XCHRX ARTA PROPERTIES LTD. v. LI FU YAT TSO AND OTHERS

HCA 2741/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2741 OF 1998

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J U D G M E N T

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1. This is an appeal against the refusal of the Registrar to strike out the Statement of Claim in this action, and to enter judgment for the fifth to the tenth defendants. It is said that the Statement of Claim should be struck out on the grounds that it discloses no reasonable cause of action, that it is frivolous and vexatious and is otherwise an abuse of the process of the court.

2. The plaintiff is a property developer. The first defendant is a Tso, and it is said that the second to the fourth defendants are managers of the Tso. The Tso is said to be the registered owner of the land in Yuen Long; Lot 539 in Demarcation District No. 112, Yuen Long.

3. It is pleaded in the Statement of Claim that the plaintiff and the Tso entered upon an agreement in writing dated 17th August 1992, and that by the agreement it was agreed that the Tso would exchange the land for a consideration of $550,000 as well as three of 12 three-storeyed Spanish style houses to be built by the developer on the land, and that the developer would build and keep another nine. To effect this purpose, the land was to be divided into 12 smaller portions, each of which would be assigned to an indigenous villager to enable them to apply for building licences or new grants.

4. There is pleaded a clause in that written agreement by which the Tso is said to be required, at the expense of the plaintiff :

".... to sign all relevant deeds poll, deeds of partition, assignments, agreements, deeds, instruments or documents regarding the said premises or the said Development from time to time requested or directed by the Developer [plaintiff] to do so."

That is what the Statement of Claim says about the 1992 Agreement.

5. I pause to say this, that the case presented to me by the appellants sought to intersperse evidence and, in relation to the argument that the Statement of Claim discloses no reasonable cause of action, that was not permissible, and for the moment, I examine only the allegations in the Statement of Claim. Returning to it, the plaintiff says that there took place early in 1993 a meeting of all the members of the Tso attended by the second to the tenth defendants. It is then asserted that :

"In the said meeting ..... it was discussed that the premises be divided into thirteen portions to be transferred to the plaintiff or its nominees. The defendants intimated their support and it was resolved that the premises be divided into thirteen portions and to be transferred to the plaintiff or its nominees in return for the plaintiff's promise to make available 9 car park spaces and the grant of a right of way on the portion assigned to the plaintiff."

This is referred to as the second agreement.

6. The pleading goes on as follows :

"It is averred that the defendants had confirmed by reason of the above resolution that under the second agreement the premises may be occupied by owners who did not come from within the same village ...."

and that the 13th portion would be transferred to the plaintiff for its use.

7. The Statement of Claim goes on to assert that the first defendant then applied for consent for division into 13 portions, pursuant to section 15 of the New Territories Ordinance, and that in May 1993, that apportionment was effected and that then the first defendant, through the second to the fourth defendants, effected transfers of 12 of the portions to indigenous villagers, and one portion to the plaintiff.

8. In April 1997, the plaintiff subdivided its 13th portion into seven smaller portions, six of which were assigned by the plaintiff to six more indigenous villagers. There was nonetheless, so it is asserted, enough room for the car parks which had been the subject of the two agreements. Applications for building licences were then made to erect 18 houses; notices were posted by the District Lands Office of the applications for building licences or new grants and that, it emerges from the pleading, is when the trouble started, for the fifth to the tenth defendants then objected, saying that the villagers to whom assignments had been made were, save for one, not villagers of Ngau Keng Tsuen, the village where the defendants resided, and that the proposed buildings were against "fung shui". The second to the fourth defendants have refused to certify the buildings will not be against fung shui, and that refusal is said to be a breach of the agreement and the specific clause to which I have referred. The objections by the fifth to the tenth defendants are said to be in breach of the two agreements.

9. In February this year, the plaintiff launched these proceedings whereby it claims a declaration that the failure of the second to the fourth defendants to certify that there is no "fung shui" problem is a breach of the clause, a declaration that the plaintiff is entitled to construct an additional six small houses on the 13th plot, and damages for breach of contract.

10. I shall, for the sake of completeness - though it does not affect the present issue whether a cause of action is disclosed - mention the Defence. By the Defence filed on behalf of the fifth to the tenth defendants, they say that they are but six out of over 200 members of the Tso. They admit that the meeting was held in early 1993 at which they were present, and they agree that at that meeting it was resolved, by members of the Tso, that Lot 539 would be subdivided into 13 portions for the erection of 12 houses with the remaining portion to be for the construction of a playground, garden and car park. They say that it is the plaintiff who is in breach of the agreement in that it has procured applications for 18 building licences, whereas only 12 were ever permitted under the agreement.

11. Then it is specifically asserted in the Defence that the fifth to tenth defendants are not, and were not, parties to either of the alleged agreements, and that there is no contractual relationship between them on the one hand, and the plaintiff on the other.

12. The argument advanced on behalf of the defendants who make this application is that the fifth to tenth defendants were not parties to the first agreement, that is, the agreement in 1992, and that post contractual approval does not render them a party, and that the only persons who are capable of performing the contract are the first to fourth defendants, or more specifically, the second to fourth defendants. Accordingly, there is no contractual relationship between the plaintiff on the one hand, and the fifth to tenth defendants on the other, upon which this action can rest.

13. An application of this kind may only succeed in plain and obvious cases, and in my judgment, this is not such a case. Whilst it can be said that the claim is not as well formulated as it might be, it is not difficult to glean from that claim what is being said which in short is this : that the Tso, acting by its managers, entered upon an agreement on behalf of its members. In so far as it might be said that it is insufficient as against the members merely to plead that the managers held out that they were expressly authorised by the other members to enter upon the first agreement, nonetheless, the fifth to tenth defendants, as well as others, expressly authorised them, as I read the contention, to enter upon the variation of that agreement constituted by the second agreement, and thereby ratified the acts of the managers who had purported to act on behalf of the members, and further authorised them to enter upon the further agreement. So, that is a case in which, on the pleadings, a contractual relationship between the fifth to tenth defendants is indeed raised.

14. Then the claim goes on to assert that the defendants - fifth to tenth defendants - have so conducted themselves as to suggest that the plaintiff is in breach of the agreement, and that these defendants have evidenced an intention to breach the agreement by objecting to licences sought to implement those agreements.

15. I do not myself see that there is not disclosed a reasonable cause of action, and that aspect of the application must fail.

16. I move therefore to the suggestion that the proceedings as against the fifth to tenth defendants are an abuse of process, or are frivolous or vexatious. To this end, I need to say a word or two about the evidence.

17. The first agreement is a deed and is expressed to be between the plaintiff as developer on the one hand, and on the other hand, "LI FU YAT TSO (李輔一祖) with LEE (or LI) SHU FONG（李樹晃）[and others] as Managers (hereinafter called 'the Owner')". The named individuals are the second to fourth defendants. There is also provision in the deed that the "owner", as defined by that agreement, would, in addition to the three houses, also be given nine parking spaces, and there is no express reference by name in the agreement to the fifth to tenth defendants, and clause 18 of the agreement reads :

"18. This Deed embodies the entire understanding of the parties in respect of the matters contained or referred in it and there are no promises terms conditions or obligations oral or written express or implied other than those contained in this Deed."

18. Then there is before me the document entitled Supplemental Deed, dated 21st March 1997, which purports to evidence the second agreement of 1993, or as Mr Fisher would put it, into which the 1993 Agreement, he says, merged. It effects some minor amendments to the 1992 Agreement. From it, it seems that the agreement in 1993 was that the land would be divided 13 times rather than 12, that the 13th portion would be transferred to the plaintiff upon which there would be created parking facilities. The "Owner", that is, the Tso and the managers, would have priority in choosing parking spaces, and that the plaintiff would give to the managers a right of way to give access to the car parks.

19. So, apparently, it is said that whereas at one stage it was agreed that the land be divided into 12 portions to be assigned to indigenous villagers, there was a change in 1993 whereby it would be divided into 13, the 13th of which would go to the plaintiff.

20. There are a number of affirmations. One of the applicants, that is, the eighth defendant, accepts that he and the other defendants attended the meeting in 1993 but asserts that he and the others are but minority members. There is no reference either in this affirmation or in the Defence as to how they voted at the meeting. But there is the following sentence :

"(f) .... Further in neither meeting did the Plaintiff discuss or disclose to us or the 1st Defendant its plan to erect 18 village houses on the said Lot."

He points out that he and the others were upset when they learnt of the plan to build 18 houses, and in accordance with established practice, as an aggrieved villager, he and the others made their objections known to the District Office of Yuen Long.

21. Then I have an affirmation from a Mr Chan, who was a director of the plaintiff company. He exhibits a list of members of the Tso showing 21 members, including these defendants, as well as minutes of the 1993 meeting, which minutes are signed by the second to eighth defendants. They say :

"It is unanimously resolved by members of Li Fu Yat Tso that the above-said land be sub-divided into 13 portions ....... and be sold to Arta Properties Limited ..... at the price of HK$550,000.00."

He goes on to assert that by raising objection to the plans for construction of the buildings, the defendants are in breach of the agreement to which they were party.

22. There is a further affirmation by the eighth defendant who says that there are many more than 21 members because membership must include all male descendants living at a particular time, and that there are about 100 of those in Hong Kong and abroad. As for the signed minutes of the meeting "In the past, members of the 1st Defendant used to sign on a blank sheet of paper to indicate their attendance of a meeting."

23. On the abuse of process and allied legs of his argument, Mr Fisher, on behalf of the appellants, states that it is obvious that on no view can the fifth to tenth defendants properly be party to this action. First of all, he says, no one can be sued upon a deed unless he be named as a party in the deed, and the deed of 1992 is between the Tso and the managers on the one hand, and the plaintiff on the other. He makes the same point in relation to the second agreement, the one in 1993 to which the fifth to tenth defendants are said expressly to have agreed. He says that if that constituted an agreement, which he contends it did not, then nonetheless it merges with the deed of 1997. He makes the same point then, that the fifth to tenth defendants cannot be sued in relation to that deed for they are not named in it. But the answer to that, which it seems to me is at least arguable, is that a Tso consists of its members of whom the fifth to tenth defendants are numbered, and the Tso itself is named in the deed. But then he says that a Tso is not a legal entity. In so far as that goes to the question whether the Tso should be a defendant or not, there is authority which suggests it should not. But it seems at least arguable that the Tso may be named as a party to a deed, and if that is right, that the members are also thereby parties to that deed.

24. It is said then that for the plaintiff's purpose, it would be good enough if the declaration sought, were the plaintiff to be successful, was obtained as against the managers alone. That may be, but joining the defendants who attended the 1993 meeting and are said to have ratified the earlier agreement and given the go-ahead for the second agreement, and then raised objections which are said to procure a breach of that agreement, or intended to procure such a breach, cannot, in my judgment, be said to be an act which is not bona fides.

25. Mr Fisher argues that the managers are trustees for the members of the Tso and as such, cannot involve his beneficiaries, that is, the members, in contractual relations. Whether they are trustees or agents is a matter to be argued, and not, in my judgment, properly the subject of this summary process. It is a question, in another words, fit to be tried.

26. Striking out is a drastic remedy and is a step which is to be taken only in the clearest of cases. This is not such a case. In my judgment, this appeal must fail, and it is accordingly dismissed.