RE THE GERMAN SWISS INTERNATIONAL SCHOOL ASSOCIATION LTD

HCMP 424/2020

[2020] HKCFI 1341

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 424 OF 2020

________________

________________

_________________

D E C I S I O N

_________________

The Application

1.  The German Swiss International School Association Limited (“Company”) [1] seeks a declaration that certain provisions of its Articles of Association (articles 47.2, 63 and 68) contravene the Race Discrimination Ordinance, Cap 602, are void and unenforceable and consequential orders.  There is also an alternative claim that Articles 47.2 and 68 are void for uncertainty.  In addition, there is a counterclaim by Horst Geicke, a member of the Company, who I gave leave to be joined as a respondent.  Mr Geicke seeks a declaration that the relevant Articles do not contravene the Ordinance and orders that individuals who have been elected to the Board of the Company, who do not satisfy Article 47.2 should be removed from the Board and consequential orders [2].

2.  It was not in dispute before me that the Articles were discriminatory within the meaning of s4(1)(b) of the Ordinance.  However, in order for the relevant Articles to contravene the Ordinance it is necessary to demonstrate that the discrimination comes within one of the six areas of activity to which the Ordinance applies.  The only one capable of applying is s36, which regulates discrimination by clubs.  The central legal issue I have to determine is whether the Company is a club within the definition in s2 of the Ordinance.  If it is not the Ordinance does not apply to the Company and the discrimination is not unlawful.

3.  I have concluded for the reasons explained in the following sections of this decision that the Ordinance does apply to the Company, that the relevant Articles contravene the Ordinance and are void.  The orders that I will make are explained and set out in [55]–[58].

The Company

4.  In 1969 members of the German and Swiss communities in Hong Kong, who wished their children to have a bi-lingual education (in German and English) in Hong Kong founded a school, which operated as an unincorporated association under the name “German Swiss International School Association Hong Kong”.  In 2004 the association was incorporated under, what was then, the Companies Ordinance, Cap 32.  The Company is incorporated with limited liability under guarantee.  The guarantee takes the conventional form of an undertaking (contained in clause 5 of the objects clause in the memorandum of association [3]) by each member to contribute if necessary an amount not exceeding HK$100 in the event of the Company being wound up and it not having enough assets to meet its liabilities.  The Company does not have share capital or, consequently, shareholders.  It has members whose rights are governed by the Company’s articles of association (“Articles”) and provisions of the Companies Ordinance.  The Articles constitute a contract between the Company and each member and between the members [4]. By virtue of the charitable nature of the Company’s objects (education) and the restrictions contained in the Articles on the payment of dividends and the distribution of the Company’s assets either during its period of operation or on its liquidation, the members do not have an economic interest in the Company by virtue of their membership; although they may have an economic interest in some other capacity, for example, as parents who enter an agreement with the Company pursuant to which the School, which the Company operates, provides economically valuable educational services.  The members’ interests (qua member) are the rights given to them in the Articles and by the Companies Ordinance, which it is to be assumed that they will exercise with a view to the promotion of the charitable purpose for which the Company was formed and in which by virtue of their membership they may be assumed to be interested [5].  I explain this because the matters, which I deal with later in this decision concerning the involvement of the German Consulate in the affairs of the Company suggest that this was not appreciated by those responsible for the drafting of the Articles and more recently those responsible for the corporate governance of the Company.

5.  I have already referred to the memorandum of association and the Articles, which all companies incorporated under the Companies Ordinance have [6]. The objects clause of the memorandum states:

“Clause 3.1

To take over all the undertaking, assets, liabilities and obligations of the unincorporated German Swiss International School Association Hong Kong.”

“Clause 3.2

To manage and maintain on a non-profit-making basis The German Swiss International School (the ‘School’) or to establish, manage and maintain such other school(s) for general education which, whilst offering the same instruction as comparable schools in Hong Kong, shall foster the study of the German language as well as the acquaintance with European culture, in particular that of Germany, Switzerland and Austria.  In the German Stream of the School, the curricula shall meet the requirements of the respective authorities of the Federal Republic of Germany.  In the International Stream of the School, the curricula shall be substantially based on the British system.”

6.  It is apparent from clause 3.2 of the Company’s objects clause that encouraging study of the German language and the culture of German speaking countries was seen by those responsible for the incorporation of the association as one of its important features.  The Articles go further in emphasising the German character of the association by entrenching control of the Company in the hands of German speaking members.  The following are the relevant articles:

“Article 47.2

Any Member who is fluent in written and spoken German is eligible for election.  Members with any commercial interest in the School and Members who are chairperson(s) or deputy chairperson(s) of Klassenpflegschaften shall not be eligible for election to the Board.  For the avoidance of doubt, teachers and employees of the School shall not be eligible for election to the Board and shall not have any voting rights in Board meetings.”

“Article 63

The meetings of the Board shall as a rule be conducted in German.”

“Article 68

The Board shall elect from its members the Chairman, the First Deputy Chairman, the Second Deputy Chairman, all of whom must have a German speaking background, and the Treasurer, and should it deem necessary, the Deputy Treasurer.”

7.  As is apparent from clause 3.2 of the objects clause, by the time of the association’s incorporation the School it operated had two streams: one teaching a curriculum in German; and what is referred to in clause 3.2 as an international stream teaching an English curriculum. Although, there is no evidence of this I think I can take note of the fact that by 2004 the international stream already represented a significant number of the School’s total pupils.  Despite this the Articles effectively excluded parents of pupils in the English stream from joining the Board and participation in governance of the School.  It would appear that this dissonance is the origin of the problems, which have led to the Board deciding that the present application should be made.  Matters came to a head in February 2020 when a member of the Company made a complaint to the Equal Opportunities Commission (“EOC”) asserting that Articles 47.2, 63 and 68 are in breach of s4(1)(b) and 36 of the Ordinance.  Having taken legal advice the Board concluded that the complaint was probably justified and decided that the most sensible way to resolve the issue was to make an application to this Court. Although, the District Court has jurisdiction over matters concerning the Ordinance it was thought that as the provisions in issue were contained in the Articles it was best if the matter was heard by a companies judge.  The matter became more urgent when a requisition for an extraordinary general meeting (“EGM”) was deposited at the Company’s office on 11 May 2020.  The requisition requires that 11 resolutions be put to members at an EGM. They range in scope from removing directors who the requisitioners presumably believe do not meet the language requirement in Article 47.2 to extensive amendments to the Articles.  I will at this juncture comment on the first part of Resolution 1 as it provides some illustration of the difficulties faced by the Board in resolving what has become an unfortunately messy corporate governance dispute:

“To approve and adopt the draft amended and restated Articles of Association submitted to Members at the EGM on 9 December 2019, subject only to the following Amendment (replacing current Article 45), subject to approval of the Central Agency for Schools Abroad (Zentralstelle für das Auslandsschulwesen, or ZfA) on behalf of the Federal Republic of Germany as required by Article 94:

‘50.1       Except for the Chairperson, and any Director appointed by the Federal Republic of Germany or Swiss Government or Consulate General of either country if applicable, the Board must at all times include an equal number of Members who are alumni or parents of students in the English Stream (‘English Stream Representatives’); and equal number of alumni or parents of students in the German Stream (‘German Stream Representatives’).  Although recognised that some bilingual ability in English and German would be desirable to assist in management of the School as a bilingual institution, English Stream Representatives and German Stream Representatives are not required to have any bilingual ability for eligibility or election to the Board.  The Board shall establish By-laws for the process for the election for such English Stream Representatives only by Members who are parents of the English Stream, and for the election of such German Stream Representatives only by Members who are parents of the German Stream….’”

8.  This is very poorly drafted.  It starts by making assumptions that are wrong, namely, that the German Government’s approval of amendments to the Articles is required (it is not and I deal with this subject in [13]) and that the Consul-Generals of both Germany and Switzerland are entitled to appoint a nominee director (they are not and I deal with this issue in [20]–[21]).  The proposed Article then goes on to provide that there be separate elections for board members representing the English and German streams.  This would be in breach of s460 of the Companies Ordinance. Each member has a statutory right to vote for and against each candidate for election to the board of a company limited by guarantee, which the Company is.  In passing I note that the existing Article 48 is also inconsistent with s460 and any resolution moved in contravention of it is void [7].  As I understand the position as a matter of practice any amendment to the Articles of a company incorporated with charitable purposes is scrutinised by the Companies Registry, who would presumably decline to approve this amendment.  The approach of the requisitioners is self-evidently unhelpful and is making an already difficult situation worse.  It is part of the background to this application and it is to the development of the present controversy that I now turn.

The Evolution of the Dispute

9.  Mr Roland Müksch, who is the current Chairman of the Board of the Company has filed three affidavits in support of the application.  Mr Müksch explains that for the coming academic year there is expected to be 881 students in the English stream and 338 in the German stream, i.e., 72.3% of the students are in the English stream.  The German Government provides a certain amount of finance to the School in the form of the cost of eight teachers for the German stream and HK$3.6 million.  The Swiss Government provides a further subsidy of HK$500,000.  The subsidy agreement between the Company and the German Government is dated 30 October 2018.  It provides for a subsidy from 1 September 2018 to 31 August 2021.  The value of the subsidy is stated in clause 6 to be Euro 2,665,000 for each of the three years during which the subsidy agreement provides that it is to be paid. This is at current exchange rates approximately HK$23,500,000 each year, which is approximately 10% of the Company’s budget [8].  Clause 4 of the subsidy agreement put a value on the cost of providing eight teachers at approximately HK$19,242,000 at the current exchange rate. The sums paid by the German Government provide a partial subsidy of the costs of operating the German stream.  It does not cover the difference between the cost of operating the German stream and the fee income it generates.  The English stream subsidies the German stream.  In the coming year this cross-subsidy is expected to be approximately HK$9.3 million.

10.  In addition to the problematic inconsistency between the demographic of the student body and the demographic of the board of the Company it would appear that a number of other matters have arisen, which have caused concern about the state of the Company’s corporate governance.  I will not detail all that Mr Müksch describes in his evidence.  I will take a few examples.  The Company had been operating a business college for many years in a form inconsistent with the Education Bureau’s original approval for vocational education to be provided in the German stream and in breach of the Government leases of that part of the land on which the college came to be located.  In March of this year, the Education Bureau directed that the business college should be closed.  The Education Bureau was highly critical of the Company’s conduct stating in a letter dated 9 March 2020 that:

“I must hereby state that the EDB has all along trusted the GSIS’ explanation of the nature of the programmes and has been led to believe that the education provided by the Business College is secondary education over the years. As recent as in June 2018, the then School Supervisor, in responding to our enquires, confirmed that the Business College’s programmes ‘remain(ed) strictly part of the secondary education’. There appears to have been a blatant disregard of the provisions of the Education Ordinance and the provisions of the Service Agreement as well as deliberate concealment of the true nature of the education provided by the Business College from the EDB, which is entirely unacceptable. We appreciate Ms Jungels and your honest provision of information to us and hope the School would abide strictly by the laws of Hong Kong and the Service Agreement with the Government henceforth.”

The Education Bureau would appear to have reached the view that previous Boards had not dealt with it candidly or properly.

11.  The Ms Jungels referred to in the Education Bureau’s letter was the Company’s Treasurer and Deputy Chairperson.  In the Summer of 2017 Ms Jungels discovered that the Principal had been paid an excessive and unauthorised housing allowance at the direction of the previous Chairman, Mr Ulrich Buchholtz, which she felt had been hidden in the accounts and resulted in an inaccurate salaries tax return being submitted to the Inland Revenue.  Mr Müksch suggests that this problem reflected the opaque way in which the Board then operated.  I think it is a fair summary of Mr Müksch’s evidence that he believes that the problems that he identifies are at least in part attributable to certain sections of the German community having an excessively proprietary attitude toward the School.  He gives this example in [8(5)D] of his 3^rd affidavit:

“In about 2012, on the suggestion of German business interests and the German Consulate, to cater for children of German expatriates who did not wish to send their children to school on Hong Kong Island, a further campus was established in Sai Kung, initially just for the German Stream kindergarten. Although GSISF was responsible for buildings and campuses, this entire extra campus was decided on and set up without knowledge or approval of the GSISF Board. No viability study was done, nor risk assessment undertaken. Necessary Government permission was not applied for and structural problems with the building were not attended to. The Sai Kung campus turned out to be a disaster which cost GSIS a great deal of money. There were almost no students so the campus was later used for local students and closed after the lease finished.”

12.  The involvement of the Swiss, and particularly, the German Consulates with the Company are a recurrent feature of Mr Müksch’s description of the circumstances leading up to the Board deciding that this application is necessary.  As neither Consulate was represented at the hearing I will limit the following paragraphs, to what is apparent from the documents.  I would note that the correspondence to which the German Consulate is a party was exhibited to the affidavit of Mr Geicke, who says in [60] of his 2^nd affidavit that he was provided with them by the German Consulate.  Mr Geicke says in the final sentence of [60] of his 2^nd affidavit: “I am informed by Mr Schmidt [of the German Consulate] that I cannot produce copies of the letters received by the German Consulate General in Hong Kong from the EOC”. It seems reasonable to infer from this that the German Consulate anticipated that the letters sent by the German Consul-General would be put before me and that I would comment on them.

13.  In addition to Articles 47.2, 48[9], 63 and 68, the Articles contain a number of other unconventional and problematic provisions.  The most important of which is Article 94.  Article 94 provides: “Any proposed amendment of these Articles must first be presented to the foreign office of the Federal Republic of Germany for prior approval”. On its face this Article purports to give the German Government the right to approve any proposed amendments to the Articles.  Mr Westbrook argued that despite the language this is not the intention of Article 94 and how it should be interpreted.  It should be read as creating a right for the Company and each member to require any proposed amendment to be given to the German Government for their comments.  Although it is correct that as the German Government is not a party to the contract constituted by the Articles, Articles 94 does not give the German Government any rights, it seems to me that the more natural reading of Article 94 is that the German Government had to approve any amendment and each member has a right to require this.  As I shall demonstrate in the following paragraphs, it is clearly the view of the Consul-General of the Federal Republic of Germany that the German Government, through its agency the Zentralstelle für das Auslandsschulwesen, has to approve any proposed amendments to the Articles.

14.  Clause 11 of section V of the subsidy agreement I referred to in [9] provides that “Any changes to the school structure require the prior approval of the Federal Government”.  The agreement is governed by German law and the “place of jurisdiction is Cologne”, which I take it means that the parties submit to the exclusive jurisdiction of the court in Cologne.  It is clear from the correspondence to which I am about to refer that the German Consul-General takes the view that this provision and Article 94 give the German Government the right to approve, not just comment on, any amendments to the Articles.  I should, however, record that the Consul-General of Switzerland would appear from my reading of a memorandum for circulation to members dated 20 November 2019 for the purposes of understanding the Swiss Consulate’s position prior to the EGM on 9 December 2019, to accept that it is to be consulted on proposed amendments, but has no veto over proposed changes.

15.  On 30 January 2020 the German Consul-General wrote to the Chairperson of the EOC having heard of the reference to the EOC I have referred to in [7].  In the final paragraph of the letter the Consul-General says this:

“…

Therefore, should the complaint filed concern the statutes of the school or the school as an administrative body, we would consider German authorities as an affected party.  In that case the German Consulate General should be heard on the matter and should be given the opportunity to submit a statement.  A timely response from your side would be greatly appreciated.”

16.  The EOC replied on 11 February 2020.  I do not have a copy of that letter.  The German-Consul wrote again to the EOC on 25 February 2020.  The Consul-General, Dieter Lamle, says this:

“I refer to my letter from 30^th January and the reply letter from Mr Tony Siu dated February 11^th and would like to answer as follows.

1. I would like to reiterate that we consider the German Government to be politically affected in the matter:

• The German Swiss International School receives public funds from the German Federal Government and is currently funded with around three million Euros per year by German Taxpayers.

• The GSIS is a ‘Deutsche Auslandsschule’ (an official German Foreign School abroad).

• The statutes of the school are partially stipulated and have to be approved by the German ‘Zentralstelle für das Auslandsschulwesen — ZfA’ (Central Agency for German Schools Abroad).

• The allegedly ‘racist’ provision, Article 47.2, was approved by the ZfA at that time.

Should the complaint have been filed with regard to the statutes of the school (Article 47), we would, therefore, have to consider it as a complaint against the German Federal Government.”

17.  As I have explained in [4] the Articles constitute a legally binding agreement between the Company and its members.  The German Government is not a party to that agreement.  The interpretation of the Articles and any question concerning the contravention by any Article of the Ordinance is a matter of Hong Kong law.  The complaint made by a member to the EOC asserting that Articles 47.2, 63 and 68 contravene the Ordinance (which came into force four years after the Articles were drafted and the Company incorporated) is not a complaint against the German Government and I doubt if anybody conversant with Hong Kong law would think otherwise.  Sending such a letter to the Chairman of the EOC and providing a copy to Mr Geicke in order that it can be shown to this court invites the suggestion that the Consul-General was attempting to influence the deliberations of both the EOC and now me in a matter to which the German Government is not a party and has no relevant legal interest.  The German Government may be unhappy with how the disputes between members has developed, but that does not give it a right to intervene in the dispute.  Its rights are limited to those given to it under the subsidy agreement, which do not have the effect of allowing it to act as if it is a member or director of the Company.

18.  Mr Lamle goes on to suggest that Article 47.2 is not discriminatory and not in breach of the Ordinance.  As I explain in  [25]–[30] Article 47.2 is discriminatory.  It is apparent from the remainder of the letter, which I do not think it necessary or helpful to quote, that Mr Lamle did not understand the definition of discrimination in the Ordinance.  Clearly, he does not understand the rights of the members of the Company in regard to the Articles.  Sections 87(1) and 88(2) of the Companies Ordinance provide:

“87(1).     Subject to this Ordinance, a company may alter its articles.

88(2).     Subject to subsection (3) and any other provisions of this Ordinance, a company may only alter its articles by special resolution.”

19.  In my view this statutory right cannot be fettered by an agreement made between the Company and a third party as clause 11 of the subsidy agreement purports to do.  The members of the Company are entitled to convene an EGM at which a special resolution is introduced to amend the Articles regardless of what the subsidy agreement says.  The German Government would have no right to attend the meeting or have its views presented at the meeting.  Article 94 gives the German Government no rights as the German Government is not a party to the agreement represented by the Articles.  As I have explained in [13] Article 94 on its face gives a member the right to require the German Government’s approval before any amendment to the Articles can be introduced.  This is inconsistent with the statutory rights given to members by sections 87 and 88 of the Companies Ordinance. In my view as a consequence Article 94 is arguably (this is not a matter that I need decide) unlawful and unenforceable.  Lawful or not, it is in my view clearly inconsistent with accepted notions of corporate democracy and good corporate governance.

20.  Article 94 is not the only additional example of a problematic Article, which creates corporate governance issues.  Articles 61 and 65 provide:

“Article 61

The Directors may meet together for the dispatch of business, adjourn, and otherwise regulate their meetings, as they think fit.  All meetings of the Board shall be convened and presided over by the Chairman, or, in his absence, by the First Deputy Chairman or, failing him, by the Second Deputy Chairman.  At the request of two or more Directors, or the German Consulate General of Hong Kong, or the Headmaster, a meeting of the Board must be convened within 7 days.  A Board meeting shall be called by at least 7 days’ notice in writing.  Such notice shall be exclusive of the day on which it is served or deemed to be served and of the day for which it is given and shall be given to such persons as are, under these Articles, entitled to receive such notices from the Association.  For the avoidance of doubt, the German Consulate General of Hong Kong shall be entitled to receive such notices from the Association.  It shall not be necessary to give notice of a meeting of directors to any Director for the time being absent from Hong Kong.”

“Article 65

All meetings of the Board may be attended by the heads of the German and Swiss Consulates General of Hong Kong or by their nominated representatives.  The Headmaster shall attend the meetings of the Board but shall not take part in discussions which concern him in his capacity as Headmaster.  For the avoidance of doubt, the heads of the German and Swiss Consulates General of Hong Kong or their nominated representatives and the Headmaster shall have no voting rights in the Board in any event.  All other rights and duties of the Headmaster, in particular his participation in decisions of the Board concerning personnel matters of the School, are determined in his employment contract and service instructions, in the school rules and regulations and the Rules for Teaching Staff Meetings of the School.”

21.  It would appear that the intention behind these Articles is that the Consul-Generals of Germany and Switzerland are able to provide influence and direction at Board level, but are not formally appointed directors.  This structure is unconventional.  It also invites concern that the Consul-Generals come within the definition of “shadow director” and are caught, for example, by Part 11, Division 5 of the Companies Ordinance, which might have required the German Consul to make a declaration of interest in the subsidy agreement.  Failure to do so is a criminal offence.  The relevant sections read as follows.

“2. Interpretation

In this Ordinance—

…

director(董事) includes any person occupying the position of director (by whatever name called).”

“536. Director must declare material interests

(1)     If a director of a company is in any way, directly or indirectly, interested in a transaction, arrangement or contract, or a proposed transaction, arrangement or contract, with the company that is significant in relation to the company’s business, and the director’s interest is material, the director must declare the nature and extent of the director’s interest to the other directors in accordance with sections 537, 538 and 539.”

“540. Application of Division to shadow director

(1)     Subject to subsections (2), (3) and (4), the provisions of this Division relating to the duty of a director to declare an interest under section 536 apply to a shadow director in the same manner as they apply to a director.”

22.  The confusion that these Articles create is illustrated by an email, which was sent by Manuel Grösch of the German Consulate on 7 April 2020 to the Company’s corporate secretarial service, Tricor.  Mr Grösch says this:

“We hope you are well during these trying times. It is our understanding that your company is tasked with organising and supervising the proxy votes for example on votes concerning the statutes of the German Swiss International School on behalf of its Board.

As a member of the board, the Consulate General of the Federal Republic of Germany in Hong Kong would like to kindly request information on the distribution of proxy votes during the AGM/EGM meeting of the GSIS on March 17, 2020.

We are solely interested in anonymous information referring to the distribution of proxy votes, not the identities of the involved parties.”

23.  My understanding is that no representative of the German Consulate is a member of the Board of the Company.  I assume that Mr Grösch was not trying to mislead Tricor.  It would appear that he had been lead to believe that the Consul-General is a director of the Company.  As can be seen Mr Grösch also assumed (quite wrongly) that the German Consulate was entitled to copies of the proxy forms albeit in redacted form. This invites the question: for what purpose?  It is difficult to identify any reason other than a desire to see the pattern of proxy use with a view to influencing the voting process at any future EGM.

24.  As I have explained in [7] a requisition for an EGM was deposited at the Company’s office on 11 May 2020.  Resolution 3 is as follows:

“To approve and adopt the following amendment to the Articles of Association (or replace Article 44A in the Board’s Amended Articles) subject to approval of the Central Agency of Schools Abroad (Zentralstelle für das Auslandsschulwesen, or ZfA) on behalf of the Federal Republic of Germany as required by Article 94:

‘Provided and to the extent permitted under Hong Kong law as may be amended from time to time, a person other than the Company Secretary must not act as a proxy for more than 5 Members. If, at the time of receipt of an instrument pursuant to which a Member appoints a proxy (the “Appointing Member”), the person(s) identified on such instrument has already been appointed as proxy for 5 or more Members, the Company Secretary will be appointed as the proxy for the Appointing Member.’”

It seems likely that there is a connection between Mr Grösch’s request and the thinking behind the Resolution.  The comments on this Resolution seem to recognise that such an Article would be problematic.  It says “The Annotated Companies Ordinance advises that any such cap on proxies ‘would be restrictive of the rights and void’.” Notwithstanding this it goes onto say “A cap on proxies is not ‘illegal’; just void.”  It is correct that a cap on proxies would not be a criminal offence, but it would manifestly be in breach of ss596 and 597 of the Companies Ordinance and void.  The proposed amendment demonstrates an entirely unsatisfactory approach to corporate governance.  It is not difficult to see why Mr Müksch and a majority of the Board have become concerned about the German Consulate’s influence on their attempts to address the corporate governance issues that I have described and have felt it necessary to make the present application in order to reduce the extent of the controversy bedevilling the Company.

The Company’s Claims Arguments

25.  As I have explained in paragraph 1 the Company contends that Articles 47.2, 63 and 68 contravene the Ordinance and are void. I address this argument in [26]–[50].  The Company advances an alternative ground for Articles 47.2 and 68 being void: they are void for uncertainty.  I address this argument in [51]–[55].

Discrimination

26.  As I have already explained Mr Geicke does not dispute that Articles 47.2, 63 and 68 are discriminatory under s4(1)(b) of the Ordinance.  That section provides:

“4. Racial discrimination

(1) In any circumstances relevant for the purposes of any provision of this Ordinance, a person (the discriminator) discriminates against another person if—

…

(b) the discriminator applies to that other person a requirement or condition which the discriminator applies or would apply equally to persons not of the same racial group as that other person but—

(i)   which is such that the proportion of persons of the same racial group as that other person who can comply with it is considerably smaller than the proportion of persons not of that racial group who can comply with it;

(ii)  which the discriminator cannot show to be justifiable irrespective of the race of the person to whom it is applied; and

(iii) which is to the detriment of the other person because that person cannot comply with it.”

27.  Necessarily the proportion of non-German, Swiss and Austrian members who can comply with the Articles is far smaller than the proportion of German, Swiss and Austrian families.  They are, therefore, discriminatory for the purposes of s4(1)(b) of the Ordinance.  Sections 4(1)(b)(ii) and (2) provide exceptions:

“which the discriminator cannot show to be justifiable irrespective of the race of the person to whom it is applied.”

“For the purposes of subsection (1)(b)(ii), a requirement or condition is justifiable if it serves a legitimate objective and bears a rational and proportionate connection to the objective.”

28.  I shall deal with each Article in turn.  It may be that requiring a certain number of directors to be fluent German speakers is justifiable and would serve a legitimate objective.  It is not something that I have to decide.  What I do have to decide is whether requiring, as Article 47.2 stipulates, all Board members to be fluent German speakers is justifiable as it serves a legitimate object in a proportionate way.  In my view it clearly does not.  There is no justification, and probably has not been for some considerable time, for requiring all directors to be fluent German speakers and, thus, excluding the majority of members from standing for election.

29.  Article 63 requires all Board meetings as a rule to be conducted in German.  This Article necessarily has the effect of excluding non-German members from participating in Board meetings if they are elected. As it seems to be uncontentious that the German speakers likely to be elected would be able to speak English well enough to participate in Board meetings conducted in one of the official languages in Hong Kong, namely, English, it is also cannot in my view be justified.

30.  The last Article is Article 68.  This is self-evidently discriminatory.  I can see no justification for only permitting members with a German speaking background being the Chairman, the first or second Deputy Chairman and the Treasurer.  It must, given the current demographics of the School, be just as desirable that these offices may be filled by members, who represent the majority of the community as it is to have officers, who are familiar with the German language and culture. It seems to me clear that the condition does not bear a proportionate connection with the objective.

Does the Ordinance apply to the Company?

31.  As I have already explained the issue, which was debated at the hearing before me was primarily the application of the Ordinance to the Company.  Even if the Articles are discriminatory in the sense defined in s4 of the Ordinance, if the Company is not a club s36 will not apply to it and, as no other part of the Ordinance is applicable, s81 will not render the offending Articles void.

32.  Club as defined in s2 “means an association, incorporate or unincorporate, of not less than 30 persons associated together for social, literary, cultural, political, sporting, athletic or other lawful purposes and which provides and maintains its facilities, in whole or in part, from the funds of the association”.  The definition can be broken down into three parts:

(1)     The association has not less than 30 members.

(2)     The members associate together for social, literary, cultural, political, sporting, athletic or other lawful purposes.

(3)     The association provides and maintains its facilities, in whole or in part, from the funds of the association.

33.  The Company is incorporated with more than 30 members. Thus the first part of the definition is met.  I shall deal with the final part of the definition before dealing with the second part, as it is the second part, which requires the most careful consideration.

34.  Mr Westbrook argued that the Company does not satisfy the second part of the definition: “… and which provides and maintains its facilities, in whole or in part from the funds of the association”. The basis of this argument is that the School is largely maintained out of the fees paid by parents (and I assume, although as I explain earlier I have no evidence of this, out of debenture receipts) not out of the Company’s funds. It seems to me that this is to misunderstand what is meant by funds.  It is a general term, which covers the assets of the association.  It is not limited as Mr Westbrook suggested to membership fees.  In my view the third part of the definition is satisfied.  I now turn to consider the rather more complex question of whether or not a school comes within the “other lawful purposes” referred to in the definition.

35.  I accept Mr Westbrook’s submission that the term club does not generally connote an organisation like a school.  In general usage the term suggests an association formed to pursue recreational and social activities.  However, the task of construction that I am required to undertake involves interpreting how the term is to be construed in this particular Ordinance, which is intended to prohibit and discourage what is now generally acknowledged to be the pernicious social ill of direct and indirect discrimination on the grounds race [10]. This involves ascertaining the intention of the legislature as expressed in the legislation.  In order to do this the court needs to consider the Ordinance as a whole and have regard to the context in which it was enacted and its purpose [11].  The current Chief Justice explains this process as follows in Town Planning Board v Town Planning Appeal Board [12]:

“29. No issue arises between the parties as to the applicable principles regarding the construction of statutes. They are well known and I need not refer to them in any detail save to emphasise the following for the purposes of the present case:

(1)   In construing statutory provisions, the court does not merely look at the relevant words. It construes the relevant words having regard to their context and purpose.[13]

(2)   The context of the relevant statutory provision should be taken in its widest sense and will of course include the other provisions of the statute.[14] It may also be relevant in any given case to look at the history of the relevant provisions.

(3)   Ascertaining the purpose of the statutory provision is obviously relevant, not only to help provide the relevant context, but to give meaning to the words used. In this latter respect, it is to be observed that often the meaning of words by themselves will not be clear unless regard is paid to context and purpose. Words have to be construed but they must not be construed in a vacuum.[15]

(4)   In ascertaining the purpose of a statutory provision, the court adopts a flexible and open-minded approach.  The purpose may be clear from the provision itself or it may be necessary to look at the Explanatory Memorandum to the bill introducing the provision or a ministerial or official statement may be utilised for this purpose [16].”

36.  It is permissible where the legislation implements the recommendations of a Law Reform Commission report to consider the report to identify its purpose [17], just as it is permissible to have regard to the explanatory memorandum to the bill and the development and implementation of similar overseas legislation. Mr Westbrook argued that it is clear from the 2006 Law Reform Commission Paper that the Ordinance was not intended to apply universally as demonstrated by the fact that the Ordinance is structured to apply to six areas of areas of activity: (1) employment, (2) education, (3) goods, facilities, services and premises, (4) public bodies, (5) barristers and (6) clubs.  Mr Westbrook also points to the difference between the definition adopted in Hong Kong, namely, clubs and the definition adopted in England and Wales, namely, “associations”, which has the wider definition to be found in s25 of the Race Relations Act 1976: “This section applies to any association of person (however described, whether corporate or unincorporate, and whether or not its activities are carried out for profit) if —

(a)     It has twenty-five or more members; and

(b)     Admission to membership is regulated by its constitution and is so conducted that the members do not constitute a section of the public within the meaning of section 20(1); and

(c)      It is not an organisation to which section 11 applies [18].”

This, reasons Mr Westbrook, demonstrates that the legislature did not intend the Ordinance to prohibit racial discrimination in all circumstances and that, in particular, the prohibition was to apply to a narrower range of associations than in England and Wales.

37.  I accept that the definition of “association” is wider than club.  I also accept that this suggests that there are associations which pursue purposes that would come within the definition of “association” in s25 of the Race Relations Act, but not the definition of club in the Ordinance.  However, this distinction is not very instructive if one is trying to identify what “other lawful purposes” come within the definition of club other than those specifically identified in s2.  Self-evidently there must be purposes other than “social, literary, cultural, political, sporting, athletic”, which come within the definition of club.  How is it to be determined what they are?

38.  Mr Westbrook suggests that assistance is obtained by looking at the legislative intent and purpose, which as I have explained is a permissible aid to construction.  He points, for example, to the fact that there is a section directed to discrimination in education, but that it does not apply to discrimination in appointments to the boards or committees of associations operating schools.  The prohibitions are directed to discrimination against pupils.  It seems to me that this simply reflects the focus of the relevant section of the Ordinance.  It does not inform a consideration of whether or not some other part of the Ordinance addresses discrimination in the constitution of an association itself.  It is common ground that the only section that is capable of applying is s36 and that in order for it to do so, I need to be satisfied that the Company comes within the definition of club in s2.

39.  In order to ascertain what associations come within the term club it is necessary to identify the characteristics, which a club is normally expected to possess particularly by the law.  Club is defined in Halsbury’s Laws of England [19] in the following terms:

“A Society of persons associated together, not for the principal purposes of trade, but for social reasons, the promotion of politics, sport, art, science or literature, or for any other lawful purpose; however, trading activities will not destroy the nature of a club if they are merely incidental to the club’s purposes. The association must be private and will often have some element of permanence.”

40.  The meaning of club was considered by the Hong Kong Court of Appeal in Kowloon Stock Exchange Ltd v Commissioner of Inland Revenue [20]. The Inland Revenue Ordinance referred in s24(1) to club, but did not define the term.  Cons JA explains the following at 282–283:

“The ordinance itself contains no definition of a club. 6 Halsbury 4th Ed. para 201 gives this:—

‘A club, except a proprietary club or an investment club, may be defined as a society of persons associated together, not for the purposes of trade, but for social reasons, the promotion of politics, sport, art, science or literature, or for any other lawful purpose; but trading activities will not destroy the nature of a club if they are merely incidental to the club’s purposes. The association must be private and have some element of permanence.’

Daly’s Club Law, 7th Ed. puts it this way:—

‘…

The word “club” means essentially an association of individuals in a way that involves to some degree the factors of free choice (which connotes a power of exclusion), permanence, corporate identity and the pursuit as a common aim of some joint interest other than the acquisition of gain (or some mutual advantage directly connected with the acquisition of gain, such as those provided by membership of a professional society or trade union). It is the last-named qualification that distinguishes clubs from business or professional partnerships, and from trade unions and the like. Nevertheless, the mere fact that the acquisition of gain may be incidental to the true activities of an association does not appear to prevent the association from having the character of a club.’

In Bennett v Cooper [1948] 76 CLR 570 Dixon, J., sitting in the High Court of Australia gave this summary:—

‘In most attempts to state the characteristics of a club prominence is given (a) to the nature of the objects for which the members are associated in a body, (b) to the contribution of members to a common fund to meet the expenses, and (c) to the existence of rules governing the mode in which persons may be chosen for admission to membership. The objects may be social or sporting or they may be for the pursuit or promotion of some branch of knowledge or of art, but the purpose must not be gain; for that would mean a partnership or trading company. It is not necessary that gain to the institution should be rigidly excluded from its every activity or operation; it is the purpose for which the body is established that must not include the pursuit of gain to the body or its members if it is to be a club. In short the association may be formed for any object that is neither gainful nor unlawful; see Wertheimer on Clubs, 5th ed. (1935), Ch. I., and Halsbury, Laws of England, 2nd ed. vol. 4, para. 877.’

He went on to refer to the description given by Griffiths, C.J. in The Bohemians Club v The Acting Federal Commissioner of Taxation [1918] 24 CLR 334:—

‘A voluntary association of persons who agree to maintain for their common personal benefit, and not for profit, an establishment the expenses of which are to be defrayed by equal contributions of an amount estimated to be sufficient to defray those expenses, and the management of which is entrusted to a committee chosen by themselves.’

This description was accepted by their Lordships of the Privy Council in Fletcher v The Income Tax Commissioner [1972] AC 414.

We have set out these references at length to show that what we take to be the common understanding of the word ‘club’, namely, an association formed for other than business purposes, is supported by good authority.  We note that in each emphasis is placed on the absence of financial advantage to the members, other than as merely incidental to the general purpose.  In our view this feature is of crucial importance.  A predominant intention to benefit members in that way is by itself sufficient to prevent an association having otherwise common characteristics from being ranked as a club.”

41.  Both Mr Chan and Mr Westbrook accepted that a common feature that emerges from this discussion is the non-profit making nature of a club.  It may be that a surplus is made incidentally by a club, which charges fees for access to facilities and services, but the making of a surplus will not be the club’s purpose.  The absence of a commercial or financial purpose is most obvious if the club is incorporated for charitable purposes with prohibitions on the payment of dividends to members or distribution of capital; as is the case with the Company.  The purposes expressly identified in s2 (social, literary, cultural, political, sporting, and athletic) will commonly be promoted by associations, which are not for profit.  There are of course, particularly in the case of professional sport, associations, which are commercial.  However, the tenor of both Mr Chan’s and Mr Westbrook’s submissions was that in the context of s36 the focus is on non-commercial associations.  I think this must be correct otherwise, it is reasonable to assume, the drafter would have used alternative or additional language to make it clear that profit-making, commercial associations were included; which is not to say that a commercial club may not come within the definition, but the fact that it might is not of itself particularly instructive when trying to determine what non-profit making associations come within “or other lawful purposes”.

42.  It is common for definitions to be made by identifying examples, which the drafter intends to come within it and then to add general wording such as “or other lawful purposes” where the identified matters are not intended to be exclusive.  The eiusdem generis principle of construction states that general words are to be construed as only covering matters similar to those that have been particularised.  In the context of statutory construction it is summarised as follows in Bennion on Statutory Interpretation [21]:

“(1)   For the ejusdem generis principle to apply there must be a sufficient indication of a category that can properly be described as a class or genus, even though not specified as such in the enactment. Furthermore, the genus must be narrower than the general words it is said to regulate.

(2)   The nature of the genus is gathered by implication from the express words which suggest it. Usually these consist of a list or string of substantives or adjectives.”

43.  In Magnhild v McIntyre Brothers & Co [22], McCardie J laid down the following guidance on the identification of a genus:

“What then is a genus? I confess that I find great difficulty in answering the question. How the language of natural history came to be applied to the construction of commercial documents or to statutes, wills and deeds, I know not. The phrases of science deal with precise things. The phrases of law deal with matters of infinite ambiguity and cross division. Hence it was well said by Hamilton J. in Thorman’s Case: ‘It is not necessary that either genus or differentia should be of extreme scientific precision.’ But the rule of eiusdem generis cannot be applied at all unless there be some broad test for the ascertainment of genus. So far as I can see the only test seems to be whether the specified things which precede the general words can be placed under some common category. By this I understand that the specified things must possess some common and dominant feature.”

44.  It is unnecessary to formulate a genus comprehensively or in precise detail.  In Coleshill and District Investment Co Ltd v Minster of Housing and Local Government [23], which concerned section 12(1) of  the Town and Country Planning Act which provides inter alia “‘development’[…] means the carrying out of building, engineering, mining or other operations in, on, over or under land”, Widgery J stated at 65–66:

“It is not disputed that the reference to ‘other operations’ there must be construed eiusdem generis with building, engineering and mining; and, without attempting to define the genus in detail, it seems clear to me that it is restricted to operations of the scale, complexity and difficulty which require a builder or an engineer or some mining expert.”

45.  AG v Brown [24]concerned section 43 of the Customs Consolidation Act 1876, which provided “[t]he importation of arms, ammunition, gunpowder, or any other goods may be prohibited by Proclamation or Order in Council”.  Sankey J refrained from describing the genus comprising “arms, ammunition, gunpowder”, stating at 799 that “the meaning of the general words must be restricted to that of the particular words which preceded them, and that ‘any other goods’ means goods of the class of arms, ammunition, and gunpowder”.  Applying this construction, Sankey J held at 800 that the substance in question (pyrogallic acid) “is not in the same class as the particular articles set out in the section”.

46.  The cases I have discussed establish that in the statutory context the genus is to be assessed by identifying the common features of the specific matters listed having regard to the purpose of the Ordinance.

47.  In the case of club the genus is clearly not the nature of the specified activities.  Politics and sport, for example, are very different types of activities.  What do they have in common?  In my view it is that generally they are non-commercial and commonly non-profit making.  Associations formed to carry out these kinds of activities are of a type in which discrimination is considered by the legislature objectionable.  A school falls within this genus.  In terms of the purpose of the Ordinance, namely the prevention of discriminatory practices, there is no reason to think that the legislature intended to prohibit discrimination in  non-commercial associations formed to facilitate members practicing a sport or pursing a common interest in an art form, but leave a  non-commercial association formed to provide education untouched and free to implement racially discriminatory practices.

48.  Although for the reasons that I have given I have concluded the definition of club extends to include a school, there is an additional argument advanced by Mr Chan, which I should address before moving on to the alternative claim that the Company advances, namely, that Articles 47.2 and 68 are void for uncertainty.

49.  Mr Chan argued that the fact that the School provides opportunities for pupils to play sport or pursue the arts brings it within the definition of Club.  I disagree.  What is relevant are the facilities and services provided to the members.  In the case of the Company the facilities are the school buildings and the wide range of educational services that a member whose children satisfy the admission criteria and enrol is able to access.  It does not follow, however, that because it is the children of those members, rather than the members themselves who have access to the facilities and services, that the nature of the facilities and services are irrelevant when it comes to considering whether the Company comes within the definition of club.  As I have explained they are relevant because they inform a consideration of whether the purpose for which the members associate is of a type, which can fairly be said to come within the category of purposes, which emerges from a consideration of the common characteristic of the purposes expressly identified in the definition, namely, “social, literary, cultural, political, sporting, athletic…..”.  In my view they do.  As I have said they are generally non-commercial.  This is the common characteristic.

50.  For these reasons I have concluded that the Company is a club for the purposes of s2 and s36.

Are Articles 47.2 and 68 void for uncertainty?

51.  Mr Chan advanced an alternative argument for holding the relevant Articles unenforceable, namely, that Articles 47.2 and 68 are void because the language of the Articles is too obscure to allow identification with adequate precision of the ambit and effect of the clauses for them to be enforced.  Ribeiro PJ explains the concept of contractual uncertainty in New World Development Co Ltd v Sun Hung Kai Securities Ltd [25].  He says this at [31]:

“Similarly, an agreement may be held to fail for uncertainty. This is where the parties have expressed themselves in language that is too uncertain, vague or unintelligible to make their agreement legally enforceable. In G Scammell & Nephew Ltd v HC & JG Ouston [1941] AC 251, Lord Wright explained the principle in the following terms: [The court will hold that there is no contract where] ‘the language used was so obscure and so incapable of definite or precise meaning that the court is unable to attribute to the parties any particular contractual intention’. The object of the court is to do justice between the parties, and the court will do its best, if satisfied that there was an ascertainable and determinate intention to contract, to give effect to that intention, looking at substance and not mere form. It will not be deterred by mere difficulties of interpretation. Difficulty is not synonymous with ambiguity so long as any definite meaning can be extracted. But the test of intention is to be found in the words used. If these words, considered however broadly and untechnically and with due regard to all the just implications, failed to evince any definite meaning on which the court can safely act, the court has no choice but to say that there is no contract. Such a position is not often found. (at p268).”

52.  As I have determined that the Ordinance applies to the Company and its Articles it is not necessary for me to determine whether or not the Articles are void for uncertainty.  I will, therefore, deal with this alternative argument very briefly.  Mr Chan argued that the expression “is fluent in written and spoken German” is too vague and uncertain to evince a sufficiently clear intention of what criteria have to be satisfied for it to be enforceable.  I disagree.  In my view the word “fluent” when used to describe facility in a language is well understood: a very high level, but not native. It does not seem to me that this criteria is so difficult to apply as to justify finding Article 47.2 void for uncertainty.

53.  In the case of the other Article 68 it is the expression “German speaking background”, which is said to be uncertain.  I agree.  It is not clear whether this is intended to suggest that the director must be a native rather than a fluent speaker of German or must have had a parent or grandparent, who is a native German speaker and, if so, how many. Would it, for example, apply to a child of a native English speaking family brought up and educated in Germany, because a parent was employed in Germany? There is a range of plausible interpretations of the term, which have significantly different consequences.  It is not possible to ascertain, which is intended.  In my opinion, therefore, Article 68 is also void for uncertainty.

Counterclaim

54.  By virtue of my finding in favour of the Company’s application Mr Geicke’s counterclaims necessarily fail.

Conclusion

55.  I have concluded that:

(1)   Section 36 of the Ordinance applies to prohibit discrimination within the meaning of s4(1)(b) by the Company.

(2)   Articles 47.2, 63 and 68 contravene s36 of the Ordinance.

(3)   The offending parts of Articles 47.2, 63 and 68 (which are underlined in the next paragraph) are void pursuant to s81 of the Ordinance.

(4)   Article 68 is void for uncertainty.

56.  I will make an order in the terms of paragraph 2 of the Originating Summons, which reads: a declaration that the underlined portions of the following provisions or conditions in Articles 47.2, 63 and 68 of the Articles of Association of GSISAL, namely:

Article 47.2

“Any Member who is fluent in written and spoken German is eligible for election. Members with any commercial interest in the School and Members who are chairperson(s) or deputy chairperson(s) of Klassenpflegschaften shall not be eligible for election to the Board. For the avoidance of doubt, teachers and employees of the School shall be not be eligible for election to the Board and shall not have any voting rights in Board meetings.”

Article 63

“The meetings of the Board shall as a rule be conducted in German.”

Article 68

“The Board shall elect from its members the Chairman, the First Deputy Chairman, the Second Deputy Chairman, all of who must have a German speaking background, and the Treasurer, and should it deem necessary, the Deputy Treasurer.”

are void and unenforceable for being in breach of sections 4(1)(b) and 36 of the Ordinance and by virtue of Section 81 of the Ordinance and in the case of Article 68 also for uncertainty.

57.  Paragraph 1 of the Originating Summons seeks: “a declaration that the members elected at the annual general meetings on 7 March 2019 and 17 March 2020 and members co-opted on 27 March 2020 are validly appointed members of the Board of the German Swiss International School Association Limited (‘GSISAL’)”.  I am reluctant to make such a declaration, although I am willing to hear the parties further on this question.  The reason is that having found that the critical parts of Article 47.2 are void it is arguable that the procedure for appointing directors at the 2019 and 2020 annual general meetings (and possibly earlier ones) was so corrupted by a misunderstanding about who could lawfully stand for election and be appointed that the resolutions electing the directors are invalid.  I do not just refer to the contentious appointments, but all appointments resulting from resolutions being put to members on the mistaken assumption that only fluent German speakers could stand.  It also seems to me that problems may arise from Article 48, which as I explain in [8] is inconsistent with s460 of the Companies Ordinance.  I, however, will give the parties general liberty to apply in respect of paragraph 1.

58.  So far as costs are concerned I will make a costs order nisi that there be no order as to costs.  I agree with Mr Westbrook that Mr Geicke’s involvement had the benefit of providing a counter argument, which was of assistance in determining the application.  As the Company had to come to court in any event I do not see any justification for making a costs order against Mr Geicke.