TANG KAM YIP AND OTHERS v. YAU KUNG SCHOOL AND OTHERS

1984, No. 1038

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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DECISION

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1. The 1st defendant, a school, was incorporated in 1962 as a company limited by guarantee and not having any share capital. At its first directors meeting the seven directors, each of whom was one of the original subscribers and represented one of the seven village districts from which the 1st defendant's members were drawn, passed a resolution that "each village district shall have an equal number of members just as each district has an equal number of directors."

2. On 19th January 1963 the members of the 1st defendant in general meeting unanimously passed a resolution that the directors' resolution be "ratified in order to comply with the constitution". It is agreed by counsel that the constitution means the memorandum and articles of association of the 1st defendant.

3. On 26th January 1972 the members of the 1st defendant at its annual general meeting passed a resolution accepting a proposal submitted by the directors that "the number of school representatives should still be limited to three representatives for each Tsun district, subject to the inclusion of the original seven subscribers."

4. This state of affairs prevailed until 20th November 1983 when the directors increased or purported to increase the number of members of the 1st defendant by accepting the 11th, 12th, 13th and 14th defendants as members. On the assumption that this was an action validly taken by the directors its effect was to create an inequality of members from each village district.

5. At an extraordinary general meeting of the 1st defendant on 23rd December 1933 a resolution approving the action of the directors was passed as a consequence of the 11th, 12th, 13th and 14th Defendants attending and voting as members in support of the resolution.

6. The plaintiffs claim inter alia that the resolutions purporting to appoint the 11th, 12th, 13th and 14th defendants to be members of the 1st defendant are null and void and that further or alternatively the resolutions were not passed in good faith in the best interests of the 1st defendant but oppressively of the plaintiffs and with a view to depriving them of their existing rights in the 1st defendant.

7. After argument on a preliminary matter counsel for both parties in the interest of shortening the proceedings requested me to try three preliminary issues. During the course of argument two of the three issues were amended. The three issues which I have been asked to try are as follows:

8. I was also agreed by counsel and ordered that the trial of the other issues in this action be stayed pending the determination of these preliminary issues.

9. It is common ground that the articles of association of the school have been badly drafted and lack clarity and precision. It therefore falls to me to interpret the articles in order to determine the preliminary issues.

10. The following articles are relevant:

11. Article 3 clearly relates to the company's duty under section 10(3) of the Companies Ordinance which provides that where a company not having share capital has increased the number of its members beyond the registered number, it shall, within 15 days after the increase was resolved on or took place, give to the Registrar notice of the increase in order to enable him to record it.

12. Counsel for the defendants argues that the word register in Article 3 involves more than the mere act of registration of the increase of members with the Registrar. He submits that it includes the act of admitting new members.

13. I am unable to see any justification for so extending the meaning of the word "register". Moreover, counsel for the defendants concedes that Article 3 only applies to registration of members in excess of the 140 provided for in that article. In my view the article simply gives the directors the power to perform the duty which is cast on the company under sec. 10.

14. It is also significant that in drafting Article 4 the draftsman deviated from the corresponding article in Table C of the Ordinance, namely Article 3 which reads as follows:

15. If it had been intended to confer on the directors of the school the power to admit members it seems inconceivable that the draftsman of the Articles would have omitted that part of article 3 in Table C which expressly confers such power.

16. Counsel for the defendant submits that the powers given to the directors under Articles 30 and 31 are so wide that they encompass this specific power and that this explains why the draftsman in drafting Article 4 excluded it by omission.

17. Article 30 is drafted in the same germs as the corresponding article, in Table C, namely Article 31, as the latter article stood at the time that the school was incorporated and its articles were drafted.

18. Article 31 however has no counterpart in Table C and counsel for the defendants strenuously argues that paragraph (h) of this article clearly indicates that the directors have the power to admit members.

19. I am unable to agree with this contention. In my view this paragraph relates only to administrative matters pertaining to the running of the school and does not extend to increasing the membership of the company. Moreover I am unable to find in Article 3I the expression of any such clear intention to empower the directors to admit members such as would suggest that the positive omission by the draftsman to follow the wording of Article 3 in Table C was made for the reason ascribed by counsel. That the draftsman omitted from Article 4 the express power conferred by the corresponding article in Table C and did not expressly state it elsewhere in the articles, particularly in Article 30 or 31, leads me to conclude that it was intended that the directors not be given this power.

20. Nowhere in the articles of association is there to be found any express provision as to whom this power has been given. Counsel for the plaintiff submits that the power to admit members clearly exists under Article 4 and that since it was intended that it not be given to the directors it must therefore reside in the members in general meeting.

21. I also observe that Article 32 casts a duty on the directors to cause minutes of all appointments of officers made by the directors to be duly entered in a book provided for the purpose. If it had been intended to confer on the directors the power to admit members it seems strange that no obligation has likewise been cast on them to duly enter in a book the minutes relating to the admission of those members.

22. Counsel for the plaintiffs contends that Article 30 confers two powers on the directors, the first of which is irrelevant to this case and the second of which allows them to "exercise all powers of the school as are not by the Ordinance or by these Articles required to be exercised by the school in general meeting". Moreover, counsel contends, the Article expressly imposes three limitations on this power by virtue of the words which immediately follow, namely, ''subject nevertheless to any regulations of these Articles, to the provisions of the Ordinance, and to such regulations not being inconsistent with the aforesaid regulations of provisions, as may be prescribed by the School in general meeting."

23. It is on this basis that counsel submits first, that the only relevant power conferred on the directors by Article 30 does not enable them to admit members because such power is one which the Articles by necessary implication require the School to exercise and, secondly, that even if the pointed exclusion by the draftsman from Article 3 of the provision in the corresponding Article in Table C conferring power on the directors to admit members, does not have the effect, of depriving them of this power, it follows that in the light of the absence of any express provision in the Articles conferring the power on either the directors or the school in general meeting, the articles must be taken to have conferred the power on both the directors and the school in general meeting with the intention that it be exercised concurrently. If that be so, it follows that since the school in general meeting on 26th January 1972 had passed a resolution that the number of school representatives should still be limited to three representatives for each Tsun district, the directors were restrained by the third limitation on their relevant general power under Article 30 from passing any regulation inconsistent with that resolution.

24. Counsel for the defendants submits that such resolution does not amount to a regulation as required by Article 30 because the minutes of the meeting did not describe it to be such and that therefore this limb of counsel for the plaintiff's submission must fail.

25. I do not find this objection to have any force. The resolution was of such a vital and binding nature that it was clearly intended to be a regulation notwithstanding that that word does not appear in the minutes. I accept the submissions made by counsel for the plaintiffs.

26. For the reasons that I have given I have come to the conclusion that the answer to the first question to be tried as a preliminary issue must be in the negative.

27. Accordingly the second and third questions do not fall to be answered.

28. I have not referred to various submissions advanced and cases cited by both counsel in the course of argument. I trust that in not doing so I have not done counsel a disservice. However in coming to the conclusion that I have and for the reasons I have given for so doing I feel that it is unnecessary to deal with those matters.