Hong Kong Kam Lan Koon Ltd v. Realray Investment Ltd

HCA 15824/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 15824 OF 1999

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BETWEEN

AND BETWEEN

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Before: Hon Lam J in Court

Dates of Hearing: 13 June 2005

Date of Judgment: 26 July 2005

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J U D G M E N T

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1.This judgment deals with the question of liability as between the Defendant (as plaintiff in the Counterclaim) and the 2^nd Defendant by Counterclaim [“the 2^nd Defendant”]. As far as title to the land is concerned, it has been adjudicated in my Ruling of 30 March 2005 that the title of the Defendant had not been extinguished. I have also alluded to the nature of the Defendant’s case against the 2^nd Defendant and the stance of the 2^nd Defendant in that Ruling. Further background to the claim against the 2^nd Defendant can be found in the judgment of Deputy Judge Saunders of 23 March 2004.

2.The outstanding issue on liability is whether the 2^nd Defendant by Counterclaim had taken part in the trespass over the land since shortly before October 1999. The infringing acts pleaded by the Defendant in Paragraph 5 of the Re-re-re-re-Amended Defence and Counterclaim are as follows,

(a)	In or shortly before October 1999, the Association and/or the Plaintiff carried out certain construction work at the Western Area and locked the Car Park Gate without the consent of the Defendant.
(b)	Sometime in or shortly before October 1999, the Association and/or the Plaintiff without the consent of the Defendant erected or caused to be erected a system of wire mesh (coloured Red on Plan-2) at the space (“the Entrance Space”) between the northern end of the Retention Wall and the Water Tower (coloured Light Blue on Plan-2) located within Lot 1944, thereby blocking access from Lot 1944 to the areas coloured Yellow and Green on Plan-2 (“the Newly Encroached Area”), and purported to occupy the Newly Encroached Area.
(c)	In around October 1999, the Association and/or the Plaintiff carried out certain construction work and by 2001 converted the Southern Area into a garden without the consent of the Defendant.
(d)	Sometime after October 1999, the Association and/or the Plaintiff installed chains on the Basketball Field Gate and locking the same and denying access from the Basketball Field to the Footpath.
(e)	As from around January 2003, works have been carried out by the Association and/or the Plaintiff within the Triangular Area which is coloured Green on Plan-2 and the Newly Encroached Area to merge the two areas into one.
(f)	Since October 1999, the Plaintiff and/or the Association has been in wrongful occupation of the Disputed Area, except the Footpath.  At or since the date of the Writ, the Plaintiff and/or the Association has been in wrongful occupation of the Footpath.

3.At the outset, it is necessary to identify the basis on which the 2^nd Defendant is sued. Although he is sued both on his own behalf and on behalf of other members of the Association, the case run by the Defendant against him is still based on the “corporate” occupation of the land as referred to in Paragraph 23 of my Ruling of 30 March 2005 and his membership in the Association. There is no attempt by the Defendant to argue that even if they fails on such a case, the 2^nd Defendant is still personally liable as a joint tortfeasor with the Plaintiff by reason of his role in the management of the Plaintiff.

4.Another point worth mentioning at this juncture is that though the 2^nd Defendant’s primary case is that the Association ceased to exist after the incorporation of the Plaintiff, its continued existence does not necessarily mean that it had committed the infringing acts that the Defendant complaint about. As I put to counsel in the course of final submissions, the crucial question is whether the Association took part in the infringing acts. Whether the Association had any role to play in respect of the title to Lot No.1943 in DD 121 is a separate question from whether the Association was the operator of the Koon after the incorporation of the Plaintiff. Further, the role of the Association in the title of Lot No.1943 paled into insignificance with the expiry of the Government Lease for that lot on 27 June 1997 and the grant by the Government of short term tenancy for the same piece of land to the Plaintiff as from 1 July 1997. The grant to the Plaintiff was subsequently formalized in terms of an agreement dated 1 February 2001.

The identity of the operator of the Koon after the incorporation of the Plaintiff

5.On the evidence before me, the incontrovertible facts leading to the incorporation of the Plaintiff are as follows,

(a)	Lot No.1943 was previously known as Lot Nos. 533A and 543A of DD 121. Those were conveyed by Cheung Kung-leung to seven individuals by an Assignment dated 26 October 1964;
(b)	Those lots were surrendered and re-granted as Lot No.1943 by the Government to the seven individuals by a Memorandum of Agreement dated 6 April 1966. Of the seven individuals, three were from the Cheung family whilst the other four were committee members of the Association;
(c)	At that time, the seven individuals intended to hold the title for the operation of the Koon which was then run by the Association. This is evidenced by a letter written in 1964 by three committee members of the Association to other members appealing for contribution towards the costs of construction of the temple (Bundle F(1A) 400074);
(d)	The Koon was built on Lot No.1943 by the members of the Association between 1964 and 1970;
(e)	The first stage of construction was completed in April 1967. An Occupation Permit was issued by the New Territories District Commissioner on 12 April 1967 (Bundle F(1A) 400101);
(f)	There were disputes between Cheung Kung-leung and the Association which led to the closure of the original access. Subsequently, an agreement was reached on 22 September 1968 [“the Footpath Agreement”] for a new access road to be built by the Association;
(g)	Notwithstanding the Footpath Agreement, the Koon and Cheung Kung-leung continued with their altercation. There were problems with the land use of Lot No.1943 because Special Condition 3 of the Grant stipulated that the lot could be used only for the erection and maintenance of an ancestral temple (Chi Tong). The Koon was not an ancestral temple. Two of the registered owners from the Cheung family seized upon that and wrote a complaint letter to the District Officer on 22 January 1970. That led to enforcement action by the Government and a notice was issued pursuant to Section 13 of the Resettlement Ordinance on 24 February 1970 regarding the kitchen and toilets at the Koon;
(h)	The Koon instructed solicitors to deal with the matter. Counsel was retained. There was also a problem with the roofed over area built on the land exceeding the limit permitted under the Conditions. Modification of the Grant condition was explored. The Government was at one stage sympathetic. However, that could not be materialized because those in the Cheung family objected to the same. In the wake of threat of enforcement action, the four representatives of the Koon commenced proceedings in High Court Miscellaneous Proceedings No.209 of 1971 on 10 September 1971 seeking a declaration that modification could be effected notwithstanding opposition from those in the Cheung family who were also registered owners;
(i)	In the meantime, the grand opening of the Koon took place on 10 November 1970.

6.PW4 Chan King Tak gave some evidence on how the idea of incorporation came about. He said it was done as a result of the advice from Messrs. Lau Chan & Ko, the solicitors acting for the Koon in dealing with the title problem. The solicitors advised that the operation of the Koon should be undertaken by a limited company to avoid disputes in the future whilst the unincorporated association should cease operation. Against the background as to the disputes between the various legal co-owners, that seems to be the kind of advice a sensible solicitor would give to the Koon.  Messrs. Lau Chan & Ko was the firm who prepared the Memorandum and Article of Association for the Plaintiff. The Plaintiff was referred to as “the Association” in the Memorandum. The objects of the Plaintiff as set out in the Memorandum were consonant with the activities of the Koon.  

7.The Plaintiff was incorporated on 9 June 1972. The name of the Plaintiff was basically the same as the Association except the words “Hong Kong” were added at the beginning and the words “Limited” and “有限公司” were added at the end. The Plaintiff held a widely publicized inaugural ceremony for the appointment of the first board of directors on 15 August 1972. The District Officer of Yuen Long and several Justices of Peace were invited to officiate the ceremony. The ceremony and the speech by the Chairman were reported in the newspaper. Chan King Tak testified that a copy of the speech was sent to all the members of the Koon. It is quite obvious that the incorporation of the Plaintiff was regarded by those managed and interested in the affairs of the Koon as an important Koon event instead of the mere formation of a shelf company for non-operational purposes. All the members of the Association were therefore well aware of the incorporation and there was no suggestion of any objection from any one of them.

8.After incorporation, the monies of the Koon were transferred from the Association to the Plaintiff. This is evidenced by an entry in the Plaintiff’s audited balance sheet of 30 June 1973. In my view, this is an important indicator that the operation of the Koon was no longer in the hands of the Association. Bank accounts were kept in the name of the Plaintiff. Donations received from members and others were paid into the bank account of the Plaintiff. From the accounting records included in the trial bundles, it can be seen that the activities of the Koon after 1972 were reflected in the Plaintiff’s accounts. The directors’ reports included in the financial statements of the Plaintiff stated that the principal activities of the Plaintiff were to promote Taoism, to worship Taoist gods and to provide free medical attendance. These were all activities of the Koon.

9.Membership of the Association was also transferred to the Plaintiff. This is evidenced by the list of members of the Plaintiff produced as Annexure 1 to the second supplemental witness statement of Kwan Yau Hang and corroborated by the oral evidence of Wong Tung Wing, Hui Ka Cheung and Chan King Tak. Even though the Defendant alleged that the members continued to operate at the same time as members of the Association after the incorporation, there is no dispute that they were the members of the Plaintiff. Further, those who joined the Koon after 1972 were enrolled as members of the Plaintiff as opposed to that of the Association. Hence, Mok Chun Hing testified that he had no idea that there was a separate association behind the Koon apart from the Plaintiff. Donations by the members were paid to the Plaintiff.

10.On 23 June 1971, Cheung Kung-leung and his wife assigned their interest in Lot No.1943 to Cheung Kung Wing. The Koon learnt of the assignment to Cheung Kung Wing in the course of the litigation. Negotiations were conducted with Cheung Kung Wing which culminated in a consent letter dated 6 November 1973 addressed to the Yuen Long District Office. Cheung Kung Wing signed that letter (Trial Bundle D2 p.300348) indicating his consent to the construction of the building on Lot No.1943 including the toilets. The letter was written on a piece of paper bearing the letterhead of the Plaintiff.

11.The Koon has always been a member of the Hong Kong Taoist Union. As evidenced in a letter dated 2 July 1993 and another letter 3 March 1997, the incorporation of the Plaintiff was recorded by the Union and since then, the Plaintiff was regarded as the member in substitution of the unincorporated Association. The Plaintiff had applied for approval as a charitable institution under Section 88 of the Inland Revenue Ordinance and such status was granted with effect from 19 December 1999. These are cogent pointers suggesting that the Koon has been operated by the Plaintiff.

12.There were documents bearing the letterhead of the Plaintiff as well as documents which simply used the name Kam Lan Koon after June 1972. Mr CH Chan SC for the Defendant placed some significance on the latter category of documents. Counsel submitted that since it is a legal requirement under section 93(1) of the Companies Ordinance that the words “Limited” and “有限公司” must be used, one could presume that the references to “Kam Lan Koon” simpliciter were references to a body other than the Plaintiff. Mr Chan went on to suggest that those documents bearing the name “Kam Lan Koon” simpliciter were actually documents issued by the Association and they evidenced the continued existence and activities of the Association even after the incorporation of the Plaintiff. I have no hesitation in rejecting this argument. Bearing in mind that the main activities of the Koon were religious and charitable in nature, it is not surprising that people continued to refer to the Koon without using the words “Limited” and “有限公司” even though it was operated by the Plaintiff. Whether that practice is in breach of Section 93(1) of the Companies Ordinance is beside the point. To say that because the letterheads of some documents and the name of the Koon painted at the main entrance of the temple did not bear those words, the activities must have been carried on by the Association is to put form before substance. In my judgment, the critical question is whether as a matter of fact the Association continued to operate the Koon as opposed to transferring its operation to the Plaintiff after its incorporation.

13.In the more formal documents, e.g. audited financial statements, letter to the Government officials, the Plaintiff’s name were correctly stated. On the other hand, in some internal records, e.g. minutes of meetings and monthly financial reports, the words “Limited” and “有限公司” were omitted.  Mr CH Chan referred to the draft tenancy agreement of 1974, invoices issued by others to the Koon and pro forma receipts issued by the Koon and submitted that in external dealings, the Koon gave an impression that it was not operated by the Plaintiff. I do not find these documents to be particularly helpful in deciding the crucial question identified above. As mentioned, these documents had to be considered against the background that the Koon was not run as a business and all circumstances had to be taken into account. If one examined the subject matters of these invoices, some of those were in respect of equipment and materials relating to the gardening of the Koon. Those gardening expenses were reflected in the audited financial statements of the Plaintiff. Mr CH Chan postulated that the Plaintiff could have been used as a mere conduit or agent for the Association in holding bank accounts for administrative convenience. Whilst one can understand that some professional people might have reasons to set up service companies, I think it is unlikely that a religious institution like the Koon would have any reason to do so. Having regard to all the circumstances in the present case, I must reject Mr CH Chan’s postulation. I think it is more likely that the Plaintiff was formed to take over the management and operation of the Koon altogether.

14.As regards the 1974 tenancy agreement, that has to be considered together with the viva voce evidence of the Plaintiff’s witnesses who dealt with Cheung Kung Wing. The evidence of Wong Tung Wing was that the negotiation was conducted by Wong Lung on behalf of the Koon. It is also his evidence that the Plaintiff had taken over the operation of the Koon since its incorporation. Despite the forensic points made by counsel concerning the inconsistencies between the evidence filed in the judicial review proceedings in 1997 (which I shall deal with below), I accept his evidence before me on this issue.

15.Chan King Tak also gave evidence to this effect. He said that the incorporation was suggested by Messrs.Lau Chan & Ko and the purpose was to have the company to handle the affairs of the Koon to avoid future disputes. The advice was that as from incorporation, the Plaintiff would operate the Koon. I find such evidence accords with common sense and inherent probabilities and I accept the same.

16.The evidence concerning the organization structure of the Koon shows that there was a board of managers (理事會) and an executive committee (值事會). The day to day management of the Koon was undertaken by the executive committee and some minutes of meetings of this committee were included in the trial bundles. The business discussed at those meetings were consistent with the activities of the Plaintiff reflected in its financial statements and directors’ reports. For example, the management of the garden was discussed at several meetings and the expenses thereof were reflected in the audited accounts. Donations were alluded to in the minutes and such donations were again booked into the Plaintiff’s accounts. The minutes also referred to the free Chinese medicinal services provided by the Koon. Again the expenses on such services were set out in the Plaintiff’s accounts.

17.Mok Chun Hing had been appointed by the Plaintiff to provide such medical services since 1976.  His appointment evidenced by a letter from the Plaintiff dated 10 August 1980. He gave evidence before me. He became an ordinary member in 1984 and later joined the executive committee in 1987. Between 1988 and 1991, he was the vice chairman of the Koon. He is still a member. He testified that at all time since he came to the Koon, the Koon was run by the Plaintiff and there was no separate organization operating the Koon in parallel with the Plaintiff. Mok said he did not realize he is alleged by the Defendant to be a member of the Association and as such potentially liable as one of the persons being represented by the 2^nd Defendant by Counterclaim. I see no reason to doubt his evidence.

18.Even though an executive committee had been in existence prior to 1972, it does not mean that the Plaintiff could not have adopt the same organizational structure after it took over the management of the Koon upon its incorporation. It is within the power of the board of directors of the Plaintiff to delegate the management of the Koon to a similar executive committee and to form a board of managers to supervise the same. Having regard to all the matters mentioned above, the correct inference is that the Plaintiff had adopted the same organization structure in running the Koon. As from 1972, the committee should be regarded as part of the Plaintiff and the minutes of the committee were evidence of the activities of the Plaintiff as opposed to activities of the Koon.

19.Mr CH Chan asked this court to consider the evidence filed in the 1997 judicial review. Those proceedings challenged the decision of the Director of Lands’ refusal to renew the Government Lease for Lot No.1943 in DD 121 upon its expiration in 1997. The Plaintiff was the 2^nd Applicant whilst the 1^st Applicant was “Kam Lan Koon, an unincorporated association of persons by its chairman Kwan Yau Hang”. The 3^rd Applicant was Wong Tung Wing. Details regarding those proceedings can be found in the judgment of Yeung J (as he then was) reported at [1998] 2 HKLRD 875 and the Court of Appeal at [1999] 3 HKC 591. The proceedings were a complete failure as far as the Applicants were concerned. They failed at the first instance, at the Court of Appeal and they failed to persuade the Appeal Committee to grant them leave to appeal to the Court of Final Appeal.

20.Insofar as the Defendant relied on these proceedings to establish the Association continued to “exist” and played an active role in that piece of litigation, it is in fact a red herring. As pointed out at the beginning of this judgment, the crucial issue in the present action is whether the Association took any part in the infringing activities, not whether the Association existed at the time of the 1997 judicial review. Secondly, it is somewhat unreal to talk about the existence of an unincorporated association in the abstract. By definition, an unincorporated association is not a legal entity. In the eyes of the law, an unincorporated association is the sum total of its members. Even if one were to conclude that a group of people could be regarded as an association in pursuing one purpose, it does not mean that the same group of people could be so regarded for another purpose. I have referred to the dicta of Lord Parker in London Association v Greenlands Ltd [1916] 2 AC 16 at p.38-9 in Paragraph 14 of my Ruling of 30 March 2005. In order to test the liability of an individual as a member of an unincorporated association to a third party, one must examine the specific activity in question to see whether agency could be made out. In the present context, the mere fact that some members of the Association had used the name of the Association in the judicial review to seek renewal of the Government Lease sheds no light on the actual occupation and use of the land and the identity of the entity that operated the Koon since 1972 or more pertinently, since 1999. Even if the Koon were operated by the Plaintiff after 1972, some members of the Association or those advising them might take the view, rightly or wrongly, that there might be some forensic justification for joining the Association as a co-applicant in the judicial review.

21.Equally immaterial is the question of the transfer of beneficial ownership of the interest in Lot No.1943. Mr CH Chan contended that because of the Statute of Frauds 1677 and Sections 3 and 5 of the Conveyancing and Property Ordinance, there could not be any transfer of beneficial ownership of Lot No.1943 from the Association to the Plaintiff without any writing. I shall explain later why it is legally incorrect to suggest that beneficial ownership had ever been vested in the Association. For the sake of argument, assuming for the moment one can validly assert that the Association held the beneficial ownership in land, at the most this means the Association had not effectively disposed of its interest in Lot No.1943. It does not thereby prove that the Association must have been running the Koon. It is perfectly possible for one entity to hold the title (or in this case, retain the equitable interest) either consciously or unwittingly (through the failure to go through all legal formalities regarding the disposal of interest in land) but to allow another entity to have actual use thereof in the operation of the Koon.   

22.However, Mr CH Chan is on firmer ground when he referred to specific paragraphs in the affirmations of Wong Tung Wing and Kwan Yau Hang filed in the judicial review. Counsel referred to certain statements in Paragraphs 1, 10 and 51(a) of the affirmation of Kwan Yau Hang filed on 19 June 1997 in the judicial review and contended that those statements showed the Association continued to exist after incorporation of the Plaintiff and use the land at Lot 1943 right up to the time of the judicial review. Admittedly, if one were to read these paragraphs in isolation, it is possible to come to these conclusions. However, one must read the affirmation as a whole. In Paragraphs 28 to 31 of that Affirmation, Mr Kwan made it clear his evidence was that upon incorporation of the Plaintiff, the management and control of the Koon had been passed to the Plaintiff. As far as the actual occupation of the land and the identity of the operator of the Koon since June 1972 is concerned, I do not think any mileage could be gained by the Defendant on this score.

23.As regards the affirmation of Wong Tung Wing filed in the judicial review, Mr CH Chan sought to place reliance on Paragraphs 85 and 90 to assert Wong’s evidence was that the Association was still operating on the land after the incorporation of the Plaintiff. In my judgment, with respect, that is again selective reading of the affirmation. In Paragraphs 70 and 71 of the same affirmation, Mr Wong clearly deposed that after the incorporation of the Plaintiff, the Koon’s affairs and management were taken over by the Plaintiff. Mr Wong also gave evidence as to the purpose of the formation of the Plaintiff consistent with the evidence given by Chan King Tak in this trial. 

24.Mr CH Chan also made some points regarding the wordings of the affirmation of Kwan Yau Hang filed in the present action and the explanation of Mr Wong and Mr Kwan in their viva voce evidence at the trial about these earlier affirmations. I have read the relevant parts of the transcripts and the relevant paragraphs in the affirmations. I do not think their evidence cast any doubt over the main drift of their testimony, viz. upon the incorporation of the Plaintiff, the management and control of the Koon had passed to the Plaintiff. It is quite obvious to me when they made their affirmations in 1997 in the judicial review, they and those advising them did not pay as much care and attention to the wordings deployed in the affirmations as they should have. But I do not find such inaccuracies to be a sufficient reason to disbelieve their evidence as to the identity of the operator of the Koon after 1972, particularly in the light of the other evidence alluded to in the other parts of this judgment.

25.Lastly, Mr CH Chan prayed in aid of the evidence of Hui Ka Cheung regarding the honorary chairmanship of Cheung Kung Wing whilst the latter has never been a member of the Plaintiff. To my mind, it is a matter of little moment. The honorary chairmanship is clearly an honorary title. It does not have any significance in terms of the actual management and operation of the Koon. In the wake of the overwhelming evidence to the contrary, I do not think this piece of evidence could be relied upon to point to the management of the Koon by the Association.

26.On the whole, I find as a fact that ever since the incorporation of the Plaintiff, the Koon has been operated by the Plaintiff and as from June 1972, the Association ceased to carry out any activities on the land in dispute. That being so, there is no basis to assert that the Association was involved in the infringing acts pleaded in Paragraph 5 of the Re-re-re-re-amended Defence and Counterclaim. It follows that the Counterclaim by the Defendant against the 2^nd Defendant by Counterclaim must be dismissed.

Dissolution of the Association

27.Since it is essentially a question of fact, my above findings are sufficient to dispose of the Counterclaim. In deference to the very thorough submissions by counsel, I will refer to some other points taken. In his final submissions, Mr F Chan advanced the proposition that the Association had been dissolved informally after the incorporation of the Plaintiff. A good starting point to guide the examination of this issue is the dicta of Megarry VC in GKN Bolts & Nuts Sports & Social Club [1982] 1 WLR 774 at p.779,

“As a matter of principle I would hold that it is perfectly possible for a club to be dissolved spontaneously. I do not think that mere inactivity is enough: a club may do little or nothing for a long period, and yet continue in existence. A cataleptic trance may look like death without being death. But inactivity may be so prolonged or so circumstanced that the only reasonable inference is that the club has become dissolved. In such cases, there may be difficulty in determining the punctum temporis of dissolution: the less activity there is, the greater the difficulty of fastening upon one date rather than another as the moment of dissolution. In such cases the court must do the best it can by picking a reasonable date somewhere between the time when the club could still be said to exist, and the time when its existence had clearly come to an end.”

And then at p.780F to G,

“Mere inactivity is equivocal: suspended animation may be continued life, not death; and the mere cessation of function that was mentioned in the Abbatt case would not, I think, suffice per se. But inactivity coupled with other circumstances may demonstrate that all concerned regard the society as having ceased to have any purpose or function, and so as no longer existing. I think that short inactivity coupled with strong circumstances, or long inactivity coupled with weaker circumstances may equally suffice. The question is whether, put together, the facts carry sufficient conviction that the society is at an end and not merely dormant.”

28.Another dicta which provides some guidance in principle can be found in the judgment of Brightman J in Re William Denby & Sons Ltd Sick and Benevolent Fund [1971] 1 WLR 973 at 978-9,

“In my judgment there are at least four categories of cases in which an unregistered friendly society or benevolent fund … is to be regarded as dissolved or terminated so as to render the unspent assets distributable in some direction. The most obvious case is the occurrence of an event upon the happening of which the rules prescribe dissolution or termination The Printers and Transferrers case [1899] 2 Ch. 184 is an example, the debate there being confined to the destination of the distributable funds. A second type of case is where all interested parties agree. A third case is where the court orders dissolution in the exercise of its inherent jurisdiction. It is unquestionable that this jurisdiction exists: see Blake v. Smither (1906) 22 T.L.R. 698. The jurisdiction had previously been exercised in the Lead Co.'s case [1904] 2 Ch. 196. …  A fourth category of case, in my view, is where the substratum upon which the society or fund was founded has gone. In such a case the society or fund is treated as dissolved or terminated, without any order of the court, when it has no effective purpose, with the result that the surplus assets (if not bona vacantia) are divisible among the then members.” 

29.On the evidence before me, there had not been any steps taken by the Association to pass any resolution for the formal dissolution of the unincorporated association. However, as pointed out by Megarry VC, formal dissolution might not be necessary. A good illustration which bears some similarities with the present case can be found in Master Grocers’ Association of Victoria v Northern District Grocers Co-operative Ltd [1983] VR 195. In that case, some retail grocers in Croxton grouped together to form a Croxton Groucer’s Association. It was amalgamated with a similar association in 1958. The amalgamated association was called the Northern Association. The Northern Association was subsequently incorporated into the Northern District Grocers Co-operative Limited. The court found that the resolution of the Croxton Association for amalgamation was invalid. Despite that, due to the fact that no member took step to object to the cessation of operation by the association or to challenge the amalgamation, the court found that all the members acquiesced in the dissolution of the Croxton Association (see p.205).

30.That case also highlighted the distinction between the dissolution of an unincorporated association and the disposal of all its assets after its dissolution. Usually, property for the use of an association is held by trustees. Sometimes it is loosely described as property held on trust for the association. Legally, that is not quite correct. An association, being an unincorporated body, cannot be a beneficiary. The vesting of the beneficial interest depends on proper construction of the trust instrument or in the absence of which, the contract between the members of the association inter se. The legal analysis is succinctly set out by Le Pichon J (as she then was) in Chap Yick Clansman’s Association Ltd v Mok Fai [1997] HKLRD 580 at p.584-5 with reference to Neville Estates Ltd v Madden [1962] Ch 832 at 849 and Re Recher’s Will Trust [1972] Ch 526 at p.539. This is why the Association could not have held the beneficial ownership of Lot No.1943. 

31.Hence, the dissolution of an association is a separate question from the disposal of its asset. Having concluded that the association in question (viz. the Croxton Association) had been dissolved by acquiescence in Master Grocers’ Association of Victoria v Northern District Grocers Co-operative Ltd [1983] VR 195, Brooking J went on to consider what happened to the beneficial interest in the property by reference to the possible claims of the members and resolved the same on the basis of laches at p.207 to 209. At p.207, His Honour said,  

“Where the defence is that of laches in the sense of unreasonable delay on the part of the claimant coupled with resulting changes in the position of others such as would make it practically unjust to give a remedy …the claimant’s knowledge or means of knowledge becomes rather a matter to be taken into account in the general evaluation of the position and determination of how the balance of justice inclines. Even if it is not right in the present case to infer an intention on the part of the unpaid members to abandon or release their rights, still they have so acted as to induce other persons to alter their position in the reasonable belief that the rights of the unpaid members have been abandoned or released.”

32.A not dissimilar approach was adopted by Le Pichon J in Chap Yick Clansman’s Association Ltd v Mok Fai [1997] HKLRD 580 at p.587 although Her Ladyship applied the concept of novation as opposed to laches. That was also a case of incorporation of a previously unincorporated association. At p.587B, the learned judge said,

“… the falling of the Association into desuetude did not bring about the termination of the relationship between the members of the Association who continued to function as members of the company. Rather, by approving and adopting the articles of association, the members effected a ‘novation’ of the terms of their relationship inter se.”

33.I also incline to adopt the same approach with regard to what happened to the beneficial ownership regarding Lot No.1943 after the incorporation of the Plaintiff. However, I do not need to decide the point. What is important in the present context is that the outstanding title problem regarding Lot No.1943 cannot be a hurdle in the dissolution of the Association.

34.Coming back to the question of spontaneous dissolution, Brooking J had to consider a similar point in the context of the dissolution of the Northern Association upon the incorporation of the Northern District Grocers Co-operative Limited at p.205-6. I would just quote a few passages from the judgment,

“The evidence bearing on the dissolution of the Northern Association is scanty in the extreme. No minutes of that Association exist and whether its members ever met to consider the proposed formation of the Co-operative does not appear.  … [Reference was then made to the statutory statement for incorporation which spelt out that the incorporated body will take over the businesses of the Association and the identities of the subscribers.] … There is evidence that the Co-operative took control of the assets and assumed the liabilities of the Northern Association and such scanty material as is available suggests that the Northern Association ceased to function in any way after October 1959 and that no member of the Northern Association ever complained of the Association’s ceasing to function. … I find that in about October 1959 the Northern Association was dissolved by the unanimous agreement of its members.” 

35.A similar factual matrix was before Le Pichon J in Chap Yick Clansman’s Association Ltd v Mok Fai [1997] HKLRD 580. However, since the proceedings before Her Ladyship focused on the devolution of the property, there was no need to examine the issue whether the association was dissolved in depth. The learned judge observed at p.586I that even though there was no formal dissolution, the association became defunct for all practical purposes.

36.Some other authorities were also cited by counsel. However, those cases were not dealing with a situation where the members incorporated themselves with a view to take over the operation of the unincorporated body. Since it is basically an application of the principles set out in the cases mentioned in Paragraphs 27 to 33 above, I do not think it is profitable to refer to them at length.

37.To recap my findings based on the evidence set out in the earlier part of this judgment, 

(a)	in the wake of the disputes with Cheung Kung-leung, members of the Association were advised by solicitors to form a corporation to run the Koon to avoid disputes in the future;
(b)	the members accepted such advice and formed the Plaintiff accordingly;
(c)	the incorporation of the Plaintiff was well publicized and no member opposed the same;
(d)	the Plaintiff took over the operation and management of the Koon upon incorporation of the Plaintiff;
(e)	membership of the Association were transferred to the Plaintiff and the Association ceased to admit any new member;
(f)	all the activities the Koon were organized by the Plaintiff and the Association did not carry out further activities;
(g)	the monies of the Association were transferred to the Plaintiff shortly after its incorporation.

38.In my judgment, the irresistible conclusion from these primary facts is that the Association had become defunct shortly after the incorporation of the Plaintiff. As regards the part allegedly played by the Association in the judicial review, I am of the view that that was simply a misguided joinder on the basis of the misconceived notion as to the vesting of beneficial ownership of Lot No.1943 after the cessation of operation of the Association. For reasons already given, I think the factual evidence placed before the court in the judicial review is consistent with my finding that the Association was defunct after the incorporation of the Plaintiff. It is also quite plain that all the then members of the Association had agreed to the demise of the Association. Since the only purpose of the Association was to operate the Koon, after that operation had been passed to the Plaintiff, the members had no reason to maintain the existence of the Association. If I may respectfully borrow from the analysis of Megarry VC, the present case is a case of long inactivity coupled with strong circumstances. I find as a fact that the Association was dissolved by unanimous consent of all its then members shortly after June 1972. Once the Association had been dissolved, it could not have been revived by whoever acting purportedly and misguidedly on its behalf in the 1997 judicial review.      

39.I therefore accept the submission of Mr F Chan that by 1999, the Association had long become history and the claim against the 2^nd Defendant is misconceived.

40.Having reached this conclusion, I do not propose to discuss the other limb of Mr F Chan’s submissions relating to the propriety of a representative claim in the present circumstances. I still have misgivings in that respect and counsel have referred this court to a number of authorities. The question may have to be re-visited on another occasion.  

41.The Counterclaim against the 2^nd Defendant by Counterclaim is dismissed. I also make a cost order nisi that the Defendant shall pay the costs of the 2^nd Defendant by Counterclaim and such costs to be taxed if not agreed.

Mr K M Chong, instructed by Messrs Peter Mo & Co., for the Plaintiff

Mr Chan Hing Fai, Frederick, instructed by Messrs Peter Mo & Co., for the 2^nd Defendant (by counterclaim)

Mr Chan Chi Hung SC, instructed by Messrs Kao, Lee & Yip, for the Defendant (by original action) and the Plaintiff (by counterclaim)