W. M. CONSTRUCTION LTD AND OTHERS v. CHAN YIU TUNG AND OTHERS

HCMP 266/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 266 OF 2014

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D E C I S I O N

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Introduction

1.  The plaintiffs commenced these proceedings (by way of originating summons) in January 2014 seeking, among other things, (and insofar as is relevant to this decision) order and directions for the calling and holding of the annual general meeting (“AGM”) of the 3^rd defendant (“the Association”) for 2012/2013 (pursuant to section 111(2), Companies Ordinance (Cap 32) (a similar provision can now be found at section 610(7), Cap 622)).

2.  Further, both parties have earlier cross‑applied for an interlocutory injunction, which resulted in the parties giving cross‑undertakings in essence not to:

(a)     act and/or hold themselves out as the elected office holders of the Association, or to represent the Association; and

(b)     manage the Association’s affairs.

The undertakings have, to a substantial extent, disposed of the above interlocutory injunction cross‑applications.

3.  Before proceeding to a discussion of the issues involved, it should be noted “plaintiffs” herein is a term of convenience (more precisely, it does not include the 7^th plaintiff). Similarly, the word “defendants” herein does not include the Association.

4.  It may also be necessary to pause here and briefly examine the nature of this application.  The parties’ skeleton submissions were drafted on the basis this application is the adjourned hearing of the inter partes summonses for interlocutory injunction.  But in view of para 2 above, and that no part of the said summonses seek the relief sought herein, the parties were asked if it is more proper to treat the hearing as one concerning the relief set out in para 1 above (one of the relief sought in the originating summons herein can be interpreted as capable of covering this).  They accept that it is.  For this reason, the relief sought is final (rather than interlocutory) in nature.

Background

5.  The undisputed background leading to this decision can be summarized as follows.

6.  The Association was incorporated in March 2000 and is in substance a trade association of building contractors (especially Chinese building contractors) in Hong Kong. Its objects have been set out in its Memorandum of Association (“M/A”) and include:

(1) promoting the consideration and discussion of all questions affecting the building trade;

(2) generally watching over and protecting the interest of persons engaged in the building trade;

(3) originating and promoting improvements in the law, and supporting or opposing alterations therein, and effecting improvements in administrations; and

(4) promoting excellence in the construction of buildings and just and honourable practice in the conduct of business, and suppressing malpractice.

7.  The term “building trade” was defined by the M/A as including:

“… the trade of builders and of contractors for the execution of public and private works, and all ancillary and allied trade, and every branch of any such trade … ”.

8.  There were about 150 full members and about 50 associate members. Government would from time to time consult the Association with regard to policy matters concerning the building trade.  Council members have taken up public positions in bodies and/or committees relating to the trade as well.

9.  Judging from the tenure of the affirmation evidence filed by the parties, the parties are opposing camps, each alleging the other to have wrongfully intruded into the Association’s management and affairs.

10.  The said cross‑undertakings given by the parties to the court were intended to “hold the ring”.  The parties also agreed to convene an annual general meeting for 2012/2013 (which ought to have been convened earlier) (“the AGM”) so that the “internal” dispute can be resolved by members’ votes; this is what directly brought about this application.

The present dispute

11.  The parties’ disagreement is focused on the relatively narrow issue of who should qualify as “full members” of the Association (and thus are entitled to vote at the AGM according to the Association’s Articles of Association (“the A/A”)).

12.  In gist, the disagreement is:

(a) Whether registered specialist contractors should qualify (the plaintiffs contend they should; the defendants contend otherwise).

(b) Whether registered minor works contractors should qualify (the parties’ respective stance is as above).

(c) Whether the 2^nd defendant (“Chan Shum Kee”) should qualify (the plaintiffs contend it should not; the defendants contend otherwise).  Related to that is: whether the 1^st defendant (“Chan”) is also a member.

(d) Whether a Tung Lee Construction Co Ltd (“Tung Lee”), a company controlled by Chan, should qualify (the parties’ respective stance is the same as sub‑para (c) above).

(e) Whether six firms listed in the plaintiffs’ membership list, but not found in the defendant’s membership list, and which were registered general building contractors, or registered Public Works Department contractors, should qualify (the parties’ respective stance is the same as sub‑para (c) above (but see further para 53 below)).

13.  The contractors referred to in para 12(a) and (b) above are registered with the Building Authority, while those referred to in para 12(e) above were registered with the Public Works Department (now known as the Development Bureau).

Relevant clauses in the A/A

14.  As the parties correctly point out, the proper determination of this dispute depends almost entirely on the construction of the provisions of the A/A prescribing the qualifications of the Association’s members.  The following clauses have been referred to by the parties.

15.  Clause 6:

“A firm shall be eligible for admission as and to be a ‘Member’ …, or for transfer to that class, if and so long as it possesses one of the following qualifications, that is to say:

(a) (i) That it has been registered in the list of the Public Works Department Contractors; and

(ii) That it has been duly proposed and seconded on the appropriate form by ‘Members’ to which it is personally known.

(b) That it carries on business as bona fide contractor, having been registered with the Building Authority as a registered contractor, and that [its] proprietor or manager is generally recognized as an efficient and well experienced building contractor, having first been duly nominated as above on the appropriate form.”

Clause 7:

“A firm shall be eligible for admission as and to be an ‘Associate Member’ … if and so long as it possesses one of the following qualification, that is to say … it is in business in some branch of the building industry either as a sub‑contractor or as a trade specialist; and … has been duly proposed .. and seconded … [or] it is in business as building material supplier, having first been duly nominated … ”.

16.  Further to the above:

(1) clause 8 prescribes the appropriate forms of application for admission;

(2) whoever wishes to be admitted has to complete the appropriate form and be duly proposed and seconded (Clause 9); and

(3) it is for a council meeting to decide the application for admission by ballot (Clause 10).

17.  The clauses relating to the termination of the Association’s membership are also relevant:

(a) Clause 24 requires two months’ written notice to be given by a member.

(b) Membership is non-transferrable (Clause 25).

(c) Neglect to pay money due to the Association for 12 months may result in the suspension of membership privileges.  The council may by written notice appoint a payment time; any default shall result in cessation of membership (Clause 26).

(d) A member’s bankruptcy or insolvency or entering into arrangement with creditors will result in cessation of membership (Clause 27).

(e) Clause 28 stipulates that (1) membership shall cease upon criminal conviction, or (2) a member may be “disciplined” by the council upon “complaint”, investigation, and (if appropriate) hearing, on good cause having been shown.

The plaintiffs’ case

18.  This can be summarized as follows.

19.  In relation to para 12(a) and (b) above (registered specialist contractors and registered minor works contractors), these contractors are firms falling within Clause 6(b) (bona fide contractor, having been registered with the Building Authority)).  For this reason, they should qualify as “full members”.

20.  In relation to para 12(c) above (Chan Shum Kee), Chan Shum Kee has not undergone the prescribed procedure for its admission.  The Association earlier allowed Chan to be its representative only because it has been misled by Chan to believe that Chan Shum Kee was operated by the same individuals who operated Tung Lee (when Tung Lee’s membership was “replaced” by Chan Shum Kee).

21.  In relation to para 12(d) above (Tung Lee), it is no longer a registered contractor; as such, its membership should cease at the same time.

The defendants’ case

22.  The A/A is in the nature of a contractual document: Holmes v Keyes [1959] Ch 199, 215.  As such, the true meaning of its terms depends on their proper construction; as a matter of law, construction is the process of ascertaining what the reasonable man understands to be the meaning of the terms in the factual matrix in which the contract was entered into: Jumbo King Ltd v Faithful Properties Ltd and Others (1999) 2 HKCFAR 279, 296.

23.  When the Association was incorporated (in March 2000):

(1) The Public Works Department (since renamed as the Development Bureau), then responsible for public construction works, used to maintain a list of approved contractors (for five categories of work) and another list of approved suppliers and specialist contractors.

(2) The Buildings Department, responsible for the regulation and supervision of certain private construction works, was in the process of removing the former single list of registered building contractors, and creating a list of registered general building contractors, and another of specialist contractors.

24.  A list for minor works contractors was created and kept by the Buildings Department only since 2009.  As the name implies, the contractors are to carry out the minor works specified in the respective register in which they are registered, or specialist work (as the case may be).

25.  The overall scheme of the A/A should be understood in the context of the two tiers of membership (full and associated members) which have been created.  Given such membership structure, minor works contractors and specialist contractors should properly be “associate members”, and not “full members”.

26.  Further, the A/A limit the Association’s membership to:

“… persons and firms of Chinese organization and proprietorship and carrying on business as building contractors” (clause 4 thereof).

The term “Building Contractor” has been defined by the A/A to mean:

“… one who is engaged as a builder in the capacity of a general building business proprietor, partner or director” (clause 2 thereof).

27.  These clauses of the A/A underline, and should be read together with, the different requirements laid down respectively by Clause 6 thereof (for full membership) and Clause 7 thereof (for associate membership).

28.  The totality of the clauses in the A/A therefore shows that full membership should be:

“… [confined] to persons and firms of Chinese organization and proprietorship and carrying on business as building contractors … ” (para 46, skeleton arguments of Chan and Chan Shum Kee).

The phrase “building contractors” should be read as meaning only those who are engaged in “general building business”.

29.  As regards para 12(d) above, it cannot be disputed Tung Lee has earlier been admitted to be a member of the Association.  The clauses in the A/A concerning the termination of membership should be read as a comprehensive scheme.  Thus, since the only express mechanism for termination which is applicable to the case of Tung Lee is Clause 24 (termination by written notice), Tung Lee’s membership still subsist because no termination notice has been given.

Relevant factual matrix

30.  The factual matrix relevant to the construction of the clauses of the A/A of importance to the dispute herein have been set out in para 6 and 23 to 24 above and will not be repeated.

Dispute 1: who should/should not be full members

31.  In contending for a wider spectrum of contractors which can qualify as “full members” (and hence are entitled to vote at the AGM), the plaintiffs place emphasis on the wide meaning given to:

(a) The phrase “building contractor” by the A/A: one who is engaged as a builder in the capacity of a general building business proprietor, partner or director (Clause 2 thereof) (see also para 26 above).

(b) The phrase “building trade” by the M/A: includes the trade of builders and of contractors for the execution of public and private works, and all ancillary and allied trade, and every branch of any such trade (para (a) thereof) (see also para 7 above).

32.  I agree with the plaintiffs’ above argument to the extent that those clauses are intended to cast a wide net.  First, the wide objects of the Association are consistent with a wide spectrum of the tradesmen being eligible for membership.  Secondly, the language of the objects set out in the M/A (especially para (a) thereof), in particular the use of phrases like:

(1) “public and private works”;

(2) “all ancillary and allied trade”;

(3) “every branch of any such trade”,

shows such an intention.

33.  But such an argument still does not sufficient answer the Association’s expressed differentiation of its membership into two tiers (Clauses 6 and 7, the A/A), nor does it address the different language respectively used in those clauses.

34.  The requirements of Clause 6(a) are straightforward and simple: essentially a registration with the Development Bureau (formerly the Public Works Department) as “Public Works Department Contractors” will suffice.  In view of the two different lists maintained by the Bureau/Department, the use of words in capital must have been intentional (this is accepted by the plaintiffs (para 42, plaintiffs’ skeleton submissions)).

35.  On the other hand, Clause 6(b) (concerning what can be called “Buildings Department contractors”) requires the additional matters below (apart from registration):

(a) its business is a bona fide building contractor (this is the combined effect of Clauses 2, 4 and 6(b)); and

(b) its owner or manager is generally recognized as efficient and well experienced as such.

36.  Those additional matters cannot be the same matters which the Buildings Department has to consider in its registration process; otherwise there would have been no need to set them out expressly in Clause 6(b).  Further, the power conferred by Clause 10 on the Association’s council meeting to decide on admission applications supports such a conclusion.  The council is the body to consider (among other things in its deliberation on admission applications) whether the Clause 6(b) applicant’s business satisfies also those additional matters.  In relation to Clause 6(b) of the A/A, the applicant’s business must be bona fide a “building contractor”, which should mean a builder with “a general building business” (Clause 2 thereof) (also para 26 above).

37.  The plaintiffs have not contended that the registered minor works contractors or the registered specialist contractors are engaged in the “general building business”; there is no evidence showing the same either.

38.  By virtue of the above matters, I agree with the defendants and disagree with the plaintiffs concerning the eligibility of registered minor works contractors and registered specialist contractors to apply to be the Association’s full members.

Dispute 2: Chan Shum Kee

39.  The defendants have not responded to this aspect in their skeleton arguments.

40.  It being undisputed:

(1) Despite the earlier representation that there was a mere change of name from Tung Lee to Chan Shum Kee, so that Tung Kee’s membership was “taken over” or “transferred” to Chan Shum Kee, Tung Kee and Chan Shum Kee are in fact different entities having no common shareholders or directors.

(2) Chan Shum Kee itself has not undergone the prescribed admission application process,

the only proper conclusion is to find in the plaintiffs’ favour concerning this dispute.

41.  But this does not appear to be where the real dispute lies.  The real dispute is the defendants’ contention that Chan, in his own right, can be the Association’s council member, with which the plaintiffs disagree.

42.  In support of this contention, the defendants rely on:

(a) The special resolution of 3 October 2011.  This added Clause 60B(i) to the A/A.

(b) Clause 60B(i) appointed Chan (among eight others) to be council members for life.

Because of the added clause, (so the defendants say) Chan has been appointed in his personal right:

“His life membership is entrenched in the Articles and is not pegged on the membership of [Tung Lee/Chan Shum Kee] … ” (para 53, the skeleton arguments of Chan and Chan Shum Kee).

The defendants then submit (not as regards Chan’s right to vote at the AGM):

“… [Chan] has the locus standi to make submissions on [the Association’s] issues relating to [its] internal affairs” (para 55, the skeleton arguments of Chan and Chan Shum Kee).

43.  For the reasons given below, I disagree with the above.  Clause 60B consists of two sub‑clauses. Sub‑clause (i) states:

“Notwithstanding anything to the contrary, as a recognition of their significant contributions towards the purchase of the land property [that is, the Association’s premises], the following [9] members be appointed as Council members for life … ”

Sub-clause (ii) states:

“The unanimous consent of the nine Council members as stated in 60B(i) must be obtained for [the] sale of [the Association’s premises] as long as they remain Council members”.

(emphasis supplied)

44.  Several aspects of the language used in Clause 60B militate against the defendants’ contention:

(1) the appointments were expressly tied to the contributions towards the purchase of the Association’s premises (and that matter only);

(2) the life members’ “unanimous consent” was expressly about the sale of the Association’s premises (and that matter only); and

(3) the life members’ above right continues “as long as they remain Council members” (language such as “during their lifetime” has not been used).

45.  The true meaning of Clause 60B is therefore, first, it confers on the life members in effect a veto right in relation to the sale of the Association’s premises.  Secondly, (having reached the conclusion that there is only a limited veto right), it is unnecessary to determine the true meaning of “as long as they remain Council members” in Clause 60B(ii); but it is arguable the life members will lose that veto right if they stop being council members in accordance with the other clauses of the A/A.

46.  The dispute herein has nothing to do with the sale of the Association’s premises; I therefore do not consider Chan should enjoy any personal right in this application.  Any right related to other matters must be dependent on Chan Shum Kee’s or Tung Kee’s membership at the Association (and Chan’s capacity as their representative).

Dispute 3: Tung Lee

47.  The focus of dispute here is the manner of, and/or circumstances for, cessation of membership.

48.  The clauses in the A/A regarding the termination of membership have been referred to in para 17 above.

49.  The gist of the defendants’ case has also been summarized in para 29 above and will not be repeated.

50.  For the reasons given below, I disagree with the defendants, and find that Tung Lee has “lost” its membership when it was no longer registered with the authorities (be it the Works Bureau in 2002 or the Buildings Department) in 2006.

51.  First, there is no good reason for Clause 24 (termination by written notice) to be read such that, in essence, it has an overriding effect over Clauses 2 and 4 (para 26 above).  The reverse would rather make more sense. After all, as the defendants accept, the Association is a trade association of building contractors.  It would be quite extraordinary for someone who is not (or is no longer) a building contractor to remain as its member unless the Association serves notice to terminate its membership.  Very clear language would be required for such an unusual meaning to be given.

52.  Secondly, to construe Clause 24 in the manner contended by the defendants may bring about rather perverse results.  Besides “criminal conviction” (which will result in an immediate cessation of membership), Clause 28 states that a member can be “disciplined” on “good cause” being shown.  If Clause 24 were to be read as the only mode for termination where other express modes of “automatic” termination have not been provided for (namely, Clause 26 (payment default despite appointed time), Clause 27 (bankruptcy or insolvency and the like) and Clause 28 (criminal conviction)), it can mean that “discipline” in Clause 28 does not include a power to terminate membership without notice (it is unclear if para 48(d), the skeleton arguments of Chan and Chan Shum Kee in fact puts forth such an argument).

Dispute 4: registered contractors

53.  As regards the six registered contractors which do not appear on the defendants’ list, the defendants state in their skeleton arguments they no longer have objection to them being considered as full members (para 57 to 59 thereof). Accordingly, a finding in the plaintiffs’ favour is made here.

Conclusion

54.  The conclusion reached herein are as set out in para 38, 40, 46, 50 and 53 above.

Other matters

55.  The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the decision and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

Costs

56.  The parties agree that costs should only be dealt with after this decision has been handed down.

57.  For this purpose, the following directions are given:

(a) the plaintiffs be at liberty to lodge with court and serve skeleton submissions on costs within 14 days from today;

(b) Chan and Chan Shum Kee be at liberty to do so within 14 days thereafter; and

(c) the plaintiffs be at liberty to lodge with court and serve reply submissions (if so advised) within 7 days thereafter.