect.

45.I thank Mr Derek Chan for his helpful assistance.

Mr. Derek Chan, instructed by David Y.Y. Fung & Co., for the 1^st to 8^th Plaintiffs

The 1^st to 8^th Defendants, acting in person, absent