XCHRX HUNG CHEONG MACHINERY CO. LTD. v. CHU SHU HO AND OTHERS

HCA 9451/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9451 OF 2000

____________

____________

______________

D E C I S I O N

_____________

1. This is an application by the 1st defendant to strike out the plaintiff's statement of claim as against the 1st defendant on the grounds that it discloses no reasonable cause of action, it is frivolous or vexatious or it is an abuse of the process of the court. The summons originally included an application for a stay on the ground of forum non conveniens but I understand that has now been withdrawn on the 1st defendant accepting the jurisdiction of the Hong Kong courts.

Background

2. The action concerns the Mission Hills Golf Club (the Club) in the PRC and the membership of it purchased by the plaintiff. The 2nd defendant is the owner of the Club and the 1st defendants are the Board of Directors of the Club appointed by the 2nd defendant. In 1996 the plaintiff purchased a corporate membership for the sum of about $400,000.00 and a membership card was issued to Mr Wong Chai Chung as the plaintiff's nominee. In 1997, this membership was upgraded to Gold Membership by the payment of a further $416,656.00, which allowed improved benefits and rights in using the Club. By 1999, it appears that Mr Wong had become dissatisfied as to the management of the Club and, with other members, formed an organisation called the Guan Lan Golf Club Members Rights Association Preparatory Committee and published letters and circulars to members of the Club which the 2nd defendant considered defamatory. Later that year, the organisation was renamed the Mission Hills Golf Club Members' Association and was registered as a society in Hong Kong under the Societies Ordinance. The 2nd defendant had objected to the name being used as it was considered to constitute passing off. The 2nd defendant claims that further defamatory matters were published later in 1999. The next thing to happen was in May 2000 when Mr Wong told the executive golf manager of the Club that he wished to arrange a "shotgun" tournament on 25 June 2000, a Sunday. He was told this was not possible at a weekend but only during the week. There appears to have been a considerable amount of ill feeling about this and further exchanges and accusations, culminating in an incident occurring in the lobby of the Club involving Mr Wong and a number of other members, the details of which need not concern me here. Following this, the 2nd defendant's solicitors wrote to the plaintiff's solicitors on 10 October 2000 informing them that the membership of the plaintiff had been terminated on the ground that its nominee, Mr Wong, had been in breach of clauses 34(2) and 34(3) of the Club Rules, and he has been refused admission to the premises since.

3. By this action, the plaintiff seeks a declaration that the decision by the 1st defendants to terminate his membership was null and void, and an injunction to restrain them from enforcing it, and it is the contention of the 1st defendant in this application that there can be no cause of action against the directors, as the Club has no separate legal existence and the directors are merely appointees of the owner of the Club, the 2nd defendant, under Clause 43 of the Club Rules, which reads as follows:

"In order to ensure the smooth operation of the Club, the following directors (collectively "Directors") shall be provided for by the Company:

1. One Chairman of the Board of Directors

2. Several Ordinary Directors

The Directors' posts are all honorary posts and the terms shall be for one year, but are eligible for re-appointment. Directors shall continue to perform their duties after expiration of their terms until their successors assume the office. The number of Directors shall be determined by the Company."

The following clauses allow for the Company to nominate or appoint the Chairman and Directors, and Clause 47 goes on:

"The Board of Directors shall be comprised of the Directors, and in order to ensure the smooth running of the Club, it shall have the right and power to manage and decide the following matters, which decisions shall be carried out by the Company.

1. Fundamental matters related the operation of the Club;

2. Establishment, amendment and abolition of the By-Laws related to the operation of the Club;

3. Any other matters concerning the Club."

Status of the Club

4. Clubs generally fall into two categories: member's clubs and proprietary clubs. A members' club is, as explained in Halsbury's Laws of England, Vol. 6 paragraph 205:

"....... A society of persons each of whom contributes to the funds out of which the expenses of conducting the society are paid. ..........................

It is not recognised as having any legal existence apart from the members of which it is composed.

Subject to any rule to the contrary, the property and funds of the club belong to the members for the time being jointly in equal shares;"

and, at paragraph 208, is given the definition of a proprietary club:

"A proprietary club is of an entirely different nature from a members' club. The property and funds of the club belong to the proprietor, who usually conducts it with a view to profit. The members, in consideration of the payment by them to the proprietor of entrance fees and subscriptions, are entitled to make such use of the premises and property, and to exercise such other rights and privileges, as the contract between them and the proprietor justifies.

The management of a proprietary club may be given wholly or in part to a committee of the members over which the proprietor will usually reserve ultimate control."

5. There can be little argument that the Club here is a proprietary club. It is wholly owned by the 2nd defendant, and the members have no rights of ownership of the property or funds of the Club. Their relationship with it, and their rights to use the premises, are governed by their contractual relationship with the 2nd defendant, and the management is appointed by the 2nd defendant, although there seems to be no requirement that the Directors are also members. From this it is apparent that the Club has no separate legal existence. It is not a society, association or organisation which can be registered as such. It is in effect a name only given to the premises and land owned by the 2nd defendant, in the same way that an owner of a building may give it a name, and the rules provided to govern the use of the premises have no greater status than the regulations an owner may require to be observed as a condition for use of, and access to, his building. There can therefore be no contractual rights as between the Club and the members, these being solely between them and the proprietor, the consideration being the entrance fees and subscriptions paid to the proprietor.

Status of the Directors

6. It is difficult to see in what capacity the 1st defendant is sued. In his written submission, Mr Wong for the plaintiff says that it is in a representative capacity, and submits that this is a proper way of proceeding as indicated by Atkin's Court Forms Vol. 36, pages 226 to 234, and the forms between pages 254 and 261. But it is apparent that this section, and the forms, relate only to members clubs, and is totally inappropriate here, where there is a contractual relationship with the proprietor only. However, in his oral submissions he says that those listed as the 1st defendant are sued in their personal capacity and as members of the board of the Club, exercising the rights and powers of the Club under the Club Rules. He contends that it is therefore arguable that there is a contractual arrangement between the plaintiff and the Directors, in that the rules bind both the members and Directors.

7. In support of this contention he cites the decision of the House of Lords in Clarke v. The Earl of Dunraven and Mount-Earl [1897] AC 59, where there was held to be a contract between two participants in a yacht race who had signed an undertaking to be bound by the sailing rules of the Yacht Club Association. As Lord Herschell said at page 63:

"I cannot entertain any doubt that there was a contractual relation between the parties to this litigation. The effect of their entering for the race, and undertaking to be bound by these rules to the knowledge of each other, is sufficient, I think, where those rules indicate a liability on the part of the one to the other, to create a contractual obligation to discharge that liability."

8. There is here no contractual relationship between the members themselves, nor between them and the Board of Directors. The latter are appointed by the proprietor to oversee and control the day to day administration of the Club, and the rules are imposed by the proprietor, as regulations for use of the Club, which is in turn under the contractual relationship between the members and the proprietor. The Board of Directors is in no different a position from that of a supervisor appointed by an owner to oversee the use made of a building by those contractually entitled to have access to it and use it, and to ensure that the conditions of use are adhered to. There is no contractual relationship between the supervisor and the users of the building, and the owner would be vicariously liable for any tortious acts of the supervisor in the conduct of his duties.

9. In any event, the complaint of the plaintiff here is as to the termination of its membership and the exclusion of its nominee, Mr Wong, from the Club. This is, under Clause 34 of the rules, solely within the power of the 2nd defendant. While it is true that the letter informing the plaintiff that the membership was terminated refers in its first paragraph to a decision by the board of directors of the Club to terminate the membership, in the absence of any powers by the board to do so, that itself must be meaningless except as advice to the 2nd defendant. It is clear, however, from the conclusion of that letter, that it is the board of directors of the company, the 2nd defendant, that has effected that termination and the directors of the Club would themselves have no power to terminate. Their function would be at most advisory.

Conclusion

10. It follows that I am unable to find any reasonable cause of action against the 1st defendant in the statement of claim. Neither am I satisfied that any valid claim can be made against them, which an amendment of the pleadings would reveal. The amended statement of claim will accordingly be struck out as against the 1st defendant with an order nisi for costs in favour of the 1st defendant of the application and the action.