Yim Wai Tsang v. Lee Yuk Har

CACV 27/1971

IN THE SUPREME COURT OF HONG KONG

(APPELLATE JURISDICTION0

CIVIL APPEAL NO.27 OF 1971

(On appeal from K.D.C. Action 9115/70)

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Coram : Huggins, McMullin & Leonard, JJ.

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J U D G M E N T

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Huggins, J. :

1.  This is an appeal against a decision of Judge Baber in an action arising out of the affairs of a Chinese money loan association. The respondent Plaintiff was the Head of this association and the appellant Defendant a member who admittedly owes nine contributions of $1,000 each under the rules of the association. The Respondent framed her action as one to recover the instalments said to be due and owing to her. The Appellant contested liability on various grounds, of which only three are relevant to the appeal. First it was said that by virtue of the provisions of the Societies Ordinance the association was an unlawful society and moneys due under the terms of its constitution were irrecoverable. Secondly it was contended that the learned District Judge was wrong to hold, as he did, that the Respondent, as Head of the association, was a trustee who had a right of action to recover the contributions. Thirdly it was argued that even if the Respondent was a trustee she could not recover in the present action because she did not sue as a trustee but in her personal capacity.

2.  For the purposes of the first ground of appeal the only other material facts are that the association’s rules are set out in the usual “red book” and that the association was not registered under the Societies Ordinance. The text of the rules is as follows:

“This association as from the ____day of the _______ moon (will) meet on the ____ day (of each month). If anything happened to any share of the association (the party concerned) will be at his own risk. If any member of the association shall run away the head of the association shall be liable to reimburse half of (the money).

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It is learned that the money loan association was originated from Pong Kong for the purposes of helping each other in emergency when assistance is needed. Interest shall be shared equally. This is the means for gentlemen to make profit. Now that friends and relatives are so kind as to help mutually in forming such an association by contributing a share, the same shall be governed by the rules and regulations so that it will be taken care from the beginning to the end. Though not only one single person will get the (entire) benefit, gratitude is felt towards you all because (it can only be formed) with the great friendship of you gentlemen. The rules are set out hereunder.

One resolution passed is for the purpose of inviting 24 of our friends and relatives and it will be 25 shares including myself. Each share shall first contribute Dollars __________(making) the total amount of Dollars __________. The head of the Association shall be the first person to collect. Meeting (of the association) shall be throughout the year without failure (and the date of meeting) shall be on the ____ day of the _____moon. There shall be no postponement (of meeting) even in rain or in storm. In case of leap (or intercalary) ______ (it) shall (or shall not) be reckoned as due date. The (date of the) first meeting shall be notified by invitation card in due course by the head of Association (so that members) may get ready the money. On due date each (member) shall bring along the money to attend the meeting. The amount to be contributed shall be clearly examined before all members (and it shall) be checked right there. (There shall be) no debit of account, mortgage or set off by personal debts. If you are not available, you should appoint your relative or friend to pay (your share) and to attend (meeting). One resolution passed is that after an individual has drawn money from the association, each meeting he shall pay Dollars _________ until the last of (the) meetings; if no money has been drawn, his share shall be paid in full (at the last of the meetings) but the head of the association shall at each of the meetings contribute Dollars _______ together with interest of Dollars ______ until the last of the said meetings. Money shall be paid in full in the local currency.

One resolution passed is that the (money to be drawn at each meeting) shall be obtained by the one who offers the highest tender of interest and such interest shall be shared equally by the members who have not drawn money (from the association); the one who has drawn or who is going to draw (money from the association) shall not be concerned (with such interest). If the offers of interest are the same, the first known offer shall succeed. One resolution passed is that the amount to be set aside as expenses for providing refreshments shall be Dollars __________ out of each subscription. The predecessor (of the one who are collecting the subscriptions) shall make arrangement for it by deducting from the subscriptions. If any member who does not attend at meeting, he shall not be exempted from paying for such expenses and they shall not be entitled to enjoy such refreshment.

On resolution passed is that _______ identical books containing the regulations of the association have been compiled and each member holds one and shall not mislaid so that the amount payable to him may be marked therein.”

The case for the Appellant is that that clearly brings the association within the provisions of the Societies Ordinance. One might have expected that it would be a very straightforward matter to determine whether an association was within the provisions of the Ordinance, but unfortunately the Ordinance has not been drafted with the clarity which one is entitled to expect. The provision upon which the Appellant’s claim ultimately rests is s.18(1):

“Every local society, not being a registered society or as exempted society, shall be deemed to be an unlawful society after the expiration of fourteen days from the date of formation of such society unless before the expiry of such period of fourteen days application has been made to the Registrar in accordance with the provisions of this Ordinance by or on behalf of the society for registration or exemption from registration and the decision of the Registrar on such application has not been communicated to the Society:

Provided that in any proceedings under this Ordinance, every society shall be deemed to have been established more than fourteen days before the date on which the offence against this Ordinance is alleged to have taken place until the contrary has been proved.”

“Society” is defined in s.2(1) in these terms:

“’society’ means any club, company, partnership or association of persons, whatever the nature or objects, to which the provisions of this ordinance apply;”.

From that one would expect to find a provision which sated to what association the Ordinance did apply, but there is none. Instead s.2(2) says:

“The provisions of this Ordinance shall not apply to any person listed in the Schedule”

One is immediately struck by the fact that this subsection refers to “persons” and not to “associations”. When one turns to the Schedule one finds the heading:

“Persons to which the Ordinance does not apply”

and all nine paragraphs in the Schedule refer to associations while very few refer to persons at all. However, one must remember that the Legislature is like Humpty Dumpty, who said “When I use a word, it means just what I choose it to mean – neither more nor less”, and we find that the interpretation and General Clauses Ordinance says in effect that “person” shall not mean “person” unless the context so requires. Section 3 says in part:

“‘person’ includes any public body and any body of persons, corporate or unincorporate, and this definition shall apply notwithstanding that the word ‘person’ occurs in a provision creating or relating to an offence or for the recovery of any fine or compensation;”.

It follows that an unincorporated association may in Hong Kong legislation be a “person” and in s.2(2) of the Societies Ordinance “person” appears to have been used to cover “any club, company partnership or association of persons, whatever the nature or objects”. Under s.2(3) the Schedule may apparently be amended to include not only persons which would otherwise be a “society” but also, for the avoidance of doubt, persons which would not otherwise be a “society”. This may be important because although doubts have been expressed in the past whether a money loan association is within the terms of the statute the Governor-in-council has not taken the simple step of amending the Schedule to put the matter beyond doubt. From that one could deduce that no serious policy objection was foreseen to a possible decision that money loan associations were societies which require registration.

3.  One is still left with the fact that, although the scheduled associations are exempted from the provisions of the Ordinance, no club, company, partnership or association of persons is expressly included within its provisions. On a strict construction the result would be that no club, company, partnership or association of persons was a “society” and the Ordinance would be of no effect. That is not a result to which we should come too readily. It seems to me that by exempting the associations specified in the Schedule the Legislature must have intended that all associations not so exempted were to be within the provisions of the Ordinance. It is an unhappy example of exclusio unius est inclusio alterius.

4.  It is contended on behalf of the Respondent that the definition of “society” is so wide that if that interpretation be adopted there is practically no limit to the application of the Ordinance and that the simplest association of friends will be within its ambit. For myself I see no real difficulty here and I think the mischief to which the Ordinance was manifestly aimed points to an intention to cast the net very wide. The word “association” must be interpreted in its ordinary meaning and I think it is generally well understood. The Oxford English Dictionary gives the relevant definition as

“A body of person who have combined to execute a common purpose or advance a common cause; the whole organization which they form to effect their purpose; a society ….”.

The vital elements are a combination and a common purpose or a common cause. The fact that the parties have described themselves as an association is some evidence that they constitute an association, but it is not conclusive. Counsel for the Respondent submits that the members of this money loan “association” had no common purpose and no common cause and that therefore their combination was not what is generally understood as an association. I do not agree. The constitution states expressly that it is to be “such an association” as that which “originated from Hong Kong for the purpose of helping each other in emergency when assistance is needed”. Counsel suggests, as I understand him, that the words “this is the means for gentlemen to make profit” more accurately described the motive of the majority of the participants and that that was not a common purpose but rather a distinct purpose in each. He distinguishes a partnership, where the partners combine to make a common profit which will then be shared. It is, of course, true that there was probably no intention that the members of this association would “help each other in emergency when assistance was needed” beyond paying the sums provided for in the rules. To the extent that the participants in this association have the purpose of making a profit from their combination the purpose is common, but it is only to that extent that it is. Nevertheless it seems to me that there is a combination here which is not present when two persons enter into a simple contract to lend and borrow. Counsel prays in aid a dictum in CHOW Cham v. YUET Seem (1910) 5 H.K.L.R. 233 and the opinion of the authors of an article at (1971) 1 H.K.L.J. 194 and 262. In CHOW Cham v. YUET Seem the issue was whether the money loan association there in question required registration under the Companies Ordinance and it was held that it did not. Hazeland J. said at p.234:

“In my opinion [a Chinese money loan association] (a) is not an association within the meanings of the word in [s.4 of the Companies Act 1862]; (b) does not ‘carry on business which has for its object the acquisition of gain’ within the meaning of those words in the said section.”

I find some difficulty in following the sequence of thought here expressed. The learned judge did not say a money loan association was not an association at all and the question whether it was an association within the meaning of the word in the section depended upon whether it was formed for the purpose of carrying on business that had for its object the acquisition of gain. In other words, (b) was the reason for (a). The learned judge relied upon Smith v. Anderson (1879) 15 Ch. D. 247, where James L.J. said at p.275:

“Persons who have no mutual rights and objections do not, according to my view, constitute an association because they happen to have a common interest or several interests in something which is to be divided between them.”

and Hazeland J. found and held that the members of the money loan association had no mutual rights and obligations between themselves. It was the view of the learned judge that the head of the association was “the only person who undertakes any liability”. If by that he meant “who undertakes any liability towards the ordinary members” that is a matter upon which there has been a wide divergence of opinion: obviously all the members undertake to pay their contributions even if there is a question as to the person or persons to whom that liability extends. The learned authors of the article in the Hong Kong Law Journal suggest that Hazeland J. came to the right decision for the wrong reasons. They continue:

“Whether an association has come into existence depends on (a) the nature of the combination and (b) the purpose of the combination. The mere act of associating is insufficient: there must be a combination of persons for a common purpose. As regards the nature of the combination, the writers subscribe to the rule that the members of the hwei are merely parties to a series of contracts or to multilateral contracts. The members may find it convenient to effect their contractual obligations if they meet periodically together, but this is by no means essential; the purpose of the hwei may be served without any meetings at all, and, as previously pointed out, often there are in fact no meetings. In short, the act of associating is only incidental to the members’ contractual obligations. There is no group activity as such.

As regards the purpose of the combination, we see in a hwei nothing more than a convenient framework within which persons may effect a series of lending and borrowing transactions. The hwei is merely a vehicle by which persons could raise money at reasonable rates of interest or alternatively invest money at reasonable yield and with the minimum of formalities. A hwei is not formed to execute any common purpose or common cause as such but merely to advance the individual interest of the members, which are by no means identical. As far as the Head is concerned, his purpose is clearly to raise a capital sum and then to spread out the repayment, without interest, over a period of time. But as far as the other members are concerned, their purpose in participating in a hwei may vary. Some may look upon themselves only as investors with an opportunity to render for a loan in time of need; otherwise may join with a view to obtaining a loan immediately after the Head; and if we look at the position of the last member when the hwei has successfully ended, we may quite accurately say that he has been throughout a depositor, whether by chance or by choice”.

With respect I think that does not represent the true position in the present case and I doubt whether it represents the true position in the ordinary case involving a Chinese money loan association. Undoubtedly there is “a series of lending and borrowing transactions” but I find myself unable to dismiss the “convenient framework within which persons may effect” that series of transactions as not being a vital part of the circumstances governing the legal relationships of the members. There is a combination, as I see it, for the purpose of undertaking mutual rights and obligations – the right to bid for each month’s contributions except the first and the last and to receive the appropriate interest in those months and the obligation to pay each month the appropriate contribution. The existence of those mutual rights and obligations is not dependent upon knowing whether the members themselves, or only the head of the association, can institute proceedings to enforce them: the fact is that the members would not agree to pay contributions for the duration of the association unless they knew that the other members had similarly undertaken to pay their contributions. Hazeland J. further said in CHOW Cham v. YUET Seem at p.237:

“A Chinese money loan association is an association which cannot affect or concern the outside public as the outside public cannot possibly have any sort of dealings with such association”.

That may well be a consideration to which one should have regard in deciding whether an association exists but, with respect, I do not think it is a governing factor. For my part I see no difficulty arising from the fact that members of a family or personal friends may associate, even regularly, and yet not require registration; persons may associate without being “an association”. I do not think it is necessary or desirable to endeavour to lay down a decisive test of the existence of an association but there are sundry indications which may be looked for: the existence of a formal constitution and rules, an exclusive membership, appointment of officers, the holding of meetings, the payment of a subscription to the combined body, the maintenance of premises by the combined body. I emphasise that these are only indications and what the basic difference between an “association” and a group of “unassociated” persons is that the members of the former have mutual rights and obligations other than those common to all the Queen’s subjects while the essential difference between an “association” and a body of unassociated contractors is the existence of a combination as distinct from a mere contractual link. The facts in the famous case of The Santanita 1897 A.C. 59 presents a good example. Two yachts collided in the course of a race as a result of a breach of the sailing rules of the Yacht Club Association by one of them and the other sank. The owner of the offending yacht sought to limit his liability under the Merchant Shipping Act Amendment Act 1862. It was held that he could not do so because he, in common with all the owners of yachts competing in the regatta, had agreed with the club organizing the regatta to be bound by the sailing rules of the Yacht Club Association and one of those rules stated that a yacht which “in consequence of her neglect of any of these rules, shall foul another yacht …… shall pay all damages”. There is nothing in the report to indicate that either or both owners were members of the organizing yacht club. If they were they were no doubt members of the same “association” but, if they were not, the mere fact that they contracted through the same club to be bound by the Yacht Club Association sailing rules did not make them members of “an association”. The distinction may often in practice be of a somewhat nebulous character. An investor who puts some of his money on deposit with a bank and some with a building society may well not appreciate the fundamental difference between the two transactions, but the difference none the less exists.

5.  Attention has been drawn to s.27 of the Ordinance.  The first part of the section reads:

“In any proceedings under this Ordinance –

(a) Where it is proved that a club, company, partnership, or association is in existence, it shall be presumed that such club, company, partnership or association is a society within the meaning of this Ordinance unless the contrary is proved;”.

It has not been suggested, nor do I think it could possibly be right, that the section should be interpreted as though it read “in any proceedings under this Ordinance, where it is proved that a[n] …association is, in existence, it shall be presumed that such …. association is a[n] …. association within the meaning of this Ordinance unless the contrary is proved”: the section is concerned with the interpretation of the word “society”. Again, it has not been suggested that anything turns upon the words “in any proceedings under this Ordinance”. What has been suggested is that the section allows of proof that an association within the meaning of the Ordinance, although not excluded from the application of the Ordinance by s.2(2), may still not be a society within the meaning of the Ordinance. The effect of that would be that the Legislature had deliberately left the definition of “society” vague so as to give the courts power to construe it in favour of an association which for any reason they thought it could not have been within the contemplation of the Legislature to control. While that would be a thoroughly unsatisfactory method of legislating I would have been happy to be able so as to infer the intention in the present case, because it would enable us to produce what I believe to be a just result. Although for a moment attracted by the argument I have come to the conclusion that it is not sound. I think s.27(a) was necessary because, as I pointed out at the beginning of this judgment, there is no provision saying to what “persons” the provisions of the Ordinance shall apply: this section does, however, presume that a club, company, partnership or association is a society within the meaning of the Ordinance unless the contrary is proved. Although the learned judge in the court below did not refer to s.27 it certainly adds support to his view that there is a circularity about the definition of “society” in the Ordinance. One really ought to start with s.27 and I have already emphasised that the section presumes every club, company, partnership and association to be a society “within the meaning of the Ordinance”. A society is in fact a society “within the meaning of the Ordinance” if it is “a club, company, partnership or association of persons, whatever the nature or object, to which the provisions of this Ordinance apply”. Thus the burden of proving that an association is not a society within that definition is upon a party who so alleges. How can he do that? He can do it by showing that the association is one to which the Ordinance does not apply. Section 2(2) expressly says that the provisions of the Ordinance shall not apply to any “person” listed in the Schedule. Section 27 therefore has the effect of placing the burden of proof that an association is, under s.2(2), an excepted association upon a party who alleges it to be excepted. Unfortunately I can find nothing else in the Ordinance which leads me to suppose that the Legislature intended to give power to the courts to extend the types of association to which the provisions of the Ordinance should not apply. I appreciate that, upon this interpretation, the words “is a society within the meaning of this Ordinance” could equally well (if not more consistently with the definition of “society”) have read “is a club, company, partnership or association to which this Ordinance applies”, but I cannot see that they mean anything different.

6.  The arguments addressed to us by counsel for the Respondent and based in one instance on s.4 of the Societies Ordinance and in another on the provisions of the Chit Fund Business (Prohibition) Ordinance 1972 do not appear to me to have any substance whatever. In particular, the fact that the latter Ordinance does not prohibit a money loan association which complies with the conditions set out in s.5(2) can have no bearing on the question whether such an association must be registered under an entirely different Ordinance.

7.  The learned District Judge was impressed by the fact that money loan associations “are essentially ephemeral; some are intended to last only a few months and all are automatically dissolved when the agreed period of life has come to an end.” For my part I find nothing in the definition of “society” which limits it to bodies having some degree of permanence.

8.  Although they were not cited to us there are at least two Malayan cases in which the question was raised whether a Chinese money loan association required registration under legislation comparable to our Societies Ordinance. The learned authors of the article at 1 H.K.L.J. 194 suggest at p.269 that those decisions should not be followed in Hong Kong because

“To do so would be to ignore the purpose of the legislation, which is clearly designed to regulate group activities and to curb those which are prejudicial to the security of the community”.

With respect I cannot accept that as a sufficient reason. No doubt the objects of legislation may be considered when it is necessary to choose between two possible interpretations of the language used by the draftsman, but where the language is clear (as I think it is here) it is not open to the courts to construe a statute as though it had been differently drafted: see Elson-Vernon Knitters Ltd. v. Sino-Indo-American Spinners Ltd. Co. Civ. App. No.22 of 1972. The fact that the Malayan courts have seen fit to declare unregistered Chinese money loan associations unlawful would make it difficult for us to say that the Legislature in Hong Kong could not possibly have intended to declare such associations unlawful. Moreover, a credit union is not so completely different a creature that an express exclusion of registered credit unions from the operation of the Societies Ordinance is not some indication that our own Legislature would see nothing unreasonable in interpreting the Ordinance so as to include money loan associations. It must not be overlooked that a seditious gang, for example, could meet under the guise of a money loan association and it may well be that for that reason it was intended to give the widest interpretation to the word “society”. The fact that no prosecution has been instituted against any Ordinance was enacted in 1949 shows nothing more than that the police have as yet found no evidence that this form of association has been abused for seditious purposes, but I am not prepared to interpret a statute which I think unambiguous by reference to the interpretation put upon it by the Executive, even though my interpretation may result in construing the statute so as to avoid a contract. It is no concern of this Court to say whether the registration of Chinese money loan associations is desirable in the public interest: we are required merely to state the law as we see it. If, as I believe, a money loan association is clearly an association, then any narrowing of the meaning of “association” which may be desirable in the public interest for the purposes of the Societies Ordinance should be effected by the Legislature and not by the courts.

9.  I have no doubt that this money loan association was an unlawful society within the meaning of the Societies Ordinance. It does not follow that no action will ever lie in respect of things done in the course of its affairs but I am satisfied that the courts should not be party to the enforcement of the rules of the association.

10.  That is enough to dispose of the present appeal. The other questions raised have been the subject of widely differing questions and I would be sorry to have to decide them on the strength of the argument which we have heard. In my view the appeal should be allowed, the judgments in favour of the Respondent set aside and judgment entered for the Defendant.

20^th December, 1972