TND GROUP LTD v. LAU CHIANG CHU, VIVIEN AND ANOTHER

DCCJ 5395/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5395 OF 2009

--------------------

BETWEEN

---------------------

DECISION

Background

1.  On 26 February 2004, an agreement was made in writing ("Agreement") between Asian Bowling Federation ("ABF") and TND Marketing Company Ltd. ("TND Marketing"). ABF is an association of members, which describes itself as the international governing body of the sport of tenpin bowling. It is an international sporting organization in Asia, with member federations from 36 countries including Hong Kong, China, Singapore, Jordan, Australia and Tunisia. The member federations of ABF are also members of the Federation Internationale Des Quilleurs ("FIQ"), which is the world governing body of bowling sports. According to its Constitution, the objectives of ABF are (inter alia) to promote interest in tenpin bowling as a sport, to generate international friendship and goodwill amongst the member federations and to promote, organize and conduct the Asian Bowling Championship every two years.

2.  ABF owns and controls the ABF Tour ("Tour"), which is a bowling tour in Asia in which top Asian bowlers participate and obtain Asian ranking points by reason of their participation or the results achieved in the Tour. The Tour is an event which takes place annually in different cities throughout Asia, and ABF owns and/or controls the commercial rights in the Tour.

3.  TND Marketing was in the business of promoting, organizing and marketing sporting events in Asia.  Under the Agreement, TND Marketing was appointed on an exclusive basis for a term of 3 years to provide "organisational, management and marketing services" in relation to the Tour for the years 2004, 2005 and 2006. In return, ABF agreed to pay a management fee and commission ("Service Fee") to TND Marketing under the Agreement.

4.  The Agreement was signed by the President of ABF, Mdm. Lau ("Lau"), and Mr. Santos, the Secretary General of FIQ, as the authorized representatives of ABF and on ABF's behalf.

5.  TND Marketing claims that a sum of US$70,000 is due from ABF, representing the outstanding balance of the Service Fee under the Agreement. On 24 December 2009, these proceedings were instituted by TND Group Ltd. ("TND Group"), the assignee of TND Marketing under a Deed of Assignment whereby various rights including the outstanding management fees due under the Agreement were assigned and transferred to TND Group. By an amended Writ dated 9 March 2010, Lau and Mdm. Leung (the Honorary Secretary General and Treasurer of ABF) ("Leung") were named as 1st Defendants, sued on their own behalf and on behalf of all of the members of ABF as at 26 February 2004 (the date of the Agreement).

6.  ABFT Limited ("ABFT Ltd.") is named as 2nd Defendant in the Writ. According to the Amended Statement of Claim, Lau is a director of ABFT Ltd, and it was at Lau's request that TND Marketing agreed to issue invoices for the Service Fee to ABFT Ltd. for payment. The Amended Statement of Claim pleads that representations had been made by ABFT Ltd. through Lau that payments to be made by ABF to TND Marketing under the Agreement would be made by ABFT Ltd. on ABF's behalf, and that there is a collateral contract between TND Marketing and ABFT Ltd. for payment of the Service Fee.

7.  Alternatively, TND Marketing claims that Lau had made representations personally, on her own behalf, that payments to be made by ABF to TND Marketing under the Agreement would be made by ABFT Ltd. on behalf of ABF.

8.  The Defendants applied by a Summons issued on 2 March 2010 (" Summons") to strike out TND Group's claim against the Defendants under Order 18 rule 19 and the inherent jurisdiction of the Court. Alternatively, they applied for an order that Lau and Leung should cease to be parties in the action on the ground that they have been improperly or unnecessarily joined. TND Group have in turn applied for a declaration that Lau and Leung are, for the purposes of these proceedings, proper representatives of all other members of ABF as at the date of the Agreement.

Issues

9.  From the arguments raised at the hearing, the issues for determination on the Summons are:

(1)   whether Lau and Leung have been properly joined as representatives of the members of ABF in this action;

(2)   whether TND Group's claims against Lau, Leung and ABFT Ltd. disclose no reasonable cause of action, are frivolous or vexatious or constitute an abuse of the process of the Court, and should be struck out.

Applicable legal principles

10.  There can be no dispute that it is only in plain and obvious cases that the court should exercise its summary powers to strike out the endorsement on any writ or any pleading under Order 18 rule 19. Disputed facts are to be taken in favor of the party sought to be struck out. The court should not decide difficult points of law in striking out proceedings. The claim must be obviously unsustainable, the pleading unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out. It is for the party seeking to strike out to demonstrate that the case is a plain and obvious one in which the other party's claim is bound to fail. If a statement of claim does not disclose the cause of action relied on, an opportunity to amend may be given, even though the formulation of the amendment is not before the court (para. 18/19/4, Hong Kong Civil Procedure).

11.  In relation to the joinder of parties, Order 15 rule 6 (1) provides that no action shall be defeated by reason of the misjoinder or nonjoinder of any parties, and the Court may determine the issues or questions in dispute so far as they affect the rights and interests of the parties to the action. The Court may, under Order 15 rule 6(2) (b) (i) order that any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon.

12.  Under Order 15 rule 12 (1), where numerous persons have the same interest in any proceedings, the proceedings may be begun, and, unless the Court otherwise orders, continued, by or against any one or more of them as representing all or as representing all except one or more of them. The Court may, under Order 15 rule 12 (2), at any stage of the proceedings appoint any one or more of the defendants or other persons as representing whom the defendants are sued to represent all, or all except one or more, of those persons in the proceedings, and where the Court appoints a person not named as a defendant, it shall make an order adding that person as a defendant under Order 15 rule 6. The Court may compel a person to represent the other members even against his/her own wishes (Wood v. McCarthy [1893] 1 QB 772).

Whether Lau and Leung have been properly joined as representatives of the members of ABF in this action

13.  The gist of the Defendants' attack on the claims made by TND Group is that neither Lau nor Leung, who are named as the representatives in this action of the members of ABF, has any interest in common with the members of ABF.

14.  It is clear that ABF is an unincorporated association and, as such, is not a legal entity which can sue or be sued in its name (London Association for Protection of Trade v. Greenlands, Ltd. [1916] 2 AC 15). The unincorporated association is, in the eyes of the law, the sum total of its members and the rights and liabilities of the members in relation to contracts made on their behalf are, prima facie, joint and all members should be included as claimants, and conversely, as defendants (Bowardley Enterprises Ltd. v. Millennium Group Ltd., unreported, DCCJ 3039/2004, 24 June 2005 at para 23(a)).

15.  In Hong Kong Kam Lan Koon Ltd. v. Realray Investments Ltd. [2004] 2 HKC 673 and Re Pritt, Morton v. National Church League (1915) 31 TLR 299, it has been stated that when it is necessary to sue an unincorporated association for the purpose of determining rights the proper course is to sue a responsible official, such as the treasurer or the secretary on behalf of the Association. However, Counsel for the Defendants in this case highlights the fact that the unique and perhaps distinguishing situation for ABF is that its members are federations or associations and, in a few cases, incorporated bodies, and that importantly, Lau and Leung are not themselves individual members of ABF. Lau's evidence is that the Hong Kong member of ABF is an incorporated entity, the Hong Kong Tenpin Bowling Congress Ltd., of which Lau is one of the directors, but which is a legal entity separate to Lau and Leung. As such, it is argued that neither Lau nor Leung has the same contractual liability, nor the same interests as the members of ABF, and that defences available to ABF (or its members) are not available for Lau and Leung. Counsel for Lau and Leung argues that Lau and Leung simply do not have the same interest in the proceedings as those whom TND Group claim they represent.

16.  I have not been referred to any evidence of any claim having been made at any time, before or after the issue of these proceedings, by or on behalf of ABF or any of its members that Lau was not authorized to enter into the Agreement with TND Marketing.

17.  As stated in paragraph 15/12/1 of the Hong Kong Civil Procedure, the rule as to representative proceedings should be treated as being not a rigid matter of principle but a flexible tool of convenience in the administration of justice, and should be applied, not in any strict or rigorous sense, but according to its wide and permissive scope (per Megerry J in John v. Rees [1970] Ch. 345, and followed in Hong Kong Kam Lan Koon Ltd. v. Realray Investments Ltd. [2004] 2 HKC 673). What is important is to have before the court, either in person or by representation, all those who would be affected, so that all should be bound by the result.

18.  The "same interest" test should hence be applied permissively and not rigidly. In his judgment in John v. Rees, Megerry J quoted the classic statement made by Lord Macnaghten in Bedford (Duke of) v. Ellis [1901] A.C. 1, at p.8:

"The old rule in the Court of Chancery was very simple and perfectly well understood. Under the old practice the court required the presence of all parties interested in the matter in the suit, in order that a final end might be made of the controversy. But when the parties were so numerous that you never could ‘come at justice’, to use an expression in one of the older cases, if everybody interested was made a party, the rule was not allowed to stand in the way. Given a common interest and a common grievance, a representative suit was in order if the relief sought was in its nature beneficial to all whom the plaintiff proposed to represent. … As regards defendants, if you cannot make everybody interested a party, you must bring so many that it can be said they will fairly and honestly try the right."

19.  Since Bedford (Duke of) v. Ellis, the interpretation and application of the requirement that those represented should have "the same interest" as the representative has become increasingly liberal (e.g. Prudential Assurance Co. Ltd. v. Newman Industries Ltd. [1981] Ch. Ch. 229; Irish Shipping Ltd. v. Commercial Union Assurance Co. Plc [1991] 2 Q.B. 206). In John v. Rees [1970] Ch. 345 itself, Megerry J was satisfied that all the members of the party and the unincorporated association in question had a common interest in having the issue determined in the proceedings, and considered that the important thing was to have before the court, either in person or by representation, all who will be affected by the decision. The flexible approach adopted in John v. Rees has continued to be followed and applied in the English court in the more recent case of Independente Ltd v. Music Tradition On-Line (HK) Ltd. [2003] EWHC 470 (Ch).

20.  The courts have come to accept that the existence of different defences may be indicative of a lack of common interest but that it may not necessarily be conclusive. It is sufficient to show that there is some matter of commonality and that the defendants named and the represented persons have a community of interest in the determination of any substantial question of law or fact that arises in the proceedings (Trustees of the Roman Catholic Church v. Ellis & Anor (2007) 64 ACSR 346; Irish Shipping Ltd v. Commercial Union Assurance Co Plc [1991] 2 QB 206).

21.  In the aftermath of the Civil Justice Reforms in Hong Kong, there is no justification to adopt a more rigid approach when applying Order 15 rule 12 (1) and in the interpretation of the requirement that those represented should have "the same interest" as the representative. Bearing in mind the underlying objectives of the Rules of the High Court and the corresponding Rules of the District Court, being to increase the cost-effectiveness of any practice and procedure to be followed in relation to proceedings before the Court, to ensure that a case is dealt with as expeditiously as is reasonably practicable, to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings, and to ensure that the resources of the Court are distributed fairly, I consider that it is just, fair, proportionate and cost effective to have Lau and Leung to represent in these proceedings the members of ABF as at the date of the Agreement.

22.  Although it is claimed by Lau and Leung that they are not, individually, members of ABF, Lau was a signatory to the Agreement and, on the face of the pleadings and the evidence, a major if not the key player in the negotiation and performance of the Agreement. She was at the material time the President of the Executive Committee of ABF, having served as President from 1996 to July 2004. Lau remains the Honorary Life President of ABF. According to the Constitution of ABF, ABF consists of the General Assembly and an Executive Committee. The President of the Executive Committee is elected by the General Assembly. The Executive Committee manages the affairs of the ABF. The President is the chief executive and administrative officer of the ABF, and is stated in the Constitution to represent ABF in all legal matters. Leung is the Secretary General of ABF, and by its Constitution, the Secretary General keeps accounts of all the receipts and disbursements of the funds of ABF.

23.  Clearly, Lau and Leung were responsible and key officers of ABF at the material time of the Agreement. Lau in particular was familiar with the operations of the Agreement, and the payments made under the Agreement by both ABF and ABFT Ltd. (as its director). As the Secretary General responsible for the accounts and disbursements of ABF, Leung would be expected to know of the payments made by and due from ABF. As President and Secretary General respectively of ABF and held out as such to third parties dealing with ABF, and in Lau's case as a signatory to the Agreement, Lau and Leung obviously have an interest in the Court's determination of the issues in dispute in these proceedings, namely the rights and liabilities of ABF under the Agreement, whether ABF is liable to make payment of the outstanding Service Fee claimed to be due under the Agreement, and whether ABF has a good defence or even counterclaim to TND Marketing's claim for payment on the basis of the services rendered by TND Marketing under the Agreement. If ABF is not liable under the Agreement to pay for TND Marketing's services by virtue of the fact that such services were defective or delayed, I would envisage that Lau and Leung have the same grievance as the members of ABF, which members they represented at the time of the signing and performance of the Agreement. A resolution of the issues in dispute relating to the Agreement and the liability of the members as well as Lau personally would be beneficial to all concerned.

24.  As the signatory to the Agreement and the person most familiar with the workings of the Agreement, and against whom claims of personal liability are made in paragraph 33(c) of the Amended Statement of Claim, Lau is a party who will be affected by the findings to be made in these proceedings and whose presence before the Court is clearly necessary.

25.  To conclude, I am satisfied at this stage that Lau and Leung are properly named as representatives of ABF, and have not been improperly or unnecessarily joined as properties. It is always open to any member of ABF to apply to the Court at a later stage of the proceedings, to seek to be joined as a party if it is alleged that it should not be represented by Lau and Leung for any reason, or to seek on grounds being shown to be the representative of some or all members of ABF (John v. Rees [1970] Ch. 345, 371; Wilson v. Church [1878] 9 Ch.D. 552, 559).

26.  By virtue of the amendments made to the Writ and the Statement of Claim on 11 March 2010, Lau and Leung are sued on their own behalf and on behalf of all other members of ABF as at 26 February 2004, being the date of the Agreement. I would add that no arguments have been raised at all as to the operative or relevant date for the purpose of the representation, whether it should be the date of the Agreement or some other date when the cause or causes of action arose. Suffice it to say at this stage, for the purpose of the striking out, that on the face of the Amended Statement of Claim, Lau was involved from the time of the Agreement to the time of the alleged representations relied upon by TND Marketing to support the collateral contract and warranty alleged, to the date of the meeting in January 2007 referred to in paragraph 21 of the Amended Statement of Claim when ABF and ABFT Ltd. allegedly agreed to pay the outstanding Service Fee by installments commencing in March 2007, up to the signing of the Audit Confirmation in around September 2009. Coupled with the fact that Lau was President up to July 2004 and remains Honorary Life President of ABF up to the date of hearing, I am satisfied that there is an arguable case that she is properly joined as the representative of ABF.

Whether TND Group's claims against Lau, Leung and ABFT Ltd. disclose no reasonable cause of action, are frivolous or vexatious or constitute an abuse of the process of the Court, and should be struck out

27.  I will consider this issue under 3 sub-headings:

(1)   Is there a cause of action against Lau and Leung?

(2)   Is there a cause of action against ABFT Ltd.?

(3)   Is there a cause of action vested in the Plaintiff, TND Group?

Is there a cause of action against Lau and Leung?

28.  For the reasons set out in greater detail under the first issue above, I am not satisfied that it is plain and obvious that TND Group's claims against Lau and Leung in their representative capacity are unarguably bad and impossible to succeed.

29.  I am not satisfied that the Amended Statement of Claim discloses no reasonable cause of action against Lau personally for breach of the collateral contract or warranties as defined. When an agent purports to enter into an agreement for a stated principal, there is an implied warranty of his authority to do so, and that the principal will be bound by the contract (Bowstead and Reynolds on Agency, para 9-031; 9-060). Any defect or inconsistency between the pleading in paragraph 33 (c) as to Lau's breach of warranty, and in paragraph 12 (a) and (d) of the Amended Statement of Claim, can be cured by amendment.

Is there a cause of action against ABFT Ltd.?

30.  In relation to the claim against ABFT Ltd., the Amended Statement of Claim pleads in paragraph 30 that ABFT Ltd. issued to TND Group on 3 September 2009 an Audit Confirmation, stating a debt of US $70,000 and seeking TND Group's confirmation that the sum of US$ 70,000 was due and owing to TND Group. The Audit Confirmation was signed by TND Group and returned to ABFT Ltd. for payment of the debt. In my judgment, this discloses an arguable cause of action in itself.

31.  It is further pleaded that ABFT Ltd., acting through Lau as its authorized representative, had represented to TND Marketing that payments to be made by ABF under the Agreement would be made by ABFT Ltd.. On TND Marketing's pleaded case, this constitutes an implied or collateral contract or collateral warranty by ABFT Ltd. for payment.

32.  Counsel for the Defendants has highlighted the fact that as pleaded, TND Group’s case is that under the collateral contract or collateral warranty, payment was to be made by ABFT Ltd. "on behalf of ABF", i.e. as agent only.

33.  Even if an agent purports to act on behalf of a disclosed principal, the mere fact of its acting as agent does not necessarily negate its involvement in the transaction. The oft cited passage of the judgment of Lord  Scarman in Yeung Kai Yung v. Hong Kong and Shanghai Banking Corporation [1981] A.C. 787 at 795 states:

"It is not the case that, if a principal is liable, his agent cannot be. The true principle of law is that a person is liable for his engagements (as for his torts) even though he acts for another, unless he can show that by the law of agency he is to be held to have expressly or implied negatived his personal liability."

34.  In my judgment, it is arguable that by virtue of ABFT Ltd.'s representation that it would make payment of the Service Fee for or on behalf of ABF, it assumed personally liability as principal for the payment, or otherwise was in breach of an implied warranty of authority. The extent of ABFT Ltd.'s liability as purported agent is clearly a matter to go to trial, as opposed to being obviously unarguable.

Is there a cause of action vested in the Plaintiff, TND Group?

35.  Finally, it was argued that TND Group, as assignee of TND Marketing, has not disclosed any reasonable cause of action against Lau, Leung or ABFT Ltd.

36.  TND Group relies on a Deed of Assignment dated 10 May 2007 ("Assignment"), which is referred to in paragraph 19 of the Amended Statement of Claim, whereby TND Marketing assigned to TND Group its "legal and beneficial ownership of all rights, title and interest in (the outstanding fees under the Agreement, totalling US $70,000), and the right to receive the same".

37.  According to the Amended Statement of Claim, the Assignment was made for the purpose of TND Marketing's solvent reorganisation, and was permitted under the Agreement.

38.  TND Group claims that on 14 December 2009, it had through its solicitors given notice to ABF of its rights to the outstanding Service Fee under the Assignment, and that a copy of the Assignment was sent to ABF and its Executive Committee. I bear in mind that in a striking out application, any disputed facts are to be taken in favor of the party sought to be struck out, and the court should not be required to conduct a minute and protracted examination of the documents and facts of the case.

39.  The Assignment appears to be an absolute assignment in writing of a debt and other legal chose in action. If notice in writing had been given to ABF, the debtor, as alleged by TND Group, then by virtue of section 9 of the Law Amendment and Reform (Consolidation) Ordinance, the Assignment has the effect of transferring to the assignee, TND Group, as from the date of the notice (on 14 December 2009 as TND Group claims, and before the commencement of these proceedings), all rights in  the debt of US$70,000, including the right in the assignee's name to take action to recover the debt, and all legal and other remedies for the debt. It is arguable that TND Marketing's rights in the debt (i.e. the outstanding Service Fee)  and its remedies which are transferred under the Assignment include the right to take action to recover the sum due from the members of ABF represented by Lau and Leung, and from whomsoever the sum is due in law, including ABFT Ltd.. I am not in any event persuaded that this is an impossible claim, or that it is a plain and obvious case fit for striking out.

40.  I find that TND Group has an arguable cause of action against Lau, Leung and ABFT Ltd., and there is no other evidence to show that the claims are frivolous, vexatious or an abuse of the process of the Court.

Conclusion

41.  For the above reasons, I dismiss the Summons, and grant the order sought by TND Group: that Lau and Leung are proper representatives of all other members comprising ABF as at 26 February 2004.  The costs of the Summons for striking out, including the costs of the hearing on 3 September 2010, and the reserved part of the costs of the Summons issued by TND Group on 4 March 2010 are to be paid to TND Group with certificate for Counsel.  The Defendants are to file their Defence within 21 days from the date of the handing down of this Decision.