TONG CUN MING AND OTHERS v. CHEUNG SUN LING SANNY, THE ADMINISTRATRIX OF THE ESTATE OF KWAN YAU HANG, DECEASED AND OTHERS

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(Heard together)

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JUDGMENT ON PRELIMINARY ISSUES
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1.  These cases involve a dispute between two rivalry camps in a Taoist institution known as “Kam Lan Koon” (金蘭觀). I myself have been involved in these proceedings at the very early stage. From the outset, I took the view that the parties should try to resolve their differences without resort to legal proceedings. Regrettably, the parties did not see the good sense of my suggestion, and ultimately I have to adjudicate the disputes between them.

2.  Having considered the evidence of these cases, I think that it is fair for me to describe the two rivalry camps as the reformists’ camp (“the Reformists’ Camp”) and the traditionalists’ camp (“the Traditionalists’ Camp”).

3.  One of the prominent members of the Reformists’ Camp is Mr Chong Kai Man (“Mr Chong”) who is now a practising barrister. Basically, the Reformists’ Camp suggests that, since the Koon is an incorporated company, it should be operated strictly in accordance with the legal principles of company law.

4.  On the other hand, the prominent members of the Traditionalists’ Camp are the traditional religious leaders of the Koon. Whilst they maintain that the Koon had been operated in accordance with company law in the past, they also advocate that the leaders of the Koon should be chosen by the Spiritual Master (壇主) in the religious ritual known as Spiritual Writing (扶乩).  According to them, this has been the practice of the Koon for many years.

5.  After the Koon losing a major legal battle in an adverse possession case, members of the Reformists’ Camp commenced legal proceedings, HCMP 143/2011, against certain members of the Traditionalists’ Camp, the Koon and the Secretary for Justice, seeking for a declaration that the Koon is a charity and some other reliefs for the better administration of the Koon.  In the same year, the board of councillors of the Koon passed a resolution terminating the membership of some of the members of the Reformists’ Camp.

6.  There are numerous issues involved in these cases, but the crucial ones relate to the validity of the resolution expelling the members of the Reformists’ Camp from the Koon.  In pre-trial hearings, it was agreed that the adjudication of a few key preliminary issues can probably dispose the cases, and so this is the trial of these preliminary issues.

BACKGROUND

7.  Kam Lan Koon has a long history.  It was founded in 1831 by a group of Taoist believers in Chiu Chow in China.  Because of political instability, Kam Lan Koon was relocated to Hong Kong in early 1950’s. Originally, Kam Lan Koon was operated in Hong Kong through an unincorporated association under the same name.  The members of the association eventually built a Taoist Temple in a piece of land in Yuen Long.  The grand opening of Kam Lan Koon Temple (“the Temple”) took place in November 1970.

8.  Later, with a view to get a lease from the Government for the use of the land occupied by the Temple and to obtain the “charity” status for tax purposes, the association decided to establish an incorporated company to take over the operation of Kam Lan Koon, and as a result Hong Kong Kam Lan Koon Ltd was incorporated in 1972.  For the purpose of this Judgment, I would refer the incorporated company as “the Koon”.

9.  The main objects of the Koon as provided for in the Memorandum of Association (“the Memorandum”) are for the dissemination of Taoism and the undertaking of charitable work.

10.  The Articles of Association of the Koon (“the Articles”) provide for a board of councillors (“the Board”) which serves similar function as a board of directors in a limited company.

11.  Being a religious institution of many years, the Koon has its own traditions.  Despite the provisions in the Memorandum and Articles, the actual operation of the Koon has throughout the years fallen into the hands of two entities known as the Chairpersons’ meetings (主席會) and the Executive Committee’s meetings (值事會).  The Chairpersons’ meeting consists of the Chairperson and the Vice-Chairpersons of the Executive Committee (“the Exco”).  The number of Vice-Chairpersons has varied throughout the years.  At the most relevant time of the dispute, the number of Vice-Chairpersons was 4.  The Chairperson and the 4 Vice-Chairpersons are known as the 5 Chairpersons (五主席).

12.  The 5 Chairpersons met regularly.  They made all the major decisions relating to the operation of the Koon.

13.  From 1996, Mr Kwan Yau Hang (“Mr Kwan”), the 1^st Defendant in all 3 actions, had been the Chairperson of the Exco.  There is no serious dispute that he was a dominating figure in the Chairpersons’ meetings.  He died in 2014.

14.  Mr Luk Yau Tong (“Mr Luk”) and his wife Ms Tang Siu Bing (“Ms Tang”), the 2nd and 3rd Defendants respectively in all the 3 actions, have been the Vice-Chairpersons of the Exco since 1996.  Mr Chan Joy Shing (“Mr Chan”), the 4th Defendant in all the 3 actions, has been the Vice-Chairperson of the Board since 1995.  Mr Chan Wing Cheung Stephen (“Mr Stephen Chan”), the 5th Defendants in all 3 actions, has been the Vice-Chairperson of the Exco since 2010.

15.  The Exco was responsible for the execution of the various decisions made in the Chairpersons’ meetings.  At the relevant time of the dispute, there were about 134 members in the Exco which consisted mainly of the active members of the Koon.  The Exco met once a month.

16.  There were 12 departments under the Exco.

17.  There is no serious dispute that, despite the provisions in the Memorandum and Articles, the Board of the Koon had never met at least in the period from 1998 to 2000.  The de facto Board only consisted of the 5 Chairpersons.

18.  It is the belief of the members of the Koon that the Taoist spirits would communicate with them through the Spiritual Writings. Mr Kwan and Mr Chan have been the Spiritual Writers (乩手) since the late 1990’s, and they were responsible to write down the decisions and guidance given by the spirits.  During the Spiritual Writing in March or April each year, the members would pray for guidance from the Spiritual Master about the proper persons to be the office bearers of the Koon.  Through the Spiritual Writers, a list would appear showing the names of the persons that should hold the key positions of the Koon in the coming year, including, inter alia, the Chairperson, the Vice-Chairpersons and the heads of the 12 departments.

19.  Mr Chong became involved in the affairs of the Koon in 1997.  By that time, he was invited by a friend to assist the Koon in dealing with a land lease dispute with the Lands Department.  He joined the Koon in the same year and became the honorary legal advisor of the Koon in the following year.  From 1997 to 2001, he represented the Koon in the judicial review proceedings against the Lands Department.  Although finally losing the case in 2001, the Lands Department granted a land lease for the Koon to use certain land now occupied by the Temple.

20.  Mr Chong had known Mr Kwan for many years.  By reason of their close relationship, Mr Chong attended most of the Chairpersons’ meetings before 2011 as a honorary legal advisor of the Koon.

21.  According to Mr Chong, the Memorandum and Articles had been amended twice.  The first time was in 1999, when the Memorandum and Articles were amended in order to obtain the status of a trust of public charity under the provisions of the Inland Revenue Ordinance.  The second time was in 2003, when the same were amended in order to get the dispensation in the use of the term “limited” under the provisions of the Companies Ordinance.

22.  In an attempt to reconcile the tradition of the Koon with the requirements of company law, Mr Chong gave an advice in the Exco’s meeting on 6 June 1999 that the Exco and the Board would be responsible for the internal (對内) and external (對外) aspects of the Koon respectively.  For the purpose of satisfying the requirements of company law, Mr Chong proposed that the Chairperson, the Vice-Chairpersons and the 12 heads of the various departments of the Exco should become councillors under the Articles of the Koon.  Mr Chong’s advice and proposal were accepted in that Exco’s meeting.

23.  The Koon was also involved in another land dispute.  In 1999, the Koon commenced legal proceedings, HCA 15824/1999, to claim for a declaration for adverse possession against the paper owner of a piece of land occupied by the Koon (“the Adverse Possession Action”).  The claim was dismissed by Lam J (as he then was) on 11 October 2005.  The Koon was not satisfied with the judgment and lodged an appeal, which was dismissed by the Court of Appeal on 18 February 2009.  Further appeal to the Court of Final Appeal was dismissed on 26 April 2010.

24.  Ever since the Adverse Possession Action was not going in favour of the Koon, members had different opinions about the conduct of the Adverse Possession Action.  After the final determination of that Action, members then started to have different views as to how the Koon should be operated and governed in the future.  The Reformists’ Camp did not agree that the 5 Chairpersons should dominate the making of all the major decisions relating to the Koon, and they proposed that the Koon should be operated according to the principles of company law.  That resulted in the formation of the two rivalry camps in the Koon.

25.  Near the end of 2010, Mr Chong had written a number of times to the 5 Chairpersons and Mr Kwan suggesting that the Koon should be operated according to the established principles of company law.  He even proposed to hold a hearing or inquiry (聽証會) to determine the way in which the Koon should be operated in the future.

26.  On 28 January 2011, 4 members of the Reformists’ Camp commenced HCMP 143/2011 against the 5 Chairpersons, the Koon and the Secretary for Justice (“the Better Administration Action”) claiming for, inter alia: (i) a declaration that the Koon was a charity in the legal sense and there be a better administration order for the operation of the Koon; (ii) an order that the 5 Chairpersons be removed as councillors of the Koon by reason of their misconduct and mismanagement of the Koon; and (iii) an order that that there be proper election of the councillors of the Koon in accordance with the provisions in the Memorandum and Articles of the Koon.

27.  The relationship between the two camps further deteriorated with the issuance of the Better Administration Action.  The 5 Chairpersons and the members of the Traditionalists’ Camp accused members of the rivalry camp of not respecting the traditions and the established values of the Koon, whilst members of the Reformists’ Camp maintained their views that the 5 Chairpersons could not take the running of the Koon into their own hands.

28.  As Mr Chong had raised concern that there had been no Board’s meeting held in the past, the Koon started to hold Board’s meetings in early 2011.  In the Board’s meeting on 27 February 2011, the Board confirmed that: (i) the past Exco’s meetings were extended meetings of the Board; and (ii) the 5 Chairpersons were authorised to handle the affairs of the Koon under Arts 19.4 and 19.5 of the Articles.  Further, the Board resolved that, recognising the tradition of the annual nomination of councillors by the Spiritual Master, the election of councillors would be conducted by way of casting a vote of confidence for or against the entire cabinet of councillors in compliance with the election requirements specified in Art 17 of the Articles.

29.  There is also another important provision in Art 7.1 of the Articles governing the right to vote and participation in election, which reads:

“Subject to Article 6 above, any member (irrespective of sex and nationality) who as attained the age of 18 and who has:

(a) been admitted as a member of the Koon for a period not less than 12 months;

(b) for the previous 6 months continuously attending the Koon

shall be entitled to attend, to propose motions and to vote at general meetings and to participate in the election of Councillors.”

30.  On 27 February 2011, the Board passed a resolution that, for the purpose of construing the meaning of “continuously attending” under Art 7.1(b), 70% attendance was the most reasonable construction of “continuously attending” for the past 6 months (“the 70% Attendance Resolution”).  On the same day, notice was given for the holding of an EGM on 20 March 2011.

31.  On 17 March 2011, the Board passed a resolution that Mr Chong would not be the legal advisor of the Koon for the coming EGM.

32.  In the EGM on 20 March 2011, the members passed various resolutions to confirm, inter alia, the matters mentioned in para 28 above.

33.  The 70% Attendance Resolution was first enforced in this EGM.  Members who had not satisfied the 70% attendance requirement were not allowed to vote.  Such attendance requirement was also enforced in the subsequent AGMs and EGMs.

34.  Because of the dispute between the two rivalry camps, the Koon did not hold Spiritual Writing in March or April 2011 to select the officers of the Exco.

35.  On 16 April 2011, the Board issued notice for AGM to be held on 8 May 2011.

36.  On 30 April 2011, the 5 Chairpersons passed a resolution that Mr Chong would not be the legal advisor of the Koon for the coming AGM.

37.  In the AGM on 8 May 2011, the members passed a resolution that due to the suspension of the Spiritual Writing that year, the office of the entire Exco, including the 17 councillors, appointed by the Spiritual Master in the previous year would be extended until the holding of the next Spiritual Writing for the selection of officers.  Again the 70% attendance requirement was enforced in this AGM.

38.  On 31 May 2011, 20 members of the Reformists’ Camp issued legal proceedings, HCMP 1013/2011, against the 5 Chairpersons and the Koon (“the Resolutions Action”) seeking for declarations that all said resolutions passed in the EGM, AGM, the Board’s meetings and the 5 Chairpersons’ meetings mentioned above were void and of no legal effect.

39.  In the summer of 2011, there were some very heated confrontations between members of the two rivalry camps in the various religious activities of the Koon.

40.  On 24 September 2011, the Board passed a resolution appointing Mr James Cheng (“Mr Cheng”), another practising barrister, as the honorary legal advisor of the Koon.

41.  On 15 October 2011, the Board passed a resolution terminating the membership of 22 members of the Reformists’ Camp including Mr Chong (“the Termination Resolution”).  On 11 November 2011, notices were issued to these members informing them about the termination of their membership.

42.  On 30 November 2011, these 22 expelled members (“the 22 Plaintiffs”) issued legal proceedings, HCMP 2477/2011, against 15 councillors of the Board, the Koon and the Secretary for Justice challenging, inter alia, the validity of the Termination Resolution (“the Membership Action”).

43.  The Better Administration Action, the Resolutions Action and the Membership Action (“the 3 Actions”) soon came before me for directions and determination of various applications taken out by the parties.  Fortunately, the parties did not have any serious dispute about the status of the Koon as a charity.  On 8 May 2012, with the consent of the parties, I made an order declaring that the Koon is a charity in law.

44.  After Mr Kwan’s death in 2014, members of the Reformists’ Camp settled the disputes involved in the 3 Actions with the estate of Mr Kwan.  As a result, Mr Kwan is no longer a party in all these proceedings.

45.  As one can see from the above, the Plaintiffs of the 3 Actions are all members of the Reformists’ Camp.  Except for the Koon and the Secretary for Justice, all the Defendants in the 3 Actions are members of the Traditionalists’ Camp.  For the purpose of this Judgment and unless otherwise provided, I refer “the Plaintiffs” as all the Plaintiffs in the 3 Actions and “the Defendants” as all the Defendants in the 3 Actions except the estate of Mr Kwan and the Secretary for Justice.

46.  As one of the main teachings of Taoism is to disseminate love amongst all human beings and living creatures, I had expressed the view at the outset that legal proceedings should not be the best option to resolve the differences between members of the Koon.  I am given to understand that there had been negotiations between the parties in these few years.  The Defendants accept that the Koon should in the future be run as an incorporated company following the principles of company law.  They have also agreed, in principle, to reinstate the membership of the 22 Plaintiffs.   With these concessions, it seemed that the differences between the parties were not great, and yet they were not able to reach a final settlement.  The parties have made a last attempt to settle the 3 Actions in the first few days of the trial but without any success.

47.  As one can see from the facts above, the determination of the 3 Actions is hinged on a few key issues, with most of them relate to the validity of the Termination Resolution.  On the other hand, there are a lot of factual allegations involved in these claims, for example, whether the 5 Chairpersons were guilty of the alleged misconduct and mismanagement of the Koon, and whether each of the 22 Plaintiffs had factually done the acts leading to the termination of their membership.  For the efficient disposal of the 3 Actions, the parties agree that there should be a trial on preliminary issues which focuses on the determination of a few key and yet relatively not so fact-sensitive issues.

48.  Despite the agreement on the trial on preliminary issues, the court has spent a lot of time in trying to work out the exact terms of the preliminary issues.  This was not an easy task.  As I see it, the main difficulty lied with the uncertainty of the defence actually relied on by the Defendants.  In this regard, I must say that Mr Kwok, counsel for the Defendants, had not given me necessary assistance in the formulation of the preliminary issues.  The Defendants’ pleadings were drafted in Chinese by Mr Kwok’s predecessor.  Unfortunately, it was not easy to work out the exact defences relied on by the Defendants from these pleadings.  Furthermore, Mr Kwok was not prepared to commit on his stance on various issues, and throughout the proceedings, he has been raising a lot of new arguments which have not been pleaded before.  This complicates the task of the court.

49.  After much struggling, the parties were finally able to agree on the 12 preliminary issues proposed by Mr Chain, counsel for the Plaintiffs. After further discussions, the parties were able to agree at the commencement of the trial that the preliminary issues can further be narrowed down to the following ones:

(i) was any election of councillors held since 1998 until [the Better Administration Action]? (the original issue No 4)(“the Election Issue”)

(ii) whether the councillors are entitled to “interpret” Article 7.1 so as to require a 70% attendance by members to qualify for voting? (the original issue 9)(“the 70% Attendance Issue”)

(a) whether the council was properly constituted [when the 70% Attendance Resolution was made]?

(b) whether such interpretation was correct in law having regard to the way attendance record was kept?

(iii) whether the purported expulsion of any or all of the 22 Plaintiffs from membership was valid as a matter of jurisdiction, i.e. whether what they were alleged to have done fell within Art 9.2? (the original issue No 10)(“the Expulsion Issue”)

(a) whether the council was properly constituted [when the Termination Resolution was made]?

(b) whether the council can rely on the rule purportedly made in 2000, and whether the council relied on such rule at the 15 October 2011 meeting and if not, whether it can be relied on later?

(iv) whether the purported expulsion of any or all 22 Plaintiffs from membership was invalid by reason that [the Termination Resolution] was passed in breach of the rules of natural justice? (a sub-issue of the Expulsion Issue)(“the Natural Justice Issue”)

50.  At the trial, all the parties accept that the Koon should have been run, and in the future be run, according to the provisions contained in the Memorandum and Articles and the principles of company law.  By reason of such consensus, the main differences between the parties relate to the questions as to: (i) whether the Board was properly constituted at the time when the Termination Resolution was made; and (ii) whether the Termination Resolution was properly and lawfully made.  I will therefore deal with the preliminary issues in turn.

THE ELECTION ISSUE

51.  The Election Issue would be relevant in determining whether the 70% Attendance Resolution and the Termination Resolution were lawfully made.  If there had been no proper election of the councillors throughout the years, the Board was not properly constituted when these Resolutions were made, which would in turn affect the validity of these Resolutions.

52.  Art 17 of the Articles requires councillors to be elected by members in general meeting, provided that non-members, members rendered ineligible by reason of Art 7.2 and members expelled from membership of the Koon by the councillors and whose appeal are pending shall not be eligible for election or appointment as councillors.

53.  Art 18 provides for rotation of councillors, though councillors required to retire in a particular AGM shall be eligible for re-election.

54.  It is common ground that the Koon held AGM each year, but there is serious dispute as to whether there were proper elections of the councillors in these AGMs.

55.  There was no record of any election of councillors in any of the minutes of the AGMs from 1998 to 2000.

56.  3 witnesses testify in support of the Plaintiffs’ case that there was no election: (i) Mr Chong; (ii) Mr Chan Chung Mau Philip (“Mr Philip Chan”) who had been the treasurer of the Koon since 1997 or 1998; and (iii) Mr Lau Man Wai Joseph (“Mr Lau”) who had been a Vice-Chairperson of the Koon from 1998 to 2009.  They all maintain that there was no election of councillors in any of the AGMs at the relevant period.  The members were not even asked to endorse any list of councillors, whether formally or informally.  According to Mr Chong, it was the view of the 5 Chairpersons that the officials of the Exco were chosen and appointed by spirits (天職神委), and so the members had no right to vote for the appointment of the officials and the councillors.

57.  6 witnesses testify in support of the Defendants’ case: (i) Mr Luk who joined the Koon in 1992 and has been a Vice-Chairperson of the Exco since 1996; (ii) Ms Luk Ching Ching who is the daughter of Mr Luk and was the deputy head of one of the departments of the Exco at the relevant time; (iii) Mr Ko Wai Bong (“Mr Ko”) who joined the Koon in 2005 and has been a member of the Exco since 2000; (iv) Ms Liu Suet Miu (“Ms Miu”) who has been the head of the secretariat of the Exco (文書部) and the company secretary of the Koon since 2011; (v) Mr Stephen Chan who joined the Koon in 1995 and has been a Vice-Chairperson of the Exco since 2010; and (vi) Ms Tang who joined the Koon in 1992 and has been a councillor of the Koon since 1996 and a Vice-Chairperson of the Exco since 2000.

58.  Most of the Defendants’ witnesses confirm that there were elections of councillors in the AGMs in the relevant period, though there is some confusion in their evidence as to exactly how these elections were carried out.  Some of the witnesses describe the election as a “formality” (例行公事) and “a transient item in the agenda” (過場) only.  It just happened in a split second (一閃即逝).  Mr Luk testifies that a list of councillors would be presented to the members in the AGMs for endorsement, and the members would clap their hands to indicate their endorsement of the list, but the other witnesses do not mention the clapping of hands.  Ms Ko testifies that the elections were conducted by Mr Kwan, but Ms Miu suggests that it was Mr Philip Chan who conducted the elections in the AGMs. He read out something in English and Ms Miu did not quite understand what was going on.

59.  There is some confusion as to whether the councillors taking office after the AGM in a particular year would be the same officers chosen in the Spiritual Writing in the same year or the previous year.  The record shows that the AGM was usually held in February or March.  After the AGM, the officers were chosen by the Spiritual Master in the second Spiritual Writing after the lunar Chinese New Year, usually in March, April or May of the western calendar.  Thereafter, the officers would assume office in the inaugural ceremony held in the festival of Lui Spiritual Master on 14 April of the lunar Chinese calendar, which would be about May or June of the western calendar.

60.  The Koon filed the return with the Companies Registry after the Spiritual Writing.  According to the record, the list of councillors included in the return basically tallied with the list of officers chosen in the Spiritual Writing earlier in the same year.

61.  However, the Defendants’ witnesses give a different account to the court.  As the AGM was held before the Spiritual Writing and the inaugural ceremony, the Defendants’ witnesses testify that the councillors elected in the AGM each year were actually the officers chosen in the Spiritual Writing in the previous year.

62.  Having carefully considered all the evidence, I accept the witnesses for the Plaintiffs that there was no election of the councillors in any of the AGMs in the period from 1998 to 2010.

63.  First, there was no record of any election in the minutes of the AGMs in the relevant period.  If there were in fact elections of the councillors, or at least some informal acts by the members to endorse the list of councillors, I find it incredible that such elections or endorsements did not appear anywhere in the minutes of the AGMs.

64.  Secondly, the Defendants had only first raised the factual allegation about the elections in November 2013 when the Defendants were forced to answer the Plaintiffs’ request for particulars.  It has all along been the Plaintiffs’ pleaded case that there had been no proper election of the councillors throughout the years.  If there were in fact such proper elections, one would wonder why the Defendants had not raised such allegation much earlier.

65.  Thirdly, as I have mentioned above, there is serious confusion in the testimony of the Defendants’ witnesses as to how the elections were actually carried out.  Further, I cannot see the logic in Ms Miu’s evidence as to why the elections of councillors were conducted in English whereas the other businesses of the AGMs were conducted in the Punti dialect.

66.  Fourthly, I agree with Mr Chong that, bearing in mind the tradition and the belief of the followers of the Koon, it was not necessary for the Koon to conduct any election of the councillors in the AGMs. Even the members of the Traditionalists’ Camp accept that all the officers and members of the Exco should be chosen by the Spiritual Master (天職神委), and members of the Koon had no right to interfere with the choice made by the Spiritual Master.   In such circumstances, it would not be necessary to conduct any elections in the AGMs.  Allowing members to interfere with the choice made by the Spiritual Master is not something tolerable under their belief or tradition.  Further, it is clear that the Koon had ignored the existence of the Board for a long period of time.  Apart from the 5 Chairpersons’ meetings and the Exco’s meetings, no Board’s meetings of the Koon had been held prior to 2011.  In such case, it is difficult to understand why anyone (including Mr Philip Chan) would have bothered to hold elections just for the purpose of completing the lists of councillors for filing with the Companies Registry.

67.  Fifthly, I also have great difficulty in accepting the testimony of the Defendants’ witnesses that the election in AGM was only to endorse the list of officers chosen by the Spiritual Master in the previous year.  If such allegation were the truth, these officers of the Exco would have assumed office and went through the inaugural ceremony in the previous year.  After assuming office for nearly a year, why was it necessary to conduct an election in the AGM in the following year to endorse the list of councillors selected by the Spiritual Master in the previous year?  This does not make a lot of sense.

68.  Further, the company returns filed by the Koon actually support the Plaintiffs’ case that the councillors listed in the return were actually the officers chosen in the Spiritual Writing held earlier in the same year, because the two lists basically were the same.  Inevitably, there might be some mistakes.  But as testified by Mr Philip Chan himself, he only relied on the information supplied to him by the secretariat of the Exco in completing the returns to the Companies Registry, and so such immaterial mistakes should not undermine the credibility of his evidence.

69.  For the above reasons, I find as a matter of fact that no election of councillors was conducted in any of the AGMs from 1998 to 2000.

70.  What is the effect when there were no such elections?  For our present purpose, the court would only need to examine whether the Board was properly constituted when the 70% Attendance Resolution was made in February 2011.  If there was no election of councillors in the immediate preceding AGM in 2010, the Board was not properly constituted when they passed the 70% Attendance Resolution.

71.  One of the arguments which may perhaps be available to the Defendants and the Board is that the Plaintiffs are now estopped from challenging the legitimacy of the Board.  Similar argument can be found in some of the testimony of the Defendants’ witnesses.  Since Mr Chong had been the legal advisor of the Koon for many years and he had not raised any complaint about the lack of elections, the Defendants’ witnesses seem to suggest that Mr Chong is now estopped from challenging the legitimacy of the Board.

72.  The problem with such line of defence is that it has not been properly pleaded.  In the pleadings, the Defendants aver that they relied on the advice given by Mr Chong in the Exco’s meeting on 6 June 1999 to the effect that the Chairperson, Vice-Chairpersons and heads of the various departments of the Exco should serve as councillors of the Koon.  However, as testified by Mr Chong himself, he had not advised the Koon to dispense with the elections in the AGM.  Neither have the Defendants pleaded in their Defences that Mr Chong had advised the Koon to dispense with such elections, nor have they averred anything about the legal effect following Mr Chong’s advice.  Hence, the Defendants cannot now rely on such unpleaded issue. 

73.  Further, lack of protest on the part of Mr Chong may not amount to an estoppel.  As testified by Mr Chong himself, it would be very difficult for him to challenge the authority of Mr Kwan and the other Vice-Chairpersons in the running of the Koon.  Using his words, there would be a “civil war” if he voiced out his opposition earlier.  As seen by the later development of the case, the 5 Chairpersons did not tolerate different views expressed by other members relating to the operation of the Koon.  Ever since the commencement of the Better Administration Action, the 5 Chairpersons had been trying to get rid of Mr Chong, including terminating his appointment as the honorary legal advisor of the Koon.  In the Board’s meeting on 15 October 2011, it was clear that Mr Kwan did not tolerate any challenge to their authority and he wanted to crush the opposition once and for all. Hence, even taking into account the good relationship enjoyed by the parties at the early stage, it would be extremely difficult for Mr Chong and indeed other members of the Reformists’ Camp to challenge the authority of the 5 Chairpersons.

74.  Finally, even if the lack of protest on the part of Mr Chong were to amount to an estoppel, it is difficult to see how such “estoppel” would bind the other members of the Reformists’ Camp.

75.  Having made such observations, I do not intend to make a final ruling on the defence of estoppel (if it has been properly pleaded).  As I will demonstrate below, the Board, even if it was properly constituted, simply did not have the power to “interpret” Art 7.1 so as to require a 70% attendance by members to qualify for voting, and so the Board was acting ultra vires when it passed the 70% Attendance Resolution in February 2011. Furthermore, the defence of estoppel has not been fully canvassed by the parties in their submissions.  As a final determination of such issue may affect the validity of some other resolutions passed by the Board at the relevant time, it would be better for the court to leave this matter for further argument in the future.  At this stage, I am prepared to proceed on the basis that the Board was properly constituted when the 70% Attendance Resolution was passed on 27 February 2011.

THE 70% ATTENDANCE ISSUE

76.  I then turn to the 70% Attendance Issue.  The main question here is whether the councillors were entitled to “interpret” Art 7.1 so as to require a 70% attendance by members to qualify for voting, having regard to the way the attendance record was kept.

77.  In this regard, I agree with Mr Chain that the imposition of the 70% percentage, which was made on a wholly unclear basis, was arbitrary and wrong in law.

78.  First, the Defendants’ case is that the word “continuously” in Art 7.1 requires 100% attendance and so the 70% “interpretation” was already a concession.  According to Mr Kwok, the passing of the 70% Attendance Resolution was a bona fide attempt to quantify the phrase “continuously attending” in Art 7.1.  In order to determine who are entitled to vote in the general meetings, the phrase must be quantified and given a numerical value.

79.  I agree with Mr Chain that this is a totally wrong approach in law.  There is simply no basis to support the Defendants’ contention about the 100% interpretation.  Further, if Art 7.1 truly requires 100% attendance, then it is not a matter that can be “waived” by the Board.  If the members of the Board think that the requirement is too harsh, they should take step to amend the Articles with a view to have a clearer and more relaxed definition about the attendance requirement.

80.  There may be some ambiguity with the word “continuously”. However, if the Board or the Koon seeks to rely on Art 7.1 to deny the members to vote or to stand for election as councillors, the proper approach is to deal with each member’s case individually on its facts.  In particular, this “continuously attending” requirement had never been enforced in the past, and all the qualified members were allowed to vote in the previous general meetings.  As the Board was seeking to disqualify certain members to vote for the first time, the burden must be on the Board to justify a finding of non-continuous attendance on the facts of each case.

81.  Further, even the councillors did not have a very clear idea as to the basis upon which the attendance would be calculated. There were certainly activities of the Koon on days other than Sundays and even the councillors did have different views as to whether the attendance of these activities would count.  As pointed out by Mr Chong, there were some members who had to work on Sundays and yet they continuously attended the activities of the Koon on days other than Sundays.  With no consensus as to whether the attendance of these activities should count, there was no clear and proper basis for the enforcement of the 70% attendance requirement.

82.  The attendance record was also far from satisfactory for the enforcement of the attendance requirement.  The attendance book would only be available on Sundays and the members had not been told that they had to sign their attendance to qualify to vote or to stand as candidates in elections.  As pointed out many times in the Exco meetings, the purposes of signing the attendance book were to ascertain the number of persons attending the lunch in the Koon on Sundays and to support and maintain the “charity” status of the Koon.  Hence, apart from the lack of clear and proper basis, there was also no proper record for the enforcement of the 70% attendance requirement.

83.  In his final submissions, Mr Kwok seems to suggest that the 70% Attendance Resolution can be regarded as “rule and regulation” made by the Board under Art 8.1.   This is clearly a bad point. Apart from the fact that such argument has not been properly pleaded, Art 8.1 clearly provides that the rule and regulation made by the Board shall not have retrospective effect.  By passing a resolution on 27 February 2011 that required members to attend more than 70% of the functions of the Koon in the period of 6 months prior to the AGM in May 2011 was clearly an attempt to impose a rule or regulation with retrospective effect which was not permissible under Art 8.1.

84.  Based on the aforesaid, I find that the Board was acting ultra vires in passing the 70% Attendance Resolution.  It therefore follows that the Koon had wrongfully enforced the 70% attendance requirement in all the subsequent general meetings including the EGM on 20 March 2011 and the AGM on 8 May 2011.

THE EXPULSION ISSUE

85.  I then turn to the main issue in the present case, that is whether the Board had lawfully and properly terminated the membership of the 22 Plaintiffs.

86.  In my judgment, the expulsion of the 22 Plaintiffs was unlawful by reason of the following 3 grounds:

(i) the Board was not properly constituted when the Termination Resolution was made;

(ii) there was no proper basis or jurisdiction for the Board to terminate the membership of the 22 Plaintiffs; and

(iii) the Board had not informed the 22 Plaintiffs about the intended termination of their membership and had not provided an adequate opportunity for their respective cases to be heard, thereby breaching the principles of natural justice.

87.  I will deal with these issues in turn.

(i) Validity of the Board when the Termination Resolution was made

88.  Unlike the earlier AGMs, there was a purported election of the councillors in the AGM on 8 May 2011.  Despite such attempt, I do not find that the election was a lawful one.

89.  Firstly, by reason of my ruling on the 70% Attendance Issue above, the 70% attendance requirement was unlawfully enforced in the AGM on 8 May 2011, and as a result certain members were wrongfully excluded from voting in the AGM on 8 May 2011.  In such circumstances, the councillors were not properly elected in that AGM.

90.  Secondly, in the same AGM, the members were being asked to vote for councillors for an indefinite term until the holding of the next Spiritual Writing for the selection of officers of the Exco.  Obviously, it would be against the provisions in the Articles for the appointment of councillors for an indefinite term and so the election of councillors in the AGM on 8 May 2011 was not a proper or lawful one.

91.  For these 2 reasons, the Board was not properly constituted when the Termination Resolution was passed on 15 October 2011.

92.  In his final submissions, Mr Kwok relies on Art 19.8 of the Articles, s 157 of the old Companies Ordinance (Cap 32) and s 461 of the new Companies Ordinance (Cap 622) to argue that, even if the appointment of the councillors in the AGM on 8 May 2011 was defective, their act in passing the Termination Resolution was still valid.

93.  I disagree.  These article and provisions are aimed to provide protection to third party dealing with the directors of a company.  If the members of the company are challenging the appointment of the directors, as it is in the present case, the directors cannot rely on these article and provisions to justify their appointment and the lawfulness of their conduct vis-à-vis the members, otherwise the directors can rely on their own wrongdoing to obtain the directorship and to conduct the business of the company to the detriment of its members, which simply cannot be right.

(ii) Basis for the termination of membership

94.  I also find that there was no proper basis for the Board to terminate the membership of the 22 Plaintiffs.

95.  There is serious confusion as to the exact basis upon which the Board was relying in expelling the 22 Plaintiffs.  In the course of the trial, the Defendants have mentioned the following grounds:

(i) the 22 Plaintiffs were in breach of the principle “主善為師,貞義禮和” (for the purpose of charity and virtuousness, righteousness, propriety and harmony[1], hereinafter referred to as “the 8-Words Principle”) stated in Art 3 of the Memorandum;

(ii) the 22 Plaintiffs were in breach of the 8-Words Principle    expressly included in the religious oath taken by each of the 22Plaintiffs when they joined the Koon; and

(iii) the 22 Plaintiffs were in breach of the 8-Words Principle included in the rules and regulations made by the Board on 6 August 2000.

96.  However, the exact position of the Board is far from clear.  In his final submissions, it seems that Mr Kwok is only relying on the first two grounds stated in the preceding paragraph.  Indeed, in his witness statement filed on 23 August 2013, Mr Kwan confirmed that the 22 Plaintiffs were expelled because they were in breach of the 8-Words Principle contained in Art 3 of the Memorandum and the religious oaths taken by the 22 Plaintiffs when they joined the Koon.  It had nothing to do with Arts 8.1 and 8.2.

97.  No matter what is their final position, I do not accept that the Board was entitled to rely on any of the alleged grounds in terminating the membership of the 22 Plaintiffs.

98.  Art 9.2 of the Articles provides:

“A member may be expelled from membership of the Koon if, and only if, the Councillors being satisfied one or more of the following facts and matters in relation to such member:-

(a) That he has committed any act under the name of the Koon whereby the reputation and prestige of the Koon is or might be damaged or adversely affected.

(b) That he has failed or refused to comply with or abide by any of the Articles herein and/or the rules and regulations, from time to time, made or caused to be made by the Councillors referred to in Article 8.1 above and/or any of the resolutions passed or to be passed in general meetings referred to in Article 8.2 above.

(c) … … … (non-payment of subscription)

Provided that, within 30 days of the decision of the Councillors, the member affected by such decision shall be given written notice thereof together with the reason for him being expelled from membership of the Koon.  For the avoidance of doubts, the inability of the Councillors serving notice of their decision expelling him from membership of the Koon shall not affect or invalidate the validity of such decision.”

99.  According to Art 9.2, it is clear that the Board can expel a member from the Koon only if certain condition is satisfied.  Mr Kwok relies on Shergill v Khaira[2] to argue that the court should not interfere with decisions made in a religious institution about religious or moral issues.  However, that case only supports the proposition that for an unincorporated religious body, the court does not resolve religious dispute nor decide on merits of disciplinary action if that action is within the contractual power of the relevant organ of the association, and the role of the court is more modest and is to keep the parties to their contract.  But the present case is totally different.  The contract between the members as contained in the Articles only provides that the Board can expel a member only if certain condition is satisfied.  In such circumstances, the court has to examine whether any of those conditions is satisfied in the case of the expulsion of the 22 Plaintiffs.  The court is not making any attempt to determine the meaning of the 8-Words Principle which may be a matter for the religious institution itself.

100.  One of the conditions is that the member has failed or refused to comply with or abide by any of the Articles (not Memorandum) or rules or regulations made by the Board under Art 8.1 or resolution passed in general meeting under Art 8.2.  Art 3 of the Memorandum, which only deals with the objects of the Koon, does not fall into any of these categories.  In such circumstances, the Board could not rely on any “breach” of Art 3 of the Memorandum as a ground to expel the 22 Plaintiffs.

101.  In a desperate attempt, Mr Kwok prays in aid of s 98 of the new Companies Ordinance (Cap 622) in trying to argue that the previous object clause in the memorandum of association of a company, with the enactment of the new Ordinance, now becomes a condition in the articles of association of that company.  It therefore follows that, if the 22 Plaintiffs were in breach of a provision in the Memorandum, there were also in breach of the provision in the Articles which is a ground justifying the termination of their membership under Art 9.2.

102.  Again this is a bad point.  S 98 is a new section which was not in existence in 2011.  In any event, s 98 does not have the effect of making the object clause “conditions” of the Articles.  S 98 is a new section to cater for the fact that under the new Ordinance, a company no longer requires a memorandum, and provisions like the registered office and share capital, which hitherto were found in the memorandum, are now to be provided for in an incorporation form as specified in s 67 of the new Ordinance.  For existing companies, those, but not the object clause, would be deemed to be part of the articles.  Further, Art 3 of the Memorandum provides for the objects of the Koon.  It has nothing to do with the regulation of the conduct of individual members the breach of which would attract the penalty of expulsion.  Hence, s 98 cannot assist the Defendants’ case.

103.  Further, reliance on Art 3 of the Memorandum as a ground of termination has not been expressly pleaded by the Defendants, and so they should not be allowed to run such unpleaded defence now.

104.  I then turn to the next ground.  Again breach of the religious oath is not a condition or ground for the termination of membership as contained in Art 9.2, and so the Board was not entitled to rely on such reason to expel the 22 Plaintiffs.

105.  In the course of the trial, it seems that the Defendants’ witnesses are trying to make a distinction between membership of a “壇生” (believer) and membership of the Koon.  According to them, membership of being a “壇生” (believer) is a matter for the Spiritual Master.   Only the Spiritual Master can admit a person to be a “壇生”(believer), and likewise the expulsion of a “壇生” (believer) is also a matter for the Spiritual Master.  Some of these witnesses seem to suggest that the Board had, by the Termination Resolution, only terminated the membership of the 22 Plaintiffs as being “壇生” (believer).  The Termination Resolution had not purported to expel the 22 Plaintiffs as being members of the Koon.

106.  Such kind of argument cannot assist the Defendants. Firstly, such kind of distinction has not been pleaded, and so in the conduct of this case, the parties are only asking the court to adjudicate whether the Board was entitled to terminate the membership of the 22 Plaintiffs as members of the Koon and not being “壇生” (believer).  If the Board accepts that they had not expelled the 22Plaintiffs as members of the Koon, I can then answer the question relating to the Expulsion Issue in favour of the 22 Plaintiffs and this would be the end of the matter.  Further, I cannot see the logic of such kind of evidence.  If the expulsion of “壇生” (believer) is a matter for the Spiritual Master, how could the Board terminate the membership of the 22 Plaintiffs as being “壇生” (believer) without first seeking the guidance from the Spiritual Master?

107.  I then turn to the last ground which has been briefly mentioned at the trial as a basis to terminate the membership of the 22 Plaintiff, i.e. they were in breach of the 8-Words Principle contained in  “壇生守則” (rules for believers), which the Defendants say, were rules and regulations made by the Board in the Exco’s meeting on 6 August 2000.

108.  These purported rules and regulations were first described as  “壇生须知” (necessary information for believers) and not “壇生守則” (rules for believers).  They were first published in the 2000 publication of the Koon.  In the 2008 publication of the Koon, the description of these purported rules and regulations was, for the first time, changed to “壇生守則” (rules for believers).  The Defendants seem to suggest that they were rules and regulations made under Art 8.1 of the Articles, the breach of which would entitle the Board to expel the 22 Plaintiffs.  Further, there is a provision in “壇生须知” (necessary information for believers) to the effect that failure to observe the rules and principles contained therein may result in punishment or even expulsion from the Koon.  Mr Kwok submits that such provision supports that the rules and principles are meant to be obligatory.

109.  I also reject such argument.

110.  Firstly, Mr Kwan in his affirmation confirmed that the Board had not relied on any rules or regulations made under Art 8.1 of the Articles as a ground to expel the 22 Plaintiffs.  Further in the letters of notification of termination dated 11 November 2011, the Board only mentioned the breach of the provisions contained in the religious oath as the ground of termination.  In such circumstances, the Board should not be allowed to rely on some new grounds to justify the Termination Resolution made earlier.

111.  Secondly, I accept Mr Chong’s evidence that “壇生须知” (necessary information for believers) were not meant to be rules or regulations.  According to him, they only contain broad principles that the Koon expects its believers to follow.  They are not rigid rules or regulations the breach of which carries the penalty of expulsion from the Koon.

112.  Obviously, some of the provisions in “壇生须知” (necessary information for believers) are not meant to be enforced.  For example, one of the principles and teachings contained therein is to avoid killing living creatures.  Unless the believers are vegetarian, they cannot comply with such teaching.  Even the 5 Chairpersons by that time were not vegetarian, a matter which is not disputed by the Defendants.  That was why the principles or teachings were labelled as “壇生须知” (necessary information for believers).  In the Exco’s meeting on 6 August 2000, Mr Chong had managed to persuade all the participants of the meeting to pass the “壇生须知” (necessary information for believers) as principles and teachings and not rules, otherwise all the members would be in breach of some of the principles or teachings contained therein. All the members accepted Mr Chong’s advice.

113.  Further, there is never any clear demarcation among all the separate and different requirements as to what is obligatory.  Some of the provisions contained in “壇生须知” (necessary information for believers) relate to, for example, the time and the details of the holding of the various activities of the Koon.  I accept that such details are for information only and they are not meant to be obligatory rules.

114.  The Defendants have not seriously challenge Mr Chong’s evidence in this regard.  In my judgment, there is much sense in Mr Chong’s evidence and so I accept his evidence as the truth.  “壇生须知” (necessary information for believers) means exactly what it said.  The provisions therein only contain information which a “壇生” (believer) is supposed to know.  They are not rules or regulations made under Art 8.1.

115.  Thirdly, “壇生须知” (necessary information for believers) are not rules or regulations made under Art 8.1 because they were not made in a proper Board’s meeting.  There is no serious dispute that no Board’s meeting had been held from 1998 to 2000. “壇生须知” (necessary information for believers) were discussed, and at most adopted, in the Exco’s meeting held on 6 August 2000.  Mr Kwok submits that the Exco made the rules with the authority of the Board under Art 19.5.  However, such contention is clearly unsustainable because it is the Defendants’ case that the Exco’s meetings were extended meetings of the councillors[3], and so it cannot be argued that the Exco had made the rules under the power delegated to it by the Board.  Furthermore, Exco’s meeting could not be regarded as a proper Board’s meeting, because there were other persons who were not councillors present at such meeting involved in the discussion and the adoption of “壇生须知” (necessary information for believers).  These other persons had no authority to make the rules and regulations.  In addition, Art 19.5 only allows delegation to councillors.  The Board simply had no power to delegate to the Exco which consisted of a lot of members who were not councillors of the Koon.  Hence, “壇生须知” (necessary information for believers) are not rules or regulations made under Art 8.1 and the Board was not entitled to rely on the breach of the provisions therein as a ground to expel the 22 Plaintiffs from the Koon.

116.  Mr Kwok seeks to rely on Hong Kong Kam Lan Koon Ltd v Realray Investment Ltd[4] (the first instance judgment in the Adverse Possession Action) to argue that the trial judge, Lam J (as he then was), found that the Board had delegated the management of the Koon to the Exco.  However in that case, Lam J was only asked to adjudicate whether, for the purpose of the claim in the Adverse Possession Action, the Board had in fact delegated the management of the Koon to the Exco.  The learned judge had not been asked to determine whether as a matter of law, the Board was entitled to delegate the rules-making power to the Exco.  In any event, unless the principle of estoppel applies, a finding of fact made by a judge in another case is not binding upon this court.

117.  For the above reasons, there was no proper basis or ground for the Board to expel the 22 Plaintiffs, and so I rule that the Termination Resolution was not a lawful one.

118.  In supporting the Termination Resolution, the Defendants claim that the 22 Plaintiffs had each committed a series of acts which were in breach of the 8-Words Principle.  Since I find that the breach of the 8-Words Principle is not a ground to expel a member from the Koon, it is not necessary for the court to proceed further with a fact-finding exercise in order to determine whether these factual allegations were the truth, or what is the exact meaning of the 8-Words Principle.  In any event, the parties have agreed that the court does not need to deal with these matters in this trial on preliminary issues.

(iii) The Natural Justice Issue

119.  Finally, I also find that the Termination Resolution was unlawful because it was made in breach of the principles of natural justice.

120.  There is no dispute that no prior warning had been given to the expelled members about the proposed Termination Resolution, they had not been informed about the charges against them or given an opportunity to present their respective cases to the Board before the passing of the Termination Resolution.

121.  The first question here is whether the principles of natural justice apply in terminating the membership of a member of an incorporated company.

122.  Such question had been considered by Megarry J in Gaiman v National Association for Mental Health[5].  In that case, 302 members had been asked to resign from a mental health association which was a company limited by guarantee without a share capital.  The expelled members were given no warning, informed of no charge, and afforded no opportunity of speaking in their own defence.  One of the main issues in that case was whether the principles of natural justice applied in the case of expulsion of members of an incorporated company.

123.  Megarry J held that, while no clear test was established, the principles of natural justice seemed to apply unless the circumstances were such as to indicate the contrary.  Indications excluding the principles could be found in company law because a company, whether limited by shares or guarantee, was a legal entity whose powers had to be exercised for the benefit of that entity, and those exercising the powers were bound not merely by their duties towards the other members but also by their duties towards the company, which might be inconsistent with the observance of natural justice[6].

124.  Based on the facts of that case, Megarry J found that there were indications the principles of natural justice would not apply since: (i) the council owed a duty to the association to exercise its powers under a provision in the articles of association in that it bona fide believed to be the best interests of the association and, if necessary, with great speed, whereas natural justice would require delay; (ii) articles providing for expulsion in the case of companies limited by shares had been shown to be valid, and so too therefore could they be in the case of companies limited by guarantee where members had only limited property rights; (iii) the relevant provision in the articles gave an absolute and unrestricted power to the council to expel members from the association and the wording militated against any exercise of the principles of natural justice; and (iv) that was not a case where issues of importance and gravity beyond mere membership of the association were at stake[7].

125.  The Koon is a religious institution, and so the court should be reluctant to make a decision which would have the effect of interfering with the religious belief of such institution.  On the other hand, the Koon is a charitable institution which, the parties agree, is subject to the supervisory jurisdiction of the court.

126.  As pointed out by Megarry J in Gaiman, one of the principal tasks of the court is to examine whether there are circumstances indicating the exclusion of the principles of natural justice. If there is no such indication of exclusion, the principles of natural justice prima facie apply.

127.  In my judgment, there are two main reasons as to why I conclude that there is no such indication of exclusion in the present case.

128.  First, Art 9.2 of the Articles does not provide the councillors with absolute and unrestricted power to expel members from the Koon.  On the contrary, the article provides that members can be expelled from the Koon only if certain condition is satisfied.

129.  Second, the evidence of the present case shows that certain members of the Reformists’ Camp had vested interests in the operation of the Koon.  They donated substantial money to the Koon.  Before the deterioration of the relationship, Mr Kwan and Mr Chong had purchased a piece of land in the vicinity of the Temple, which apparently was for the use or the future development of the Koon.  The evidence also shows that there is a dispute between Mr Lau and the Koon relating to the ownership of a trademark of a Chinese medicine distributed by the Koon.  All these factors suggest that the expelled members had substantial interests in the operation of the Koon.  Unlike other cases where the stake in issue was only membership, it is arguable that the 22 Plaintiffs had more at stake in respect of the running and the future development of the Koon.

130.  For the above reasons, I find that the principles of natural justice have not been excluded and they should therefore apply in the case of expulsion of members from the Koon.

131.  Mr Kwok does not seem to challenge these principles.  The reason why I use the word “seem” is because Mr Kwok’s position is always ambiguous at the trial.

132.  In his submission, Mr Kwok accepts that prior notification should normally be given to members proposed to be expelled from an incorporated company like the Koon, and a proper opportunity should be given to these members to present their cases to the Board.  However, Mr Kwok seeks to argue that no actual notification need to be given to the 22 Plaintiffs because, given the circumstances leading to the dispute between the two opposing camps, the 22 Plaintiffs should have known about the charges against them.  Furthermore, though no opportunity was given to the expelled members to present their cases prior to the making of the Termination Resolution, the expelled members had the right to lodge an appeal against the Termination Resolution under Art 9.2 of the Articles.  As the expelled members had not invoked the appeal procedure, they had waived their right to be heard.  I will deal with these arguments in turn.

133.  I see absolutely no merit in the first argument. If the principles of natural justice apply in the case of a member or a staff being expelled or dismissed from an institution, then the expelled member or staff should be notified of the disciplinary proceedings and the charges against him.  There is simply no authority to support the bold assertion of Mr Kwok that there is no need to notify the expelled member because he should have known about the charges against him.

134.  Second, there is also no merit in the Defendants’ argument that the 22 Plaintiffs had waived the right to be heard for not invoking the internal appeal procedure under Art 9.2.  In support of his argument, Mr Kwok refers me to a number of authorities in which the courts refused to grant leave for judicial review before the internal appeal was exhausted[8]. However, I agree with Mr Chain that these are only authorities for the proposition that if an application for leave to commence judicial review proceedings is made before the domestic remedies are exhausted, leave may be refused.  This is wholly different from the situation here where the court is seized of and is asked to adjudicate on the validity of the act as a matter of law.   Furthermore, the authorities also made it clear that there is a degree of flexibility for the court to deal with the matter.

135.  Mr Kwok further argues that, under Arts 9.1 and 9.3 of the Articles, the termination of membership of the 22 Plaintiffs would only take effect 60 days after the date of notification of termination.  If the 22 Plaintiffs were to lodge an appeal within 30 days, the Termination Resolution would cease to take effect.  Further, the appeal procedure has already accommodated and afforded a right to be heard to the 22 Plaintiffs in regard to their termination.  Mr Kwok relies on the case of Cronin v The Greyhound Board of Great Britain Ltd[9] to support the proposition that a defect in natural justice in the original hearing may be cured by subsequent appeal proceedings if in the end there had been a fair result reached by a fair method.

136.  However, the authorities have emphasised the availability of a fair domestic procedure which is something missing in this case.  As supported by the comment made by Mr Kwan in the Board’s meeting on 15 October 2011, members of the Traditionalists’ Camp would not tolerate the opposite members to remain in the Koon.  Mr Kwan mentioned that they wanted to crush the opposition once and for all.  Mr Cheng, the then honorary legal advisor, was present in the meeting and the discussion leading to the making of the Termination Resolution.  The 22 Plaintiffs therefore had every reason to doubt his impartiality.  In fact, the division between the two camps was so stark at that time that the 22 Plaintiffs must be correct to view the internal appeal as but a pre-determined process.

137.  Further, Art 9.2 provides that the honorary legal advisor would convene an appeal board consisting of two other members to hear the appeal.  Under the provision, the two other members should be chosen by the honorary legal advisor, and yet the minutes of the Board’s meeting show that the Board had chosen the two other members of the appeal committee.  In such circumstances, even if the 22 Plaintiffs were to lodge an appeal, the board hearing the appeal would not be a properly constituted one, not to mention whether it would be fair and impartial tribunal.

138.  In addition, under Art 17, the Board would strip the rights of the 22 Plaintiffs to stand for election as councillors once the Termination Resolution was made.  This would be the case even if they lodged an appeal against the decision.  As the Termination Resolution had such a grave impact on their rights, natural justice demands that the 22 Plaintiffs should be given the right to be heard before the passing of the Termination Resolution.

139.  I also reject Mr Kwok’s submission that the Plaintiffs have not pleaded the Natural Justice Issue in the pleadings.  Although the express term “natural justice” has not been used, all the allegations in support of the failure to observe the principles of natural justice have been properly pleaded in para 11(b) of the Statement of Claim in HCMP 2477/2011.

140.  For the above reasons, I also find that the Termination Resolution was unlawful as it was made without observing the principles of natural justice.

CONCLUSION

141.  The most two important consequences flowing from this Judgment on Preliminary Issues are that: (i) the Board had no authority to pass a resolution to “interpret” Art 7.1 and to fix an arbitrary percentage for the purpose of satisfying the attendance requirement; and (ii) the 22 Plaintiffs had been unlawfully expelled from the Koon.  I believe that these decisions can dispose of most if not all the disputes between the two rivalry camps of the Koon in the 3 Actions.

142.  At the hearing, Mr Chain has supplied me with a draft order that should be made by the court if the Plaintiffs succeed in the trial on preliminary issues.  I would provide the Defendants with a further opportunity to study the draft order in view of this Judgment.  I therefore direct the parties to submit an agreed order that should be made by the court following this Judgment within 21 days.  In the case of any disagreement, the parties are at liberty to apply to court for a further hearing to resolve the differences.

143.  As the Plaintiffs in the 3 Actions succeed in most if not all the issues determined in this trial on preliminary issues, I make an order nisi that the costs of the trial on preliminary issues be paid by all the Defendants except the estate of Mr Kwan, the Koon and the Secretary for Justice to the Plaintiffs which shall be made absolute 21 days after the date of the handing down of this Judgment.

144.  This case highlights the conflicts between traditional religious beliefs and the requirements of modern company law.  If the former Koon continued to be operated as an unincorporated association, there is little room for the court to interfere with the operation of the Koon.  However, the believers decided to run the religious institution as an incorporated company and to obtain “charity” status, then the court has a duty to ensure that the institution has to be operated according to law.

145.  As I see it, this Judgment still cannot resolve all the underlying conflicts between the two rivalry camps.  If the believers of the Koon believe that their religious leaders should be chosen by Spiritual Master in Spiritual Writing, how does this reconcile with the requirement of company law that the councillors of the Koon, who are the persons mainly responsible for the operation of the Koon, have to be elected annually by members?  At least, members of the Traditionalists’ Camp accept that the Koon has to be operated according to company law in the future, but to me, this does not resolve all the underlying conflicts between the two camps.

146.  I am given to understand that one the main teachings of Taoism is to disseminate love amongst all human beings and living creatures.  I hope that the members of the Koon would have the wisdom to resolve any possible future disputes with pardon, forgiveness and tolerance which I presume are the important virtues of their religion.