ANTHONY FRANCIS LI and CLARENCE A LI, Managers of LI TO WAN TSO v. KWOK WUI KNITTERS LTD

HCMP 1044/2019

[2021] HKCFI 2408

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1044 OF 2019

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DECISION

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1.  The Plaintiffs are the current managers of Li To Wan tso (the “Tso”). The Defendant is a limited company. By a Provisional Agreement for Sale and Purchase dated 14^th August 2014 (the “Provisional Agreement”) executed by the Plaintiffs’ predecessor manager as vendor and the Defendant as purchaser, it was agreed that 28 lots of the Tso’s land (the “Subject Lots”) were to be sold to the Defendant at a total consideration of $350,000 (the “Sale”).

2.  By the Originating Summons dated 17^th July 2019 (the “OS”), the Plaintiffs seek a declaration that: (i) the Plaintiffs or the Tso is not bound by the Provisional Agreement; (ii) the Provisional Agreement is null and void and unenforceable; and (iii) the Plaintiffs had lawfully rescinded or revoked the Provisional Agreement.

3.  Before the hearing of the OS, the Defendant filed a summons for an order that these proceedings be continued as if the cause had been so begun by writ under O 28 r 8 of the RHC (the “Summons”).

4.  In the first 3-minute hearing of the Summons on 22^nd May 2020, Master Dick Ho (the “Master”) gave his decision ordering that, inter alia, these proceedings be continued as if the cause had been so begun by writ (the “Order”).

5.  This is the Plaintiffs’ appeal against the Order of the Master.  The Plaintiffs also request this appeal be treated as the hearing of the OS and ask for the substantive relief in terms therein.

Background

6.  At all material times, the Tso is the registered owner of the Subject Lots.

7.  On 30 April 2009, Mr Li Lap Kin (“LLK”) was appointed by the Tso as the sole manager.  The appointment was approved by the Home Affairs Department (North District Office) (the “District Office”) on 13 April 2010.

8.  LLK, in his capacity as the sole manager of the Tso, as vendor on the one hand and the Defendant as purchaser on the other part entered into the Provisional Agreement dated 14 August 2014 for the Sale of the Subject Lots for a consideration of $350,000 (the “Purchase Price”).

9.  The Provisional Agreement provides, inter alia, that:

(i)    Initial deposit in the sum of $35,000 (the “Deposit”) shall be paid upon the signing of the Provisional Agreement: Clause 2(a).

(ii)   The Provisional Agreement constitutes a binding “specific performance” obligation.  If necessary, either the vendor or the purchaser may bring an action against the other party of the Provisional Agreement for obtaining a decree for specific performance of the Provisional Agreement and to sue for either liabilities or damages: Clause 5.

(iii)  The vendor and the purchaser shall use their best endeavours to ensure the effectiveness and performance of the Provisional Agreement.  The vendor is obliged, inter alia, to provide his good title to the Subject Lots and obtain the necessary consents from the members of the Tso: Clause 7.

10.  No completion date was specified in the Provisional Agreement.

11.  After the Provisional Agreement was signed:

(i)    In addition to paying the Deposit, the Defendant claims that it had incurred various expenses, including the surveying and legal fees for the subdivision of part of the Subject Lots.

(ii)   Correspondence was exchanged between Messrs Ng & Fang (“Ng & Fang”), who acted for the Defendant and LLK in the Sale, and the District Office to apply for the consent to the Sale (the “Consent”) under s 15 of the New Territories Ordinance, Cap 97 (the “NTO”).

12.  LLK passed away in August 2016.  The existing Plaintiffs, Mr Anthony Francis Li (“Anthony Li”) and Mr Clarence A Li, became the new managers of the Tso in November 2017.  They commenced the present proceedings against the Defendant on 17 July 2019 claiming for the relief mentioned in §2 above.

13.  The Defendant opposes the application.  It also lodges a counterclaim against the Plaintiffs claiming for a declaration that the Provisional Agreement is enforceable and binding on the Plaintiffs, an order for specific performance of the Provisional Agreement and a lien for the deposit and damages on the Subject Lots.  Alternatively, if the sale cannot be further proceeded with or the Provisional Agreement has become null and void, the Defendant counterclaims against the Plaintiffs for: (i) damages for breach of the Provisional Agreement in failing to use their best endeavours to further proceed with the Sale or preventing the completion of the Provisional Agreement; (ii) return of the Deposit; (iii) surveying fees and legal fees incurred by the Defendant relating to the Sale including those concerning the subdivision of some of the Subject Lots in the total amount of about $245,000; and (iv) damages for loss of profits.

The Plaintiffs’ case

14.  The Plaintiffs complain that the Master should not have made the Order.  According to them, the present case involves simple and pure questions of law.  The Plaintiffs’ claim can be disposed of in one hearing and there is no need to make the Order under O 28 r 8.  The Plaintiffs also ask the court to treat this appeal as the hearing of the OS so that the court can dispose of the Plaintiffs’ claim without further hearing.

15.  The Plaintiffs’ claim is based solely on the lack of the Consent to be given by the District Office under s 15 of the NTO.  As it is a matter of fact that the parties have not obtained the Consent of the District Office for the Sale of the Subject Lots to date, such Sale is not valid under s 15 of the NTO.

16.  S 15 of the NTOprovides that:

“15.  Registration of manager of “t’ong”, etc.

Whenever any land is held from the Government under lease or other grant, agreement or licence in the name of a clan, family or t’ong, such clan, family or 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 who shall, after giving such notices as may be prescribed, have full power to dispose of or in any way deal with the said land as if he were sole owner thereof, subject to the consent of the Secretary for Home Affairs, and shall be personally liable for the payment of all rents and charges and for the observance of all covenants and conditions in respect of the said land. Every instrument relating to land held by a clan, family or t’ong, which is executed or signed by the registered manager thereof in the presence of the Secretary for Home Affairs and is attested by him, shall be as effectual for all purposes as if it had been executed or signed by all the members of the said clan, family or t’ong.”

17.  In the letter from the District Office dated 22 December 2016 (the “December Letter”), the District Office stated that it was “unable to proceed with the … application [for the Consent in respect of the Sale of the Subject Lots] further”.

18.  It is the Plaintiffs’ contention that:

(i)  The District Office had clearly refused to give consent for the Sale under the Provisional Agreement.

(ii)  Factual non-compliance of s 15 of the NTO renders the Provisional Agreement invalid and unenforceable ab initio, and accordingly, parties were discharged from the principal obligations of the Provisional Agreement.

(iii)  Without prejudice to (ii) above, there ought to be an implied term of automatic termination of the Provisional Agreement within reasonable time after the refusal of the Consent.

(iv)  There was no express or implied term obliging the Plaintiffs to obtain or procure the Consent.

19.  The Plaintiffs emphasize that it was important for the parties to obtain the Consent:

(i)  The power of the manager of a tso is not unfettered but subject to the overriding consent of the District Office.[1]

(ii)  One of the objects of the requirement of the s 15 consent is for the protection of the interests of the members of the tso.[2]

(iii)  Any agreement relating to disposition of tso’s land before the granting of the s 15 consent is at best a “conditional agreement”.[3]

(iv)  The legal effect of an agreement subject to contingent condition is that before such condition occurs either party is under no duty to render the principal performance of the agreement.[4]

20.  In particular, Mr Wan, counsel for the Plaintiffs, relies on the decisions of Man Ping Nam v Man Mei Kwan[5] (the first instance judgment which was overturned on appeal[6]) and Tang Kam Wah and Ors v Tang Ming Yat & Anor[7] to support the proposition that, in the case of failure to obtain the s 15 consent, the conditional agreement for the sale or lease of the tso’s land is invalid from the beginning.

21.  There was a series of correspondence between Ng & Fang and the District Office.  According to the Plaintiffs, the District Office must be taken to have considered all the representations and evidence then available and submitted by Ng & Fang, and upon which, still could not be satisfied about the Sale.  The District Office’s replies in the various letters (in particular the December Letter) and the lapse of time must have amounted to refusal of the Consent.  As the Consent has not been obtained to date, the Plaintiffs rely on the authorities mentioned above and contend that the Provisional Agreement is invalid and of no legal effect from the beginning as the conditional precedent for such agreement has not been fulfilled.

22.  The Plaintiffs also contend for the first time that, relying on the dicta of DHCJ L Chan (as he then was) in Million Way Limited v To Shing Wo[8], there should be an implied term in the Provisional Agreement that, if the requirement for the Consent is not satisfied within a reasonable time, the Provisional Agreement shall cease to have any effect.  Mr Wan submits that such implied term is reasonable and necessary to give business efficacy to the Provisional Agreement.  He also argues that the Provisional Agreement could not be intended to be binding indefinitely hanging over the “uncertain” decision of a public authority.  As the Consent was not obtained within a reasonable time, the Plaintiffs should be discharged from any obligation to perform the Provisional Agreement.

MERITS OF THE APPEAL

23.  Having considered the submissions of the parties, I refuse to disturb the decision of the Master and dismiss the appeal.

24.  First, I agree with Mr Pang, counsel for the Defendant, that the decision made by the Master under O 28 r 8, i.e. the order for the action to continue as if the same has been commenced by writ, is a case management decision.

25.  In IO of Foo Hoo Centre v HK Alliance in Support of Patriotic Democratic Movements of China[9], G Lam J (as he then was) summarised a number of principles concerning O 28 r 8 application:

(i)  The dispute that the court has to determine at this stage is a procedural one concerning the mode of further conduct of the proceedings (§6).

(ii)  O 28 r 8 confers a flexible case management power on the court. It is a discretionary power (note the word ‘may’) that can be exercised where the court takes the view that the proceedings should ‘for any reason’ be continued as if begun by writ.  R 8 does not specify or limit the possible reasons, but the usual ground relied upon by defendants is that there are substantial disputes of fact (§9).

(iii)  The rationale is that, in general, where there are substantial factual disputes, there should be pleadings so that the precise issues between the parties can be properly identified (§10).

(iv)  These rules, like all the other rules in the RHC, must be exercised with a view to the furtherance of the underlying objectives of the rules as set out in O 1A and, ultimately, in the interests of justice (§11).

26.  In Re Auragem Company Limited[10] and  Szeto Yuk Lin v Kanton Ltd[11], the existence of factual disputes had been held to be a relevant factor in ordering the originating summons proceedings to continue as if the same had been commenced by writ.   However, the existence of factual disputes will not invariably render the originating summons procedure inappropriate, although it is a factor to be taken into account when exercising the discretion. Other relevant considerations include whether the procedural advantages of an action begun by writ, such as delivery of pleadings and discovery, justify the exercise of the power under O 28 r 8 and whether in so ordering the ultimate resolution of the dispute would be significantly delayed.[12]

(i)   Case management nature of the Order

27.  The Order clearly involves a case management decision which does not touch upon the merits of the underlying dispute.  It is within the wide discretion and the active case management power of the Master to make the Order having regard to the evidence filed in the present proceedings and the nature of the dispute between the parties.

28.  It is trite law the appellate court will seldom interfere with the exercise of discretion by the court below in respect of case management decision.  The appellant faces a “very high hurdle” and must show that the judge below “has gone clearly wrong and made orders which will clearly involve an injustice or an inability for the trial court to carry out its task”, or if the judge “erred in principle or the order was irrational having regard to the issues that had to be resolved”.[13]

29.  Even if an appeal from the master to the judge in chambers is dealt with by way of rehearing, the same principle has been applied by the courts in dealing with appeals against case management decisions made by masters.  In Yong Li Investments Ltd v Lee Sing Leung Robin[14], DHCJ Keith Yeung SC (as he then was) held that “in relation to an appeal against a case management decision made by a master, … … a judge should not ‘lightly interfere’ with the decision of the master and should only do so for ‘good reason’”.   The same principle has also been applied by the courts in Atlantic Link Ltd v Yen Ying Building (IO)[15] and 李成足 v 松美工程公司僱主許重暖[16].

30.  Applying such principle, it is clear that the Plaintiffs have failed to establish that the Master has gone clearly wrong in making the Order.  Not only did the Master decline the Plaintiffs’ request for hearing the Summons and the OS together, he was also of the view that the Summons need not be adjourned for substantive argument.  Instead of spending time and costs to argue on the Summons, the parties should focus on identifying and hopefully narrowing the issues in the dispute by complying with the directions for the filing of pleadings in the Order.  This is a view that the Master was entitled to take in the exercise of his case management power.

31.  In making the decision, the Master must have taken into consideration that: (i) the issues between the parties should be crystalized by way of pleadings; and (ii) the case involves issues of fact which may be more appropriately dealt with by proceedings commenced by writ. 

32.  Even if the present case can be disposed of by resolving the alleged pure questions of law, there is nothing to prevent the Plaintiffs from applying for disposal of the case on point of law under O 14A of the RHC after the present proceedings are converted to a writ action, and the issues have been properly identified.  The decision of the Master does not in any way prejudice the Plaintiffs’ position on the underlying merits of the case or significantly delay the resolution of the dispute.  From the case management perspective, it remains desirable for pleadings to be filed so that the issues can be properly identified.  As further elaborated in the latter part of this Decision[17], it cannot be said that the parties are in complete agreement as to what should be the proper issues to be determined in the present case.

33.  For these reasons, there is no basis to say that the Master has gone clearly wrong or erred in principle, or the Order is irrational or clearly involves an injustice or an inability for the trial court to carry out its task. The Plaintiffs have failed to satisfy the high threshold for this court to disturb the case management decision of the Master.

(ii)   The issues to be determined in the present case

34.  Even if the decision of the Master is not just a case management decision and the court has to consider the question afresh, I would have made the same decision.

35.  The Plaintiffs’ case is based solely on the premise that the District Office had clearly refused the Consent application, a matter which is seriously disputed by the Defendant.  To determine this particular issue, I need to peruse the exhibited correspondence between Ng & Fang and the District Office in 2015 and 2016.

36.  In the letter dated 23 June 2015, Ng & Fang wrote to the District Office and made the Consent application on behalf of LLK and the Defendant with supporting documents, including documents showing the majority support of the beneficiaries of the Tso for the Sale.  It was followed up by another application dated 21 August 2015.

37.  In the letter from the District Office dated 26 January 2016, the District Office raised the query that the Purchase Price was lower than the market price.  Ng & Fang gave lengthy explanations in their letter dated 27 April 2016, including: (i) the unmarketability of some of the land in the Subject Lots; (ii) the restriction on the development potential of the Subject Lots due to the presence of certain cultural heritage at the Subject Lots; (iii) the substantial additional expenses that would have to be incurred by the Defendant for the purchase of the Subject Lots; and (iv) the trespasses by third parties to the Subject Lots and the risk and costs of litigation to be borne by the Defendant in protecting its rights.

38.  In the letter from the District Office dated 24 May 2016, the District Office informed Ng & Fang that a member of the Tso lodged an objection to the Sale and considered that the Purchase Price was too low.  The District Office requested LLK to liaise with the Tso’s members in order to obtain a consensus for the Sale.  Following the letter from Ng & Fang dated 7 June 2016, the District Officer raised a few queries about the explanations given by Ng & Fang about the Purchase Price and reinstated the outstanding issue about the objection for the Sale.

39.  Ng & Fang replied by way of letter dated 5 December 2016, answering the queries about the Purchase Price and stating that the objection to the Sale was not a valid one.  Ng & Fang also requested the District Office to disclose the identity of the member who objected the Sale so that they could follow up on the matter.

40.  In the December Letter dated 22 December 2016, the District Office informed Ng & Fang that it was unable to proceed with the application because: (i) the original manager LLK had passed away; and (ii) members of the Tso intended to submit an application for the appointment of a new manager and they expressed their reservation to the Sale of the Subject Lots.  Apparently, there was no further written correspondence with the District Office after the December Letter.

41.  According to Mr Wan, the December Letter was a clear response by the District Office for refusing the Consent.  However, the December Letter only mentioned that the District Office was unable to process the application pending the appointment and the view of the new manager or managers.  Arguably, it was not an outright refusal.  If the new managers, i.e. the Plaintiffs, do proceed with and support the Consent application, the District Office may (I put it no higher than that) reconsider its position, whether by way of reconsidering the old application or deciding a new application.  This is an issue which needs to be further investigated in the present proceedings.

42.  According to the Plaintiffs, their solicitors had made an enquiry with the District Office by phone on 18 November 2019. Again, the result of the enquiry was inconclusive, but it was at least clear that the District Office was prepared to consider any renewed application for Consent by the new managers.

43.  The Plaintiffs are the new managers of the Tso.  Though they cannot guarantee that the other beneficiaries would consent to the Sale or the District Office would approve the Consent application, it may still be argued that they at least have the duty to proceed with the Consent application. 

44.  In the appellate decision of Man Ping Nam v Man Mei Kwai[18], which was decided shortly after Tang Kam Wah and Ors v Tang Ming Yat & Anor^[19] (a case relied on by the Plaintiffs), the majority of the Court of Appeal allowed the appeal from the first instance judgment of the same case mentioned in §20 above.  Le Pichon JA (in the majority) held that:

(i)  S 15 does not state that a transaction without the consent of the District Office would be a nullity.  At best, the transaction would be voidable, but whether or not the court would set it aside would depend on the particular circumstances, such as the terms of the transaction itself, whether consent could be obtained retrospectively, the reason why it was not obtained before the transaction was entered into and like considerations (§24).

(ii)  S 15 itself was not framed in terms of an outright prohibition; rather, it was made ‘subject’ to consent.  In principle, there is no reason why consent could not be given retrospectively (§25).

(iii)  The effect of the absence of consent would depend on the circumstances of the case (§§26 & 31).

45.  The appellate decision in Man Ping Nam[20] is a Court of Appeal decision which is binding on this court.

46.  Clauses 5 and 7 of the Provisional Agreement impose “specific performance” and “best endeavours” obligations on the parties.  Though there cannot be any guarantee to secure the Consent, it may be argued that the Plaintiffs did have the duty to use their best endeavours to obtain the Consent for the Sale.  As the Plaintiffs had not done anything to proceed with the Consent application, it is arguable (I put it no higher than that) that they were in breach of the Provisional Agreement.

47.  Even in the first instance judgment of Man Ping Nam v Man Mei Kwan^[21],the learned judge said the following in respect of the position of the manager:

“ … … But in the meantime and after the lapse of a reasonable time for the registered manager to obtain the consent, the ‘tenancy’ is open to challenge by the tenant and the beneficiaries or members of the tso, tong or wui. I have deliberately left out the registered manager as I do not think he should be allowed to challenge the validity of the ‘tenancy’, he being the person who has granted the ‘tenancy’ in the first place and the person who should obtain the consent to the ‘tenancy’ from the Secretary.”

48.  The Provisional Agreement was made by LLK as the manager of the Tso.  Being his successors, it is at least arguable that the Plaintiffs are bound by the “best endeavours” obligation to proceed with the Consent application, in particular if Anthony Li had given his consent for the Sale in the first place.  Indeed, it is a matter of serious dispute by the parties as Anthony Li complains that his signature in the consent form was forged.  As I see, all these matters will have to be further investigated later in the proceedings.

49.  The Plaintiffs contend that, since the Consent has been not been obtained, the condition precedent for the Provisional Agreement has not been fulfilled and as a result there was no obligation for the managers to do anything.  If that is correct, one would wonder why the parties had decided to put in the “best endeavours” clause in the Provisional Agreement.  The Provisional Agreement did not provide for a completion date.  It must have been the intention of the parties that the manager, even before the fulfillment of the conditional precedent, would have a contractual duty to use his best endeavours to obtain the Consent.  It is arguable that the Plaintiffs, as successors of LLK as managers of the Tso, are bound by the Provisional Agreement to proceed with the Consent application.

50.  Further, whether the court should impose an implied term in the Provisional Agreement for its termination within a reasonable time (as opposed to non-fulfillment of the condition precedent) as contended for by the Plaintiffs is a fact-sensitive matter.  Without the benefit of pleadings, it is only the first time in this appeal that the Plaintiffs have raised such allegation.  At this stage, it is still unclear as to the basis for the Plaintiffs’ case on implied term.  Without knowing the history of the development in the neighbourhood, the marketability of the Subject Lots and the background for the Sale, it would be difficult for the court to decide whether the implied term is necessary to give business efficacy to the Provisional Agreement and what constitutes reasonable time.

51.  I agree with the Defendant that the court may need to examine the background for the making of the Provisional Agreement, including what had been done by LLK before the making of the Provisional Agreement and whether he had made any effort to obtain the consent of the beneficiaries for the Sale.  It is the Defendant’s case that attempts were made to sell the Subject Lots for some 15 years by the Tso but only 2 potential purchasers expressed interest in purchasing only the more valuable part of the Subject Lots.  Coupled with the fact that most of the then members of the Tso were over 60 years old, it was possible that the Provisional Agreement was made in the best interest of the Tso at the material time.

52.  The circumstances also suggest that even the Plaintiffs may not be fully aware of all the background for the Sale.  One of the managers, Anthony Li, is not even living in Hong Kong as he has put down a United Kingdom address in his affirmation.  He may not have full knowledge as to the background to say whether the Sale was made in the best interest of the Tso.  All these matters may be relevant in determining the various issues involved in the case, including the legal effect of the Provisional Agreement pending the Consent application, the duties of the managers in respect of the Consent application and whether the court should impose the implied term as contended for by the Plaintiffs. 

53.  The resolution of the dispute in the present case may also be facilitated by the filing of pleadings by the parties.  It is unclear at this stage as to what the Defendant says are the duties of the Plaintiffs as managers under the Provisional Agreement.  It is also unclear whether it is its case that the Plaintiffs, or at least Anthony Li, are estopped from objecting the Sale whether by way of their position as managers or in the case of Anthony Li his alleged consent for the Sale.  Without any pleadings helping the court to understand the issues between the parties, the court can only guess as to what the parties’ positions would be in these circumstances which is highly undesirable.  Hence, the Master was right in making the Order under O 28 r 8.

54.  By reason of this ruling, it is not necessary for me to consider the ancillary argument by the Defendant that, procedurally, this court cannot hear the OS in this appeal.  According to Mr Pang, O 58 r 1(1) provides that an appeal from master shall lie to a judge in chambers from “any judgment, order or decision of a master”.  As the Master did not hear the OS at the hearing below, the relief sought in §3 of the Notice of Appeal, i.e. the appeal hearing be treated as the first hearing of the OS and that judgement be entered against the Defendant, has no place in this appeal.  Since the proper procedure for fixing a hearing under O 28 has not been followed, the court cannot treat this appeal as the hearing of the OS.  Though technical in nature, Mr Pang may be right in saying so.

55.  For these reasons, I refuse to disturb the case management decision made by the Master.  In any event, I agree with the Order made by the Master and the appeal is therefore dismissed.

56.  The parties agree that costs should follow the event.  I therefore order that the costs of the appeal be to the Defendant with certificate for one counsel and to be paid forthwith.  I also order summary assessment of costs to be dealt with on paper with the following directions: the Defendant do lodge and serve the Statement of Costs within 21 days from the date of this Decision and the Plaintiffs do lodge and serve the Lists of Objection within 14 days thereafter.