CHUNG SHUN YING AND ANOTHER v. WONG WAH ON AND OTHERS

CACV 300/2024, [2025] HKCA 688

On Appeal From [2024] HKCFI 1281

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 300 OF 2024

(ON APPEAL FROM HCMP NO 152 OF 2022)

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REASONS FOR JUDGMENT
AND DECISION ON COSTS

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Hon Chow JA (giving the Reasons for Judgment and Decision on Costs of the Court):

INTRODUCTION

1.  This is the 1^st Respondent’s appeal against the following order (the “Order”) of Deputy High Court Judge Phoebe Man dated 26 June 2024:

“The 1^st to 3^rd Respondents, the 1^st Petitioner, Wong Hung Ping, Cheung Yuk Leung be refrained from exercising their powers as members of the Executive Committee and/or Executive Standing Committee (if they are recorded as such members)”.

2.  At the conclusion of the hearing of the appeal on 15 July 2025, we dismissed the appeal with reasons to be given later, and reserved our decision on the issue of costs, including the Petitioners’ application for indemnity costs.  These are our reasons for dismissing the 1^st Respondent’s appeal, and our decision on the issue of costs.

BASIC FACTS

3.  The background facts of this case have been set out in the written judgment of the Judge dated 26 June 2024 (the “Judgment”). For the present purpose, the following brief summary, taken largely from the Judgment, should suffice.

4.  Tsung Tsin Association (the “Association”), a company limited by guarantee, was incorporated in Hong Kong on 2 May 1959.  The predominant object of the Association is to promote and protect the industrial, commercial and other lawful interests of the Hakka Community in Hong Kong, China and abroad.  The Association had about 300 members in 2018, and currently has about 240 members.  The Association holds substantial assets including a building known as Tsung Tsin Building at Morrison Hill Road, Hong Kong, and cash in the sum of HK$60 million in early 2020 and about HK$33 million as at January 2021.  The Association also operates a school called Tsung Tsin Middle School (the “School”).

5.  The management and control of the Association are vested in its Executive Committee (the “EC”), which exercises the powers of management and control of the Association through a standing committee called the Executive Standing Committee (the “ESC”) elected by and amongst the members of the EC.  Under the Articles of Association of the Association, the Chairman of the EC is deemed to be the Chairman of the Association, and ex officio the Chairman of the ESC[1].

6.  In late 2017, the 1^st Respondent together with some other members of the Association were unhappy with the work of the then ESC, namely, the 36^th ESC, and sought the election of a new EC.  An election was held on 24 September 2017, whereby the 37^th EC was formed with the 1^st Respondent elected as the Chairman.  However, the 36^th ESC refused to recognize the validity of that election.  Another election was subsequently held at an extraordinary general meeting of the Association on 22 May 2018 (the “May 2018 EGM”), whereby once again the 1^st Respondent was elected as the Chairman of the 37^th EC.  The 36^th ESC still refused to recognize the result of the election held at the May 2018 EGM.  The matter was resolved by a judgment of Harris J dated 10 January 2019 in HCMP 2056/2018, declaring and confirming the validity of the 37^th EC and 37^th ESC ([2019] HKCFI 240).  The opposing respondents’ application to set aside the judgment of Harris J was rejected on 20 December 2019 ([2019] HKCFI 3030).  Eventually on 20 January 2020, the 36^th ESC handed over the management and control of the Association to the 37^th ESC.

7.  Internal disputes amongst the members of the Association came before the court again barely two years later.  On 28 January 2022, the 1^st Petitioner (a member of the 37^th EC and 37^th ESC) and the 2^nd Petitioner (a member and former employee (clerk) of the Association) filed an unfair prejudice petition complaining about the management and conduct of the following persons in relation to the affairs of the Association:

(1) the 1^st Respondent – Chairman of the 37^th EC and 37^th ESC;

(2) the 2^nd Respondent – Chief Officer of the General Affairs Section of the Association (his status as a member of the Association was challenged by the Petitioners);

(3) the 3^rd Respondent – the wife of the 2^nd Respondent, a member of the 37^th EC and 37^th ESC, and a signatory to the Association’s bank accounts; and

(4) the 4^th Respondent – a member and an employee (Secretary) of the Association.

8.  The complaints raised by the Petitioners in the Amended Petition dated 30 May 2024 (“Complaint 1” to “Complaint 10” respectively, and “Complaints” collectively) against the 1^st to 4^th Respondents have been summarized by the Judge at §10 of the Judgment.  We shall come back to some of the Complaints later in this judgment.

THE JUDGMENT

9.  The allegations raised by the Petitioners were disputed by the 1^st to 4^th Respondents.  They relied, amongst other matters, on an “Investigation Report” prepared by an Independent Investigation Committee (the “Investigation Committee”) formed in 2021 to carry out an investigation into various alleged wrongdoings, including some of the Complaints raised by the Petitioners. However, the Judge held that the relevant conclusions of the Investigation Committee were reached without proper examination or investigation, and the conclusions were thus unsound and unreliable.

10.  The 1^st and 2^nd Respondents gave evidence at the hearing of the petition.  However, the Judge was not impressed by their evidence.  In particular, in relation to the issue of membership of the Association, the Judge found the 1^st Respondent’s denial of what was referred to as the “95 EC Members List” and his putting forward of a rival “63 EC Members List” to be “highly disingenuous, if not dishonest”[2].  The Judge also found, in relation to the complaint of wrongful payment of HK$5 million to Right Point Accountancy Limited (“Right Point”), the 1^st Respondent’s assertion that he had not examined an invoice for HK$4.75 million presented by Right Point at the 21 November 2020 EC/ESC joint meeting, but had asked the Financial Section and the Secretary to look into it, to be “incredible”, and such evidence was given merely to “downplay his responsibility”[3].  Insofar as the 2^nd Respondent was concerned, the Judge found that the 2^nd Respondent would take a position whenever the situation suited him, and took the view that he was a thoroughly dishonest and unreliable witness[4].

11.  In her Judgment dated 26 June 2024, the Judge found most of the Complaints proved or partly proved:

(1) Complaint 1 (wrongful appointment of the 2^nd Respondent as Chief Officer of the General Affairs Section of the Association in January 2020) – proved[5].

(2) Complaint 2 (wrongful payment of HK$5 million to Right Point when it had not provided any substantial services to the Association) – proved[6].

(3) Complaint 3 (wrongful payment of HK$3 million to the 1^st Respondent purportedly as reimbursement of legal fees incurred in HCMP 2056/2018 and interest thereon) – proved[7].

(4) Complaint 4 (wrongful appointment of Katherine Chan as standing legal consultant of the Association, and payment of HK$5 million to Katherine Chan) – the complaint about appointment of Katherine Chan was rejected, but the payment of HK$5 million was found to be not properly authorized[8].

(5) Complaint 5 (wrongful payment of HK$6.1 million to the 1^st Respondent allegedly for a loan to the School) – not proved[9].

(6) Complaint 6 (various wrongful payments to the 4^th Respondent) – not proved[10].

(7) Complaint 7 (various wrongful payments to the 2^nd Respondent) – proved except a payment of HK$8,000 for reimbursement of legal fees[11].

(8) Complaint 8 (wrongful members’ removal) – partly proved[12].

(9) Complaint 9 (wrongful members’ recruitment) – proved[13].

(10) Complaint 10 (wrongful ESC members’ removal/suspension) – partly proved[14].

12.  The Judge set out her conclusions in respect of the Complaints which she found proved at §144 of the Judgment (the “Proven Complaints”), and made the following observations at §145:

“Whilst it might be said by Mr Leung that each individual wrongdoing may not amount to unfairly prejudicial conduct, I am of the view that based on my findings of the various wrongdoings alleged, a clear picture of gross mismanagement emerges: there were no proper scrutiny of outgoings, even when the amount is large; various members of the EC or ESC, including the Chairman, could procure the approval of payments to themselves personally; no proper procedure in ensuring an accurate members’ register was maintained, no proper procedure being in place or adhered to for the admission of members etc. Having seen and heard the totality of the evidence it is apparent that the management of the Association is in shambles. I am therefore of the view that reliefs ought to be granted for such mismanagement, which amounts to unfair prejudicial conduct.”

13.  The Judge took the view that while it might not be appropriate to grant relief to the 1^st Petitioner because, as a member of the 37^th EC/ESC, she had voted in favour of some of the matters which the Judge found to constitute unfair prejudicial conduct (including the payment of HK$5 million to Right Point and the payment of HK$3 million to the 1^st Respondent), such criticism could not be levied at the 2^nd Petitioner.

14.  The Judge further took the view that it was apparent that the 1^st to 3^rd Respondents had been involved in most, if not all, of the wrongdoings and were liable for them.  On the other hand, the 4^th Respondent was a mere employee who, on the available evidence, was not involved in the management or decision of the Association and should not be responsible for the unfair and prejudicial conduct.  Accordingly, the Judge decided that relief should be granted against the 1^st to 3^rd Respondents, but not the 4^th Respondent.

15.  On the issue of relief, the Judge considered that, to cater for the situation and present circumstances of the Association, relief alternative to that sought by the Petitioners in the Amended Petition should be granted.  However, in view of the fact that the parties had not had an opportunity to make submissions on the alternative relief that she proposed to grant, she made an order on a nisi basis, with leave to the parties to apply to vary the same within 14 days from the date of the Judgment.  The particular order that the present appeal is concerned with is set out at §173 of the Judgment, as follows:

“As I have already found that R1, R2, R3, P1, WHP and CYL have breached their duties as members of the EC/ESC, they should refrain from exercising their powers as members of the EC/ESC (if they are recorded as such members).”

THE APPEAL

16.  By a Notice of Appeal dated 24 July 2024, the 1^st Respondent appealed against, inter alia, the Order made by the Judge.  The Notice of Appeal contains a total of six grounds of appeal.  However, as confirmed by Mr Chan on behalf of the 1^st Respondent at the hearing of the appeal, the 1^st Respondent abandons all the grounds of appeal set out in the Notice of Appeal except Ground 1, which states as follows –

Ҥ173 of the Judgment ought not to have been made because:-

(1) The wording of the said paragraph is ambivalent in meaning and ambiguous for enforcement. Properly read, the paragraph is neither a prohibitive injunction nor a mandatory order. The term ‘should’ is advisory and recommendatory in nature and the paragraph causes confusion as to the course the 1^st Respondent should take;

(2) In any event, having decided that no order should be made for the 1^st Respondent as a member of the Association or a member of the Executive Committee and/or Executive Standing Committee, the Judge should not interfere with the way in which the 1^st Respondent exercise[s] the power properly granted to him.  The paragraph is wrong in that it recommends the 1^st Respondent to be derelict in duty by not participating in or exercising his proper power as Chairman of the Association and a member of the Executive Committee and/or Executive Standing Committee.”

DISCUSSION

17.  In our view, Ground 1 of appeal is plainly unsustainable.

18.  First, the matters now urged upon this Court by Mr Chan on behalf of the 1^st Respondent ought to have been raised in an application to the Judge to vary the Order nisi.  The 1^st Respondent’s failure to do so means that this Court is deprived of the benefit of the Judge’s view on those matters.

19.  At the hearing of the appeal, Mr Chan initially submitted that the 1^st Respondent did make an application to the Judge to vary the Order nisi, but was told by the Judge at a hearing on 13 September 2024 that he ought to pursue the matter on appeal and thus the 1^st Respondent decided to withdraw the application.  Mr Chan handed up to the Court a letter dated 9 July 2024 in support of his submissions.  However, upon an examination of the contents of that letter, it became clear that the 1^st Respondent had not in fact made any application to vary the Order nisi.  Instead, the letter merely stated that K C Ho & Fong (the 1^st Respondent’s solicitors) were “still taking instructions from [the 1^st Respondent] as to whether an application should be made to vary the order nisi contained in paragraph 173”.  Mr Lau (for the Petitioners) informed the Court that in fact, the hearing on 13 September 2024 was to deal with the costs order nisi made by the Judge, and there was no application made by the 1^st Respondent to vary the Order nisi.  Mr Chan did not disagree with what Mr Lau told the Court.  In the circumstances, Mr Chan’s initial submission is wholly without basis.

20.  In any event, neither of the two points raised under Ground 1 has merit.

(1) In respect of Ground 1(1), the suggestion that the wording of §173 of the Judgment is ambivalent or ambiguous because the word “should” is advisory and recommendatory in nature, and thus causes confusion as to the course that the 1^st Respondent should take, cannot be a serious argument.  It is, in our view, clear beyond peradventure that the order made by the Judge in §173 of the Judgment restrains the 1^st Respondent from exercising his powers as a member of the EC/ESC of the Association.  In passing, it may be noted that in the sealed order of the Judge dated 31 July 2024, the word “should” has been left out.

(2) Ground 1(2) is based on a false premise.  The Judge never decided that “no order should be made for the 1^st Respondent as a member of the Association or a member of the Executive Committee and/or Executive Standing Committee” as alleged by the 1^st Respondent.  On the contrary, the Judge stated at §164 of the Judgment that “[a]s found and discussed above, in these present proceedings relief will be granted for: 1) R2’s Appointment, 2) Wrongful Members’ Suspension/Removal and 3) Wrongful Members’ Recruitment”, but decided that relief alternative to what was sought by the Petitioners ought to be granted “to cater for the situation and present circumstances of the Association”[15].  Further, in view of her finding that the 1^st Respondent (amongst others) had breached his duties as a member of the EC/ESC, the Judge considered that the 1^st Respondent ought to refrain from exercising his powers as a member of the EC/ESC.  It is simply wrong to characterize the Judge’s order as recommending the 1^st Respondent “to be derelict in duty by not participating in or exercising his proper power as Chairman of the Association and a member of the Executive Committee and/or Executive Standing Committee” as contended by the 1^st Respondent.  While the Judge’s order did interfere with the way in which the 1^st Respondent might otherwise exercise his powers, such interference was considered by the Judge to be required in order to meet the circumstances of the case.

21.  In his skeleton submissions dated 17 June 2025, Mr Chan has sought to raise some new arguments in support of Ground 1.  In particular, Mr Chan argues that the Judge ought not to have made the Order because it is “disproportionate in scope” and “fails to remedy the breach of fiduciary duties found to have taken place”[16].  This argument is outside the scope of Ground 1 of the Notice of Appeal, and is, strictly speaking, not open to the 1^st Respondent. In any event, it has no merit.

22.  In relation to the court’s power to frame appropriate relief once unfair prejudice has been proved, the Judge set out the relevant principles at Section N of the Judgment:

“[157] Under section 725 of the [Company Ordinance], the court has wide powers to make any order that it thinks fit for granting relief. The court will seek to provide a remedy that is a fair and equitable way of putting right for the future for the unfair prejudice suffered. In framing the remedy, the court is entitled to consider the entire circumstances of the case and have regard to the interests of the company as a whole.

[158] The court has jurisdiction to make orders against directors where they are so connected to the unfairly prejudicial conduct that it would be just to grant a remedy against them in relation to that conduct.

[159] Once the court has decided to grant relief, it can include in its order any terms which it thinks appropriate in respect of the matters of which complaint has been made. The remedy must relate to the petitioner’s interests as a member of the company and to matters which are in dispute between the parties.

[160] I bear in mind that the remedy must be proportionate to the unfair prejudice found. The court is not limited only to making orders that the petitioner seeks.

[161] The court must assess the appropriateness of any particular remedy as at the date of the hearing and not as at the date of presentation of the petition, and may take account of conduct between those dates; indeed, the court is entitled to look at the ‘reality and practicalities’ of the overall situation, ‘past, present and future’.

[162] If a court were to make any order regulating a company’s affairs, it should consider a bespoke solution, at least in cases where it does not risk aggravating an existing dispute.

[163]    In my view, it is important to take the present Petition in its overall context – the overall complaint of Ps is that the Association is being mismanaged under the current EC/ESC, which is controlled by R1 – R3.  This will be a relevant factor in the determination of the appropriate reliefs, if any were to be granted.”

Mr Chan has not challenged the above principles.

23.  In Re Asia Television Ltd [2015] 1 HKLRD 607, at §§56-58, Harris J summarized the relevant principles for framing the appropriate relief in an unfair prejudice petition.  In particular, the learned judge held that the relief granted by the court should “put right and cure for the future the unfair prejudice which the petitioner has suffered at the hands of the other shareholders of the company”.  In other words, the court is entitled to look at the situation both retrospectively (putting right what went wrong in the past) and prospectively (preventing recurrence of unfair prejudicial conduct in the future).  As stated by the English Court of Appeal in Grace v Biagioli [2006] BCC 85 (276), at §73 (and quoted by Harris J at §58): “The court is entitled to look at the reality and practicalities of the overall situation, past, present and future”.

24.  In respect of the argument that the Order is disproportionate in scope, the Judge was well aware of the principle that the relief granted must be “proportionate to the unfair prejudice found”[17].  In considering whether the Order made by the Judge is disproportional, the following matters seem to us to be relevant:

(1) The Proven Complaints are very serious in nature, involving substantial sums of money as well as illegal conduct, for example, the payment of HK$5 million to Right Point was made pursuant to a confidential “Champerty Agreement” dated 4 January 2018 which it was not disputed was illegal[18].

(2) The Proven Complaints were numerous, and occurred within a short period of time after the 37^th ESC had gained control of the Association in January 2020.

(3) The 1^st Respondent stood to benefit personally and/or financially from the Proven Complaints, eg members (wrongfully) removed because they had challenged the conduct of the 1^st Respondent[19], and wrongful payment of HK$3 million to the 1^st Respondent[20].

(4) The 1^st Respondent, together with the 2^nd and 3^rd Respondents, were involved in most, if not all, of the Proven Complaints, at a time when the Association was under their control[21].

(5) In order to exonerate himself from, or downplay his responsibility for, the wrongdoings, the 1^st Respondent resorted to giving what the Judge considered to be “highly disingenuous, if not dishonest” and “incredible” evidence[22].

25.  In his written submissions, Mr Chan boldly asserted that the 1^st Respondent was not the “mastermind of mismanagement”[23]. However, this assertion is not based on any finding made by the Judge.  On the contrary, the Judge expressly found that “[t]he combined effect of the oral evidence of the witnesses is that no one within the Association would normally step out of line and offer any dissenting view to that of the Chairman (R1).  The evidence shows that people empowered to attend the EC/SC meetings would just put their hand up in support of resolutions when they were told to do so”[24].  As mentioned above, the Judge also found that the Association was under the control of, amongst others, the 1^st Respondent.  Taking into account the fact that the 1^st Respondent was the Chairman of the Association, EC and ESC, the contention that he was not the “mastermind of mismanagement” rings hollow.

26.  Mr Chan places reliance on the fact that the 1^st Respondent “abstained from voting in all the relevant resolutions put to the members at meeting”[25].  This point was raised before, but (correctly, in our view) rejected by the Judge.  The Judge did not consider that the 1^st Respondent could be exonerated merely because he had abstained from voting in the relevant resolutions, and took the view that the 1^st Respondent could not abdicate his duty as a fiduciary of the Association when resolutions presented to be passed were potentially against the Association’s interest[26].

27.  Mr Chan also argues that the Order should not be made because there were “other ESC members who have not been named in the Petition but have supported the various payments in breach of fiduciary duties would be allowed to continue to participate in managing the Association”[27].  This argument plainly has no merit.  The fact that there were other wrongdoers in respect of the Proven Complaints is not a reason for not making an order against the 1^st Respondent who, as the Judge found, was involved in most of them.  As a matter of fact, the Order does not only target the 1^st Respondent.  It also restrains those who are found to have been involved in the wrongdoings from exercising their powers as members of the EC/ESC, namely, the 2^nd Respondent, the 3^rd Respondent, the 1^st Petitioner, Wong Hung Ping and Cheung Yuk Leung.  We would add that whether the Judge ought to have made an order against those parties is not a question that we need to address, and we express no view on it.

28.  In the overall circumstances of the present case, we do not consider that the Order made by the Judge is disproportional to the unfair prejudice found by her.

29.  In respect of the argument that the Order “fails to remedy the breach of fiduciary duties found to have taken place”, as mentioned above, the relief to be granted once unfair prejudice has been proved is not restricted to putting right what went wrong in the past, but may also be designed with a view to preventing recurrence of unfair prejudicial conduct in the future.  In the present case, the Judge took the view that if any relief was to be granted, the fact that the Association was under the control of, amongst others, the 1^st Respondent was a relevant factor and should be taken on board.  Plainly, the Judge considered that the Order restraining the 1^st Respondent from exercising his powers as Chairman of the EC and ESC was necessary to “cater for the situation and present circumstances of the Association”.  In our view, the Judge was entitled to come to the conclusion that the Order was required to prevent recurrence of future unfair prejudicial conduct.

30.  Generally, the framing of appropriate relief in an unfair prejudice petition involves an exercise of discretion by the Judge. The 1^st Respondent has to overcome a high hurdle before the Court of Appeal would interfere with the Judge’s exercise of discretion.  We can see no valid basis for us to do so in the present case.

CONCLUSION

31.  For the above reasons, the 1^st Respondent’s appeal is dismissed with costs to the Petitioners.

32.  On the issue of the basis of assessment of the Petitioners’ costs, Mr Lau relies on the following matters in support of the application for indemnity costs: (i) total lack of merits of the appeal, (ii) the appeal is against an exercise of discretion by the Judge, which the Court of Appeal would not interfere with unless the Judge’s decision is shown to be manifestly wrong, (iii) the complaints now raised by the 1^st Respondent ought to have been raised in an application to the Judge to vary the Order nisi, instead of on appeal, and (iv) the 1^st Respondent has abandoned all of the grounds of appeal in his Notice of Appeal save Ground 1, and the abandonment of Ground 4 only became clear at the hearing of the appeal.  In response, Mr Chan maintains that the appeal is not without merit, and says that the parties did discuss the question of whether an application should be made to the Judge to vary the Order nisi (although he accepts that no application was eventually made).  In relation to the abandonment of grounds of appeal, Mr Chan submits that it is done in order to save the parties’ and the Court’s time and costs.

33.  We consider that the present case is a borderline case for making an indemnity costs order, but are ultimately not persuaded that the circumstances are sufficiently serious to justify such an order.  Accordingly, we make an order that the 1^st Respondent shall pay the Petitioners’ costs of the appeal, to be summarily assessed on a party and party basis.  The Petitioners shall file and serve a costs statement for summary assessment within 14 days from the date hereof, and the 1^st Respondent shall have leave to file and serve a statement of objections (limited to 2 pages) within 14 days thereafter.