CHAN WAI HUNG as manager of HOP YI TONG v. CHAN OI FONG AND OTHERS

HCA 764/2016

[2018] HKCFI 1897

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 764 OF 2016

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J U D G M E N T

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Introduction

1.  This is the Plaintiff’s application by summons dated 25 August 2017 for summary judgment under RHC O 14 r 1 against the 3^rd Defendant for the reliefs sought in the Re‑Amended Statement of Claim[1].

2.  The Plaintiff’s case is that in or about mid‑October 2015, the 3^rd Defendant has wrongfully entered into and taken possession of the Suit Lots (as defined below) by carrying out construction works thereon without the consent, permission or authorization of Hop Yi Tong (“Tong”).  The Plaintiff therefore claims against the 3^rd Defendant for:

(1)   Vacant Possession of Lot 1710 B, C, D & E of DD132 (“Suit Lots”).

(2)   An order restraining the 3^rd Defendant from entering, using, parking and/or trespassing upon the Suit Lots.

(3)   An order that the 3^rd Defendant do forthwith remove all articles stored or placed on the Suit Lots.

(4)   Damages for trespassing the Suit Lots from 15 October 2015 until the delivery up of vacant possession.

3.  The application is opposed on the basis of:

(1)   the “fraud exception” under RHC O 14 r 1(2)(b);

(2)   the Plaintiff’s lack of authority to bring or continue the present proceedings, including making the present application; and

(3)   issues to be tried/defence on the merits. 

Background

4.  The Tong is and at all material times was the registered owner of inter alia Lot 1710 of DD132 (“Lot 1710”) situated at Kei Lun Wai, Tuen Mun, New Territories.  It was established as a t’ong by its founding members who contributed capital (“Founding Members” or “Contributors”) to enable the Tong to acquire land in the New Territories ie Lot 1698 to 1717 of DD132 (“Tong Lots”) in order to build houses on them for its members and their descendants.  On the evidence, the Tong Lots were acquired from the Hong Kong Government in the early 1910s and Lot 1710 is one of the Tong Lots.

5.  Generally speaking, in respect of land in the New Territories, t’ong is a type of trust established under Chinese customary law.  The beneficiaries of the trust are the founding members who created the t’ong and their living male descendants from time to time and the trustees are its managers: Chu Tak Hing & Ors v Chu Chan Cheung Kiu & Ors [1968] HKLR 542; Leung Kuen Fai v Tang Kwong Yu (or U) T’ong or Tang Kwong Yu Tso [2002] 2 HKLRD 705; Tang Kam Wah & Ors v Tang Ming Yat and Hung Yat Car Park Company Ltd, unrep, HCA 10141 of 1998, 26 November 2002, Chu J (as she then was) at [68].

6.  It is not in dispute that managers of the t’ong, as trustees, must act unanimously: Snell’s Equity 33^rd Ed paras 10‑015 and 28‑002; Tang Kam Wah & Ors v Tang Ming Yat and Hung Yat Car Park Company Ltd supra at [60]‑[61] and [72].  Further, the appointment of a t’ong’s managers must be reported to the Home Affairs Department, approved by the Secretary for Home Affairs and registered under Section 15 of the New Territories Ordinance, Cap 97 (“NTO”) before the managers are recognized as such.

7.  Section 15 of NTO provides:

“ Whenever any land is held from the Government under lease or other grant, agreement or licence in the name of a … t’ong, such … t’ong shall appoint a manager to represent it. Every such appointment shall be reported at the appropriate New Territories District Office of the Home Affairs Department, and the Secretary for Home Affairs on receiving such proof as he may require of such appointment shall, if he approves thereof, register the name of the said manager…”

8.  By an Approval of Appointment of Manager registered in the Land Registry on 9 October 1996 by Memorial No. TM740105 (“1996 Approval”), Chan Wing Cheung, Chan Sun, Chan Yuen Chi, Chan Wing Hang, and Chan Chun Ip were approved as managers of the Tong.  

9.  By an Approval of Appointment of Manager of the Tong registered in the Land Registry on 23 November 2010 by Memorial No. 10112301810020 (“2010 Approval”), the Plaintiff, Chan Yuen On, Chan Yuen Ki and Chan Hon Wing were approved as managers of the Tong to replace the deceased manager Chan Sun and the retired managers Chan Yuen Chi, Chan Wing Hang and Chan Chun Ip.

10.  According to the Land Register as at the date of the hearing ie 1 March 2018, there was no further Approval of Appointment of Manager of the Tong registered in the Land Registry after the 2010 Approval.  It would therefore appear from the public records that since the 2010 Approval, the managers of the Tong have been and still are:

(1)   Chan Wing Cheung (whose appointment was approved in October 1996 and who was not among the deceased or retirees in November 2010);

(2)   the Plaintiff;

(3)   Chan Yuen On;

(4)   Chan Yuen Ki; and

(5)   Chan Hon Wing.

Fraud exception

11.  While strictly speaking the cause of action relied upon by the Plaintiff is one of trespass to land, there is a preliminary jurisdictional issue as to whether the present action includes “a claim by the plaintiff based on an allegation of fraud” within the meaning of RHC O 14 r 1(2)(b) so that summary judgment is not available to the Plaintiff.

12.  In Pacific Electric Wire & Cable Co Ltd v Harmutty Ltd [2009] 3 HKLRD 94 at [19] and [23], Rogers VP observed:

“ 19. The wording of Order 14 r. 1(2)(b) makes quite clear that what is excluded is an action where there is a claim which is based on an allegation of fraud. Two matters are clear from that. The first is that there may be one or more claims in the action and the rule envisages that one of the claims may not be based on an allegation of fraud but another may be. In those circumstances it is clear that an application for summary judgment under Order 14 will not lie. Secondly, the rule is not confined to excluding actions in which one of the claims is a claim for damages for fraud, what is excluded is any action where there is a claim in respect of which the underlying allegations on which the claim is based constitute an allegation of fraud. It is clear that if rule 1(2)(b) applies there is no jurisdiction for the court to entertain an application for summary judgment.

…

23. There are two decisions at first instance in Hong Kong in which the court had to consider Order 14 r. 1(2)(b) and where it has been held, as had Briggs CJ, that what was excluded was an action in which there was a claim based on allegation of fraud as distinct from a claim for fraud. In Peninsula Fur Trading Ltdv George Chen Dah‑shing & others HCA 3550/1987, 14 March 1988, Barnett J said that the case involved a long term thoroughly dishonest course of conduct and that although fraud was not expressly pleaded, it was an inherent allegation in the plaintiff’s case. In consequence, the action was ‘beyond question based upon an allegation of fraud and is not amenable to O.14 proceedings.’” (emphasis added)

13.  On the facts of Pacific Electric Wire & Cable Co Ltd v Harmutty Ltd, Rogers VP concluded that although the plaintiff could proceed on one or other or all of the three causes of action, namely resulting trust, constructive trust and money had and received, the action was excluded from summary judgment proceedings for the simple reason that the allegations made by the plaintiff included allegations of fraud.

14.  In Zimmer Sweden AB v KPN Hong Kong Ltd [2016] 1 HKLRD 1016 at [18(6)], the Court of Appeal confirmed that, as to what is “an allegation of fraud” for the purpose of the “fraud exception”, it is bound by Pacific Electric Wire & Cable Co Ltd v Harmutty Ltd to adopt the wide/liberal meaning.  They further held that the “fraud exception” would be engaged where what is alleged is an intentional or reckless dishonest act (or omission) done with the purpose of deceiving.

15.  This court is bound by Pacific Electric Wire & Cable Co Ltd v Harmutty Ltd and Zimmer Sweden AB v KPN Hong Kong Ltd and must similarly adopt the wide/liberal meaning of “an allegation of fraud” in the present case.

16.  At paragraphs 12, 13, 16‑18 of the Re‑Amended Statement of Claim, the Plaintiff pleaded his case as follows:

“ The Defendants conspired with others to deprive the ownership of 4 house lots from Hop Yi Tong by a Sham Agreement

12. On or before 10^th July 2012, the 1^st Defendant, the 2^nd Defendant, the 3^rd Defendant, Chan Yuen Ki and Chan Yung Fuk conspired and combined together wrongfully and with the sole or predominant intention of injuring Hop Yi Tong and/or depriving the ownership and/or possession 4 house lots from Hop Yi Tong.

13. Pursuant to and in furtherance of the conspiracy pleaded above, the 1^st Defendant, the 2^nd Defendant, the 3^rd Defendant, Chan Yung Fuk and Chan Yuen Ki carried out the following unlawful acts and means by which Hop Yi Tong was injured:

(1) By a sham Sale and Purchase Agreement dated 10^th July 2012 (the “Sham Agreement”) that was written in Chinese, in the absence of Hop Yi Tong’s authorization nor approval, the 1^st and 2^nd Defendants as vendor purportedly and wrongfully sold and conveyed 4 unspecified house lots of Hop Yi Tong to the 3^rd Defendant as purchaser at a consideration of HK$750,000.00.

Particulars

(i) Under the Agreement, the 1^st and 2^nd Defendants agreed to sell and the 3^rd Defendant agreed to buy the said 4 house lots at a price of HK$750,000.00.

(ii) Pursuant to the Sham Agreement, inter alia, the 1^st and 2^nd Defendants appointed the 3^rd Defendant as their attorney to deal with all matters regarding the said 4 house lots, by implication, including making application to Hop Yi Tong for approval of transferring the title of the said 4 house lots to the 3^rd Defendant.

(iii) The 3^rd Defendant paid the 1^st and 2^nd Defendants HK$150,000.00 upfront as deposit of purchasing the said 4 house lots.

(iv) Chan Yuen Ki and Chan Yung Fuk (陳庸福) witnessed the signing of the Sham Agreement.

(2) In or about March 2015, the 1^st and 2^nd Defendants falsely represented to Hop Yi Tong that they (a) were the descendants of the late Chan Bing Kwan (陳秉坤), (b) were entitled to the ownership of the said 4 house lots that had been given to Chan Bing Kwan (“CBK’s House Lots”), and (c) already sold the CBK’s House Lots to the 3^rd Defendant pursuant to the Sham Agreement.

…

The 1^st and 2^nd Defendants had No Title to sell CBK’s House Lots and the 3^rd Defendant was well aware of that

16. As non‑owners of the said 4 house lots (or CBK’s House Lots) and non‑members of Hop Yi Tong, the 1^st and 2^nd Defendants knew or ought to have known that:

(i) they were not the legal and/or equitable owners of CBK’s House Lots or any of the Hop Yi Tong’s house lots;

(ii) they were not entitled to sell, convey or dispose CBK’s House Lots or any of the Hop Yi Tong’s house lots to any third party in any way, shape or form;

(iii) Hop Yi Tong did not permit or authorized them to sell CBK’s House Lots or any of the house lots to the 3^rd Defendant and/or anyone on Hop Yi Tong’s behalf.

17. As a member of Hop Yi Tong and the son of a former manager, the 3^rd Defendant knew or ought to have known that:

(i) the 1^st and 2^nd Defendants were and still are not the members of Hop Yi Tong, and therefore not entitled to attain any house lot or House Right from Hop Yi Tong;

(ii) the 1^st and 2^nd Defendants had not acquired the title of CBK’s House Lots from Hop Yi Tong;

(iii) the 1^st and 2^nd Defendants were not entitled, either in their own capacity as landowners or as agents of Hop Yi Tong, to sell or transfer the title of CBK’s House Lots or any of the house lots to the him;

(iv) CKB’s House Lots were Hop Yi Tong’s properties;

(v) the disposal of the Tong’s Lots (including severance of the Tong’s Lots and transferring ownership of the Tong’s lands) was and still is subject to the unanimous approval amongst the managers for the time being;

(vi) the then managers of Hop Yi Tong did not unanimously approve transferring the title of CBK’s House Lots or any of its house lots to him.

18. In the premises, the 1^st and 2^nd Defendants were selling CBK’s House Lots without the title and the 3^rd Defendant was a mala fide purchaser.” (emphasis added)

17.  The 3^rd Defendant submits that these are serious allegations against the 1^st, 2^nd and 3^rd Defendants that they had conspired among themselves, as well as with two others, to perpetrate a fraud on the Tong.  The fraud consisted of falsely representing to the Tong that the 1^st and 2^nd Defendants are descendants of the late Chan Bing Kwan, a Founding Member of the Tong, and are entitled to sell Chan Bing Kwan’s House Lots to the 3^rd Defendant, with the intention of depriving the Tong of those House Lots. 

18.  This court agrees.

19.  It is reasonably clear to this court that the allegations of (i) conspiracy among the 1^st, 2^nd, 3^rd Defendants and two others, (ii) a Sham Agreement entered into between the 1^st and 2^nd Defendants as vendor and the 3^rd Defendant as purchaser in July 2012, (iii) the false representation made by the 1^st and 2^nd Defendants to the Tong in March 2015, (iv) knowledge on the part of the 1^st, 2^nd and 3^rd Defendants that the 1^st and 2^nd Defendants had no authority from the Tong and were not entitled to sell Chan Bing Kwan’s House Lots to the 3^rd Defendant do constitute allegations of fraud, even though the Plaintiff’s claim is pleaded as a claim in trespass.

20.  For this reason, in the view of this court, the “fraud exception” clearly applies.  If so, the Plaintiff’s present application is outside the ambit of RHC O 14 r 1.  That is sufficient to dispose of the present application.

21.  For completeness, this court will go on to briefly deal with the 2 other grounds of opposition by the 3^rd Defendant.

Plaintiff’s lack of authority

22.  At paragraph 4 of the Re‑Amended Statement of Claim, it was pleaded that “Upon the unanimous approval of the managers”, the Plaintiff was and still is duly authorized to act on behalf of the Tong to lodge this action against the 3^rd Defendant.  This is denied by the 3^rd Defendant. The issues thus raised are (i) who the managers of the Tong were when the Writ herein was issued on 23 March 2016 and when the RHC O 14 summons was issued on 25 August 2017, and (ii) whether they have unanimously approved the Plaintiff to institute and continue the present proceedings, including the making of the present application.

23.  As stated earlier, from the public records, since the 2010 Approval, the managers of the Tong have been and are Chan Wing Cheung, the Plaintiff, Chan Yuen On, Chan Yuen Ki and Chan Hon Wing.

24.  The Plaintiff’s case is that at a meeting of the villagers of the Tong held on 24 October 2015 (“October 2015 Meeting”), apart from himself, all the existing managers failed to get re‑elected.  Instead, Chan Tin Shing, Ho Siu Cheung, Chan Chun Ip and Chan Hing Choi (“4 New Managers”) were elected managers of the Tong.  Hence, according to the Plaintiff, since the October 2015 Meeting, the managers of the Tong have been and are the 4 New Managers and himself.  It is further the Plaintiff’s case that by a resolution dated 31 May 2017 signed by the 4 New Managers and the Plaintiff (“2017 Resolution”), all 5 Managers of the Tong had unanimously authorized him to continue this action against the 3^rd Defendant.

25.  However, under Section 15 of NTO, the appointment of a t’ong’s manager must be reported to the Home Affairs Department, approved by the Secretary for Home Affairs and registered under that section.  While the Plaintiff claims that the appointment of the 4 New Managers has been notified to the District Office, Tuen Mun on 24 October 2015, there is no evidence before this court that the Secretary of Home Affairs has approved their appointment.  Nor is there evidence that the requisite approval, if any, has been registered.  Indeed, according to the available public records, there was no further Approval of Appointment of Manager of the Tong registered in the Land Registry after the 2010 Approval.

26.  In view of the above, this court questioned Mr Ko, counsel for the Plaintiff, at the hearing whether the approval of the 4 New Mangers by the Secretary of Home Affairs had already been obtained.  To the credit of Mr Ko, he frankly admitted to this court that the approval of the 4 New Managers was still pending.  In these circumstances, it is futile for the Plaintiff to rely on the 2017 Resolution as giving him the necessary authority to continue the present proceedings, including the making of the present application.

27.  It is unclear whether and, if yes, when the appointment of the 4 New Managers will be approved by the Secretary for Home Affairs and registered under Section 15 of NTO.  What is reasonably clear is that, at least at the present moment, the Plaintiff is not duly authorized to act on behalf of the Tong to take legal action against the 3^rd Defendant, contrary to his assertion pleaded at paragraph 4 of the Re‑Amended Statement of Claim.

28.  For these reasons, this court is of the view that the present application must also fail.

Issues to be Tried/Defence on the merits

29.  It is trite law that in an O 14 application, the defendant bears the burden of satisfying the Court, in respect of the claim or part of the claim, that there is an issue or question in dispute which ought to be tried.  A defendant has to satisfy the Court that he has a real or bona fide defence or a fair probability/reasonable grounds that a bona fide defence exists.  On the other hand, the Court must not embark on a mini trial on affidavits.  O 14 is for clear cases ie those in which there is no serious material factual dispute and, if a legal issue, no more than a crisp legal question which can be decided summarily: Hong Kong Civil Procedure 2018 Vol 1 para 14/4/9.

30.  Apart from the allegations of fraud highlighted above, the Plaintiff’s case pleaded in the Re‑Amended Statement of Claim is essentially this:

(1)   The Tong is the registered owner of the Tong Lots, including inter alia Lot 1710 and Lot 1714 of DD132.

(2)   It is the Tong’s tradition and practice that:

(i)   Each Founding Member, based on his and his registered descendants’ continuous contributions/obligations to the Tong, had been allocated a specific number of House Lots out of the Tong Lots which entitled him to build houses thereon at his own expense.  The Founding Member and his male descendants are entitled to live there as licensees of the Tong.

(ii)   In case the specific number of House Lots given to the Founding Member had not been used up, subject to the unanimous approval of the managers and the available number of House Lots given, each registered male descendant is entitled to apply to build a house thereon at his own expense and live there as a licensee of the Tong.

(3)   The said entitlement to build houses on the House Lots and live there is known as House Rights（「管業權」）.

(4)   Notwithstanding such House Rights, the House Lots remain the property of the Tong.

(5)   By virtue of Chinese customary law, disposal of the Tong Lots was and is subject to the unanimous approval of the Tong’s managers.

(6)   The 1^st and the 2^nd Defendants were and are not members of the Tong.

(7)   As non‑members of the Tong, the 1^st and 2^nd Defendants were not the legal or equitable owners of Chan Bing Kwan’s House Lots and were not entitled to sell or dispose of them to the 3^rd Defendant.

(8)   Chan Bing Kwan’s House Lots were originally located at Lot 1714 B, C, D & E.  Under an exchange agreement between Chan Yuen Ki and the 3^rd Defendant, Chan Yuen Ki traded the Suit Lots with the 3^rd Defendant for Lot 1714 B, C, D & E.

(9)   In mid‑October 2015, the 3^rd Defendant wrongfully entered into and took possession of the Suit Lots as a trespasser.

31.  The 3^rd Defendant’s case, on the other hand, has been prolifically pleaded in his proposed Amended Defence and Counterclaim and set out his 3^rd Affirmation, the Affirmation of Chan Yuen On and the Affirmation of the 2^nd Defendant, filed in opposition to the present application.

32.  In brief, the 3^rd Defendant’s case is this:

(1)   The Tong was established as a t’ong by 39 Founding Members who contributed capital to establish the Tong and to acquire land in the New Territories.  In 1914, Fu Yi as trustee of the Tong acquired the Tong Lots from the Hong Kong Government for the 39 Founding Members to build houses for their own use. 

(2)   The 39 Founding Members allotted among themselves a proportionate number of shares of and hence interest in the Tong Lots in accordance with their respective contributions to the purchase price of the Tong Lots.  The names of the 39 Founding Members and their respective shares were recorded in the Kei Lun Wai Hop Yi Tong Share Book (“Share Book”).

(3)   By reason of their capital contributions, the 39 Founding Members were beneficial owners of the Tong Lots.  The Tong with its trustee Fu Yi were a bare trustee of the Tong Lots.

(4)   Each share entitled its owner (“Share Owner”) to select 2 House Lots out of the Tong Lots, to build a house thereon at his own costs and to solely and exclusively use occupy and enjoy the selected House Lots and the houses built on them, without the consent of the managers of the Tong or other Share Owners.

(5)   As Share Owners and beneficial owners of the House Lots, they and the subsequent owners of their shares were and are entitled to sell their shares with the rights attached thereto including the right to select the House Lots, the right to build houses thereon and the sole and exclusive right to occupy, use, enjoy their selected House Lots, without the consent of the managers of the Tong or other Share Owners.

(i)   The late Chan Bing Kwan was a Founding Member/Contributor of the Tong.  He was registered in the Share Book as a Share Owner of 2 shares. As a Share Owner of 2 shares, Chan Bing Kwan and his male descendants were and are beneficially entitled to 4 House Lots (“4 House Lots”), including the right of selection, building and sole and exclusive use, occupation and enjoyment as aforesaid.

(ii)   The 1^st and 2^nd Defendants are the male descendants ie great grandchildren of Chan Bing Kwan and are entitled to his 2 shares, beneficial interest and rights aforesaid.

(iii)  In July 2012, the 1^st and 2^nd Defendants as vendors and the 3^rd Defendant as purchaser reached an oral agreement for the sale and purchase of the 2 shares and the beneficial interest in the 4 House Lots.  It was unnecessary for the 1^st, 2^nd and 3^rd Defendants to seek the permission, consent or approval of the Tong or its managers to do so.

(iv)  The 4 House Lots were located at Lot 1714 B, C, D & E.  Since they had already been given to some other purchasers, the 3^rd Defendant was left with the choice of selecting the Suit Lots which he did.

(v)   As the 3^rd Defendant was and is entitled to sole and exclusive use, occupation and enjoyment of the Suit Lots without the permission, consent or approval of the Tong or its managers, he had lawfully entered into and taken possession of the Suit Lots.  The Plaintiff’s claim in trespass is baseless.

33.  It should be fairly obvious from this summary of the parties’ cases that there are serious disputes between them on the facts as well as on the applicable Chinese law and custom which, by virtue of Section 13 of NTO, the Court must recognize and enforce: Tang Kai Chung & Anr v Tang Chik Shang & Ors [1970] HKLR 276; Tsang Wing Lung v Tsang Lun [1992] 2 HKC 440; Tang Yau Yi Tong & Anr v Tang Mou Shau Tso & Ors [1995] 2 HKC 245.

34.  While Chinese law and custom is part of the laws of Hong Kong and the Court can find this law in authoritative textbooks and judicial decisions, it has long been the practice of the Court to take evidence on it.  In Tang Yau Yi Tong & Anr v Tang Mou Shau Tso & Ors supra at 252B‑D, Cheung J (as P Cheung JA then was) observed:

“ Proof of Chinese law and customs

Chinese law and custom is part of the law of Hong Kong and the court could find this law in authoritative textbooks and judicial decisions. In In re Tse Lai Chiu, deceased [1969] HKLR 159, Hogan CJ at p 175 held that:

It would seem, therefore, that contrary to what the Solicitor General had suggested, Chinese law was part of the law of the land.  Consequently, court could purport to find this law in authoritative textbooks as Sir Henry Gollan did in the Chak Chiu Hang case.  But there has long been the practice in Hong Kong of taking evidence on such law, a practice endorsed in a number of judicial decisions, and although this practice may be regarded as a departure from the procedure normally followed in English courts, I think it must now be regarded as an established modification based on local circumstances though it should not be taken to supplant the court’s right to inform itself by other means.  As Chinese law was part of the law of Hong Kong the court can find this law either in the form of expert evidence or in textbooks and judicial decisions.”

35.  Having considered carefully the pleadings and the evidence filed by both parties, this court is of the firm view that their disputes on the facts and on the applicable Chinese law and custom are wholly unsuitable for resolution in an O 14 application.  The factual disputes are material and serious while the legal issues are hardly a crisp legal question capable of determination summarily. O 14 applications are for clear cases.  This is clearly not such a case.

Disposition and costs order nisi

36.  For all the above reasons, the Plaintiff’s application for summary judgment must be and is hereby dismissed.

37.  There shall be an order nisi that costs of and occasioned by the application be to the 3^rd Defendant, to be taxed if not agreed, and paid forthwith.