TANG CHE TAI AND OTHERS v. TANG ON KWAI AND OTHERS

CACV 137/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 137 OF 2007

(ON APPEAL FROM HCA NO. 331 OF 2002)

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JUDGMENT

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Hon Tang VP :

Introduction

1.  Tang Kwong Yu Tong (“the Tong”) was established over 200 years ago.  In the beginning there were 6 fongs.  The 4^th fong has become extinct.  In 2002, when the writ was issued, the Tong had 206 members.  The 3^rd fong was the smallest with only 5 members.  The 5^th, the largest, with 151 members.  The 1^st, 2^nd and 6^th fongs, 22, 11 and 17 respectively.

2.  The plaintiffs by original action (“the plaintiffs”) are members of the 3^rd fong.  The 1^st plaintiff is a manager of the Tong.  He was appointed on 4 March 2000, following the death of his father, Tang Chik Lam, who was a manager until his death on 29 January 1999.  There were 4 defendants in the original action (“the defendants”).  The defendants were all managers of the Tong.  The 2^nd defendant is now dead.  Each of the 5 managers represented one of the fongs.

3.  It is common ground that the Tong is an ancestral tong, and it is also common ground that the principal object of the Tong was:

“	… to facilitate the continued worship of the common ancestors and proper maintenance of the ancestral halls and graves”.

4.  In the words of Bokhary PJ in Re Lau Wai Chau [2000] 3 HKCFAR 98 at 105, the Tong:

“	… takes the form of an endowment in perpetuity of property for the purpose of ancestral worship.”

5.  It was the tradition of the Tong to pay its manager “shoe money” as well as “pork money” to its member annually.  There is no dispute about them.  However, at times, what has been described as pai-ji (派饑) or “Relief of Poverty” had been made to the members.  The issue in the plaintiffs’ action is whether a payment of pai-ji could only be made with the unanimous consent of the members of the Tong.  The matter was brought to a head when the defendants caused $201,000 to be paid by way of pai-ji to 201 of its members on 24 March 2002 against the objection of the plaintiffs.  By this action, the plaintiffs seek an order that the defendants returned the $201,000 with interests to the Tong and an injunction to restrain them from further distribution of assets of the Tong in the absence of unanimous consent of all its members.

6.  Between 1998 and 2000, various lots of land owned by the Tong were resumed.  The compensation amounting to $73,443,081 had been paid into the Tong’s bank account which could only be operated with the signatures of all 5 managers of the Tong.  The counterclaim is concerned with the distribution of the compensation money.  There are 5 defendants by counterclaim.  The first 3 defendants by counterclaim are the plaintiffs.  The 4^th and 5^th defendants by counterclaim are also members of the 3^rd fong.  The 5^th defendant by counterclaim was born in May 1982.  He is a grandson of Tang Chik Lam.

7.  After trial, Deputy Judge A To found in favour of the plaintiffs in the action and dismissed the counterclaim.  However, he had not granted an injunction because he thought it was unnecessary.  This is the defendants’ appeal in relation both to the claim and the counterclaim.  By a respondents’ notice the plaintiffs asked that an injunction be granted.

8.  There had been earlier resumption of land owned by the Tong.  In 1982, as a result of such resumption, compensation in excess of $4 million had been received from the government.  Such compensation money was distributed as a result of a decision made in 1982.

9.  At the heart of these proceedings is the vexed question whether distribution under an ancestral worship trust should be per stirpes or per capita.  It is obviously in the interest of a fong with a large membership to wish distribution on a per capita basis.  However it is unnecessary in the context of these proceedings to decide whether distribution, if it should take place, should be done on a per stirpes or on a per capita basis.  The plaintiffs’ case is that there should be no distribution without unanimous consent.  The defendants’ case is that distribution should be in accordance with the 1982 decision, which provided for compensation money to be distributed partly per capita and partly per stirpes.

10.  The defendants’ pleaded case is that:

“	8.	During the members’ meeting of the Tong held on 7th February 1982, a binding decision was unanimously reached (with government officials from the District Office acting as witnesses and with the head of each of the 5 fongs signing on the records of the meeting to indicate agreement of each of the fong to abide by the decision) to the effect that as from the binding decision all compensations to be received from the Government for resumptions of the Tong’s land and all proceeds derived from sales of the Tong’s land should be distributed in the following manner:
		(a)	92 percent to be distributed among the members of the Tong in equal sums on a per capita basis and
		(b)	the remaining 8 percent to be distributed in equal amounts on a per stirpes basis among the 5 fongs for ancestral worship of each of the fong and the common ancestor, i.e. Tang Kwong Yu.”

The compensation money

11.  I deal with the counterclaim first.  As noted, it is concerned with compensation money paid as a result of compulsory resumption of land.  The land before resumption would have been covered by section 13 of the New Territories Ordinance, Cap. 97.  I adhere to the views expressed in Kan Fat-tat v Kan Yin-tat [1987] HKLR 516 at 524 that such compensation money:

“	… cannot be regarded as land and insofar as the application of Chinese custom or customary right depends on s. 13 of the New Territories Ordinance, such Chinese custom or customary right ceases to apply upon reversion of the land to the Crown.”

12.  However, as Bokhary PJ pointed out in Re Lau Wai Chau at page 100:

“	… Our law even disapplies the rule against perpetuities where such disapplication is necessary for the purpose of enforcing Chinese law and custom in Hong Kong.”

13.  A consequence of this is that an endowment in perpetuity of such compensation money for the purpose of ancestral worship would not be void.  A similar trust unrelated to land in the New Territories would be void.  See Ip Cheung Kwok v Ip Siu Bun and Ors [1988] HKC 437.

14.  More importantly, Bokhary PJ and Chan PJ said in their joint judgment in Secretary for Justice v To Kan Chi and Ors [2000] 3 HKCFAR 481 at 493:

“

The temple Tsing Wan Kun’s assets are, as they have been for centuries, devoted to the purposes of due observance of the customary ceremonies of the temple Tsing Wan Kun and of maintenance of its temple buildings and temple properties. They will remain so devoted unless and until the t’ong Tsing Wan Kun, proceeding in a manner which conforms with Chinese law and custom, withdraws them from devotion to those purposes. The t’ong Tsing Wan Kun’s proprietary rights in the temple Tsing Wan Kun’s assets are vested rights. Accordingly the t’ong Tsing Wan Kun is entitled to effect such withdrawal at any time provided that it does so in a manner which conforms with the requirements of Chinese law and custom. This proviso arises for the reason that a t’ong, being an institution of Chinese law and custom, cannot act effectively if it does not act in conformity with that system. It is not for us to deal here with the details of the relevant requirements of Chinese law and custom. But we would just mention that unanimity in some form is generally required.

15.  To Kan Chi was concerned with a fong “devoted to the purposes of due observance of the customary ceremonies of the temple Tsing Wan Kun and of maintenance of its temple buildings and temple properties”, here the Tong was established for the purpose of ancestral worship.  I believe the same approach is applicable here so properties devoted to ancestral worship will remain so devoted unless and until the Tong, proceeding in a manner which conforms with Chinese law and custom, withdraws them from devotion to those purposes.

16.  Hence the critical issue in this case is the validity and effect of the 1982 decision.  Whether the plaintiffs by counterclaim can insist on distribution in accordance with 1982 decision (leaving aside the question of duress relied on by the defendants by counterclaim) must depend on the validity and effect of the 1982 decision under Chinese law and custom.

17.  Mr. Kenneth Kwok SC, who appeared for the defendants in the appeal, relied on the following passage from the judgment of Bokhary PJ in Re Lau Wai Chau:

“

This alternative argument is based on a rule of Chinese law and custom which is not itself in dispute. Under Chinese law and custom, property endowed in perpetuity for the purpose of ancestral worship may be divided amongst the settlor’s male descendants if they, as the heads of all his fongs, unanimously agree to such a division. Thus may an ancestral worship trust be dissolved under Chinese law and custom.”

18.  He submitted that the 1982 decision was an agreement to regulate the distribution of existing as well as any future compensation money and that it conforms to the requirements of Chinese law and custom.  Moreover, between 1982 and 1997, there were 9 distributions made in accordance with the 1982 decisions.

19.  In Lau Wai Chau, Bokhary PJ was dealing with the dissolution of a Tong.  Mr Kwok submitted the same principle applies to a partial dissolution.  I am prepared to assume for the purpose of this judgment that a tong could, by unanimous consent, agree to sell some of its land and distribute its proceeds.  I am also prepared to assume for the purpose of this judgment that by an unanimous decision, they might decide on the mode of distribution of compensation money on resumption.  But we are not concerned with the legality of the distribution made in 1982 pursuant to the 1982 decision.  Nor are we concerned with the distributions made between 1982 and 1997.  At issue here is, whether, even if the Tong had unanimously agreed in 1982 that in the event of resumption, the compensation money should be distributed in accordance with the agreed formula, that agreement would be binding in perpetuity until such time as the Tong unanimously agreed to vary it.  Mr Kwok submitted that the 1982 decision and the fact that it had been acted on between 1982 and 1997 meant that a new rule of distribution in accordance with Chinese law and custom has evolved in modern times, and the rule is binding on all members of the Tong until it was modified or revoked by unanimous decision.

20.  Deputy High Court Judge To had the benefit of expert evidence from Professor Anthony Richard Dicks SC and Professor Chang Wejen.  In para. 97 of his judgment, he quoted this passage from the evidence of Professor Dicks:

“	I can’t see an agreement of this kind being made in quite this way in traditional period.  It’s a modern agreement.  It’s got very little to do with the Chinese customary law.  It’s purely about the internal arrangements of the clan as they now are.”

21.  This is what Professor Chang said in para. 39 of his report:

“

39.

As discussed above members of a clan can by unanimous decision dispose of the clan property - even in its entirety and thus effectively terminate the tong under whose name the property was held. It would be a violation of the intention of the founders of the tong and a betrayal of the interests of the tong’s future members, but there is no practical way to prevent the disposal. However, if the tong members of a particular time did not by a single act dispose of the entire tong property and the tong remains, they should not be allowed to create a rule for the disposal of the property in the future. The future members should have a voice in deciding the fate of the tong and their own interests in it - after all, the tong was created for the benefit of infinite generations of descendants of some common ancestors. Thus in the present case the 1982 agreement, while effective regarding the distribution of the compensation proceeds for lots resumed by the government prior to the agreement, should not bind future cases of even the same kind of distribution, unless in each case all the members at the time expressly or implicitly agree to the distribution and the specific mode stated in that agreement.”

22.  The evidence in cross-examination of Professor Chang quoted by the learned judge was that:

“	111.	‘	Q1:	Thank you.  So from the last part of your answer, in the example that I have given about distribution of compensation money, from your last part of the answer, is it not right that the lawful situation would be if the new generations are not happy with the rule, lawfully, they could by unanimous consent of all existing members then have the rules changed.  Yes?
			A1:	They certainly have the right to reject the rule.
			Q2:	And then have a new rule.
			A2:	Well, if they decide to have a new rule in compliance with the very purpose and spirit of the establishment of the tso, I would say they have the right to make new rules.
			Q3:	And that you …
			A3:	If they decide to do – make rules totally arbitrarily, then I would say they probably have the power just as this generation has the power to make rules.  They would have the power to make arbitrary rules as well, but that rule would not be considered as lawfully made.
			Q4:	If that rule is not arbitrary, it’s proper, then it would be lawful.
			A4:	Then it will become a new set of rules.
			Q5:	It would be lawful.
			A5:	… and will be tested by future generations.  If they are accepted generation after generation, time after time, it will become a rule in practice.  Then when circumstances change, the rule may change again.
			Q6:	Yes, and every decision to change the rule must be by unanimous consent of then existing members.  It must be right.
			A6:	I would say so, yes.’”

23.  The effect of Professor Chang’s evidence is that only if the 1982 decision was lawful under Chinese law and custom, and it was accepted “generation after generation, time after time”, then it could become a binding set of rules.

24.  The learned judge agreed with Professor Chang’s evidence that to be effective the 1982 decision “must be in compliance with the very purpose and spirit of the establishment of the tong” and that it had been accepted “generation after generation, time after time”.

25.  Here the 1982 decision lasted at most 14 years.  Nor was it in compliance with the purpose and spirit of an ancestral worship trust, which was that, as the learned judge held “t’ong property is meant to be indivisible, inalienable and perpetual”.

26.  Mr Kwok further submitted that the 1982 decision could take effect as a contract under Hong Kong law.  Hong Kong law, in the context, is the law applicable to Hong Kong other than Chinese customary law.  I do not agree.  I do not believe the parties to the 1982 agreement ever intended to enter into a contract under Hong Kong law.  Moreover, as the quotation from the joint judgment of Bokhary PJ and Chan PJ shows, in order to withdraw the compensation money from devotion to ancestral worship purposes, the withdrawal had to be done in a manner which conforms with the requirements of Chinese law and custom.  Lau Wai Chau is also authority that one should not assemble:

“	… a hybrid between Hong Kong law and Chinese law and custom, and then applying that hybrid in the name of, but contrary to, Chinese law and custom.”  at 106.

27.  Moreover, a contract is only binding on parties to the contract.  It is difficult to see how such a contract could be enforced against persons who were under age at the relevant time or a person such as the 5^th defendant by counterclaim who was yet unborn at the time.  I am of the view that the 1982 decision must take effect, if at all under Chinese law and custom.

28.  Mr Kwok also submitted since the 1982 decision was agreed to by the heads of all the fongs, Lau Wai Chau is authority that consent of the members or unborns was not necessary, and the question of authority was irrelevant.

29.  It is unnecessary to decide whether agreement by the heads of all the fongs was sufficient.  Lau Wai Chau is consistent with the view that consent of members could be inferred and would usually be expressed through the respective heads of their fong.  However, that I do not understand Lau Wai Chau to have decided that the head of a fong could disregard actual dissent by members of his fong.  It is not necessary for me to decide this issue and I do not do so.

30.  Mr Kwok also submitted, that the plaintiffs’ pleaded case in the statement of claim was that the Tong had its own customs and rules which had been followed over the years and that the members considered on annual basis at general (or audit) meetings on whether and if so, how to deplete the Tong’s assets.  It appeared to be Mr Kwok’s submission that the learned judge ought to have decided on the effect of the 1982 agreement on the basis of the pleading and not have regard to any requirement of Chinese law and custom.  But the plaintiffs’ statement of claim was only concerned with pai-ji and the reference to surplus income in the statement of claim must be so understood.  The 1982 decision was raised in the counterclaim, and it is clear from the pleading in the amended reply and defence to counterclaim that it was the plaintiffs’ case that:

“

The principal objective and purpose of the Tong is, similar to ancestral tongs, to facilitate the continued worship of the common ancestor and the proper maintenance of ancestral graves and hall.  The ownership of the assets of the Tong is meant to be perpetual, inalienable and indivisible so as to achieve the objective of the Tong”.  Para. 2(2)

31.  It was clearly and distinctly pleaded in para. 8A that the 1982 decision should be governed by Chinese law and custom law and that it was neither binding nor enforceable under them.

Duress

32.  I turn to consider the question of duress.  The learned judge held that the 1982 decision was agreed to by Mr Tang Chik Lam under duress.  It is unnecessary for me to review the facts which have been carefully set out in the judgment.  There is no basis upon which I could overturn such primary findings of fact.

33.  Mr Kwok referred us to the following passage in the judgment in Pao On and Ors v Lau Yiu Long and Ors [1980] AC 614 at 635:

“

The third question

Duress, whatever form it takes, is a coercion of the will so as to vitiate consent. Their Lordships agree with the observation of Kerr J. in Occidental Worldwide Investment Corporation v. Skibs A/S Avanti [1976] 1 Lloyd’s Rep. 293, 336 that in a contractual situation commercial pressure is not enough. There must be present some factor ‘which could in law be regarded as a coercion of his will so as to vitiate his consent.’ This conception is in line with what was said in this Board’s decision in Barton v. Armstrong [1976] A.C. 104, 121 by Lord Wilberforce and Lord Simon of Glaisdale - observations with which the majority judgment appears to be in agreement. In determining whether there was a coercion of will such that there was no true consent, it is material to inquire whether the person alleged to have been coerced did or did not protest; whether, at the time he was allegedly coerced into making the contract, he did or did not have an alternative course open to him such as an adequate legal remedy; whether he was independently advised; and whether after entering the contract he took steps to avoid it. All these matters are, as was recognised in Maskell v. Horner [1915] 3 K.B. 106, relevant in determining whether he acted voluntarily or not.”

34.  Mr Kwok submitted that since no step was taken to avoid the 1982 decision for 14 years, indeed it had been acted on for 14 years, the learned judge was wrong to have found duress proved.   The learned judge noted the delay in objecting to the 1982 decision.  The learned judge, on the facts, was entitled to and did find that there was duress.

35.  In any event, duress has limited relevance.  If the 1982 decision took effect as a contract under Hong Kong law, it would only be binding on the parties to it.  It could not take effect in perpetuity.  Nor would it be binding on non-parties.  Anyway, I have come to the clear conclusion that the 1982 agreement is not a contract and is not to be considered as such under Hong Kong law.  The 1982 decision was (subject to duress) an attempt on the part of the members or the heads of the fong of this particular Tong to resolve a problem which had arisen in the management of the Tong.  It has to be regarded in the context of Chinese law and custom.

36.  Mr Kwok submitted, however, that even if the 1982 decision was made under duress, it had been affirmed.  He referred to this passage on Chitty on Contracts, 29^th Edition, Volume 1, para. 7-045:

“

Contract under duress is voidable. Despite earlier doubts, it now seems clearly established that a contract entered into under duress is voidable and not void; consequently a person who has entered into a contract under duress may either affirm or avoid such contract after the duress has ceased; and if he has voluntarily acted under it with a full knowledge of all the circumstances he may be held bound on the ground of ratification, or if, after escaping from the duress, he takes no steps to set aside the transaction, he may be found to have affirmed it.”

37.  Mr Kwok submitted the fact that there had been 9 distributions between 1983 and 1997, which were made according to the 1982 agreement, showed that the 1982 agreement had been affirmed.  Mr Ambrose Ho SC, who appeared for the plaintiffs, objected to the point being taken.  Mr Ho submitted that the point had not been taken at trial.  Nor was it pleaded.

38.  In Mr Kwok’s predecessor’s written closing submissions at trial which ran to 45 pages, no point was taken that even if the 1982 decision had been entered into under duress, it had been affirmed.  Not surprisingly, the learned judge did not deal with affirmation in his 102-page long judgment.  Had the point been taken at trial, the learned judge would have dealt with it.

39.  This is a new point taken on appeal.  We should not allowed it to be taken unless we are satisfied that there is no reasonable possibility that the state of evidence relevant to the point would have been materially favourable to the plaintiffs.  Flywin Co Ltd v Strong & Associates Ltd  [2002] 5 HKCFAR 356, 369.

40.  Mr Kwok submitted, however, that given the fact that there had been 9 distribution over a period of 15 years, on the evidence we should have no difficulty in concluding that even if the 1982 decision had been entered into under duress, it had been affirmed.  However, the situation is not so clear-cut.  Much will depend, for example, on whether, and if so when, the duress had ceased.

41.  Mr Ho has referred us to the evidence of the Tang Che Tai, the 1^stplaintiff.  It is clear from his evidence that certainly during the lifetime of his father, the duress might not have ceased.  The evidence had not been fully explored.  I would not entertain this new point.

42.  Lastly, Mr Ho submitted that the 1982 decision could not be effective under Chinese law and custom because no necessity for distribution had been shown.  Here, we are not concerned with voluntary sale of land, but with compulsory resumption.  So the question of necessity for the disposition of land is irrelevant.  But as Professor Chang said in his evidence, the compensation money could be re-invested in land.  Whether there should be distribution, should also depend on whether there was necessity.  Whilst it is important not to lose sight of the fact that Tong properties are meant to be held in perpetuity, the reality of the situation is that as long ago as 1970, Mills-Owens J in Tang Kai-chung and Anor v Tang Chik-shang and Ors [1970] HKLR 276 at 320 said:

“	… if necessary, the family meeting would ‘adopt’ some good purpose if it was desired to sell;”.

43.  It is unnecessary to decide whether the 1982 decision could also be impugn on the basis that no necessity for distribution could be shown.  I prefer to rest my decision on the basis that the 1982 decision was not binding on the members of the Tong.  It is unnecessary for me to decide whether members of the Tong acting unanimously could from time to time decide on the distribution of resumption money.

Pai-ji

44.  I turn to consider the question of pai-ji.  Here, on the evidence, I have no doubt that the money the subject matter of the pai-ji, was derived from rental income, and hence covered by section 13 of the New Territories Ordinance.  I also agree with the learned judge that the 1982 decision was not concerned with pai-ji.  Whether there should be pai-ji in any particular year must depend on whether there was unanimous consent.  It does not matter whether the consent must be given by the members or they could be given by heads of the fong.  It is quite clear that in 2002 the managers were not unanimously agreed on such payment.

Injunction

45.  Since the judgment has been a further attempt by the defendants to distribute pai-ji.  That was the subject of an interlocutory injunction granted by the learned judge.

46.  In the circumstance, I would grant an injunction.  We have been provided with a draft of the injunction subsequent to the hearing, which has incorporated some suggestions from Mr Kwok.  The order is not made by consent since the defendants oppose any injunction.  I would order that:

“	… the 1st, 3rd and 4th Defendants (‘the Defendants’), whether by themselves, their agents, servants, employees or any of them or otherwise howsoever, be restrained, until further order of a Judge of the High Court, from distributing assets of the Tang Kwong Yu (or U) Tong (‘the Tong’) as ‘Relief of Poverty’ or howsoever to members or agents of members of the Tong, UNLESS written consent is obtained from all the adult members from time to time of the Tong. In the event that any fong which has a member who is also a Manager of the Tong, written consent may be given by that member on behalf of all the members of that particular fong, and such written consent is deemed to be written consent from each member of that fong.
	This Order does not prohibit the Defendants from making the following payments:-
	(1)	payment of ‘shoe money’ in the amount of HK$500 once every year to every Manager of the Tong;
	(2)	payment of ‘book money’ in the amount of HK$100 once every year to every member of the Tong who is a student in full-time study at the time of payment; and
	(3)	payment of ‘pork money’ in the amount of HK$60 per portion (胙) to the members of the Tong at (i) Lunar New Year, (ii) the Spring Ancestral Hall Worship, (iii) Ching Ming Festival, (iv) the Autumn Ancestral Hall Worship and (v) Chung Yeung Festival every year, in the following manner:
		(a)	for infant members under 1 year of age, 2 portions each;
		(b)	for members aged between 1 and 59, 1 portion each;
		(c)	for members aged 60 or above, 1 additional portion each for every 10 years of age attained beyond 50, i.e. members aged between 60 and 69 shall have 2 portions each, and those between 70 and 79 shall have 3 portions each, and so on.”

47.  I would dismiss the appeal by the defendants with costs.

Hon Cheung JA:

48.  Apart from the issue concerning the applicable law on the compensation paid by the government on the resumption of the Tso land I agree with the judgment of Tang V.P. 

I. Applicable law

49.  On this issue Judge To following the approach of Kan Fat-tat also known as Kan Fat and Kan Yin-tat also known as Kan Tat [19 [1987] HKLR 516 held that the applicable law governing the compensation is Hong Kong law. 

Different approach

50.  In my view there is scope for a different approach on this matter.  Whether one applies Chinese customary law or Hong Kong law on the compensation will of course depend on whether the compensation comes within the meaning of ‘land’ in the New Territories Ordinance (‘NTO’) (Cap. 97).  

Concept of Tso/Tong

51.  But before one examines the meaning of ‘land’, it is appropriate to remind oneself the concept of Tso or Tong land.  Tso or Tong land has been in existence in the New Territories well before the NTO was introduced.  As pointed out in the case of Tang v. Tang [1970] HKLR 276 a Tso is an ancient Chinese institution of ancestral landholding whereby land derived from a common ancestor is enjoyed by his male descendents for the time being living for their lifetimes and so on from generation to generation indefinitely.  Thus every male descendant of the common ancestor automatically becomes entitled at birth to an interest in the land for his lifetime; on his death his interest merges so as automatically to enlarge the interests of the surviving male descendants; thus his interest at any given moment during his lifetime depends on the number of male descendants then living and on his death it forms no part of his estate.

Recognition of Chinese custom

52.  This ancient institution is expressly recognized by the NTO to be governed by Chinese custom or customary rights.  As Mr. Aker-Jones, the expert in Tang v. Tang said about the disposition of Tso land :

“	The custom is to preserve it intact.  Those who are at present managing it have to pass it on intact to succeeding generations and not to do this would indeed mean an abrogation of their custom, traditions.”

53.  Viewed in this light and proceeding on first principles without going into the question of the statutory definition of land for the time being, the whole tenor of Tso or Tong land is based on Chinese traditions.  It would be most odd if upon resumption of the Tso or Tong land, the compensation which is to be held by the same managers who are the custodians of the Tso or Tong land for the time being and imprinted with the same trust as the land itself, would be subject to a different system of law from the one which previously governs the land.  In my view this cannot be the intention of the NTO.

Intention of the NTO

54.  The crucial question is whether the statutory definition of land in the NTO in fact brings about such a fundamentally different approach?  In my view it does not.  If the definition of land includes ‘rent’ from the land or ‘profits issuing out of land’, this clearly indicates that recognition is given to all matters that arise out of and relate to the land and there is no intention to exclude compensation from the meaning of land. 

55.  This case highlights the unnecessary complication when a different approach is adopted.  Judge To held that he had to apply Chinese law in respect of the ‘mesne profit’ paid by the government to the Tong for the occupation of its land but Hong Kong law in respect of the compensation when both matters involved an acquisition by the government of the use of the land : one temporary, the other permanent. 

56.  The fact that section 8 of the NTO vested land in the New Territories in the Government does not preclude the compensation which is not in the nature of physical land from being treated as land.  After all section 2 of the NTO is expressly stated to be ‘unless the context otherwise requires’.

My approach

57.  In my view there is no difficulty involved to regard the applicable law on compensation as Chinese customary law.  If the land immediately before resumption is subject to Chinese customary law, the compensation which is only given by virtue of the land must likewise be subject to the same system of Chinese law.  In my view in considering the compensation, one must not confine the examination to its existing state and say that because it is not in the nature of physical land therefore it is not land within the meaning of section 13 of the NTO.  But rather to approach it on the basis that as the land itself has always been subject to Chinese law, the conversion into compensation does not change this characteristic : the recognition given by section 13 will continue to be observed after the resumption.  Put in another way, in conducting this inquiry, it is wrong to approach it from the angle of an examination of the definition of land to see if ‘compensation’ somehow fits into the meaning of land, but rather approach it on the basis that the compensation which came from the resumed land has always been imprinted with this characteristic.

58.  Further but without deciding, it may be arguable that ‘profits issuing out of land’ covers the compensation as well.

Rule against perpetuity

59.  In Kan v. Kan after holding the compensation did not fall within the meaning of land and therefore was subject to Hong Kong law, the Court further disapplied the rule against perpetuity which otherwise would be applicable.  I fully appreciate that the Court adopted this approach to find a practical solution to the problem but I would say respectfully that it was a very cumbersome way of dealing with the matter.  Inalienability is the hallmark characteristic of a Tso or Tong land.  The British government in its wisdom expressly recognized this ancient landholding system when it leased the New Territories.  The recognition was made by expressly allowing Chinese law to be applied to it and not by a legal fiction that it would unjust to apply the rule against perpetuity to this system of landholding.  In my view to give full effect to this recognition, the most appropriate way is to apply Chinese law and custom to the compensation.

60.  I do not see this approach would affect the well-being of the indigenous population of the New Territories nor would it upset any well-established practice.  In practice, the indigenous population observed or purported to observe Chinese customs in matters concerning the division of compensation.  Whether in any given case, the full effect and requirement of Chinese customs are observed is of course a different consideration.

II. Circumstances for distribution

61.  I would also like to express a view on the circumstances in which the Tso or Tong land or compensation can be distributed.  Professor Chang discussed the question of whether a clan could be forced to alienate its property by government order.  He stated in his report that 

“

19.

Could a clan be forced to alienate its property by government order?  According to traditional Chinese law clan property could be confiscated if a member of the clan committed treason or rebellion and the sentence of termination of the entire clan (zu-zhu 族誅) was ordered.  (See 大清律例彙輯便覽, pp. 1868, 1977.)  But treason and rebellion are extremely heinous and rare crimes.  I know of no case of the Qing and previous dynasties where a clan, not being involved in those offenses, was forced to forfeit its property.  To deter clan property being used to finance armed gang-fights between clans (zu-zhong xie-dou 族眾械鬥), a problem common in southern China, Zhang Zhi-dong 張之洞, a Grand Counselor of late Qing, suggested that the clans involved be allowed to keep only a few scores of mu of land as ancestral worship land and forced to sell the rest of their properties and distribute the proceeds of the sale equally among the fongs.   (See 張之洞著<張文襄公全集> (1990 Beijing) v.14.)  This suggestion never became law.”

62.  He then referred to the following three decisions of the Supreme Court of the Republic of China (大理院, Da-Li-Yuan) in 1915.  During 1912 - 1927, after the establishment of the Republic of China but before the government promulgated its new statutes, the Supreme Court was entrusted to continue to apply Qing law.

63.  In the first decision the Supreme Court (Appeal No. 771 of 1915) stated that

“

祀產係共有性質，其所有權屬於同派之各房。自其維持祖先祭祀之宗旨言之，原期永遠保全，不容擅廢，故凡設定祀產字據內，例有「永遠不得典賣」等字樣；然查我圓慣例，此等祀產遇有必要情形（倒如子孫生計艱難，或因管理而生重大之糾葛）得各房全體同意時，仍得分析典賣，或為其他之處分行為。此種慣例並無害於公益，亦不背於強行法規。即現行律関於盜賣私祀之規定，意亦僅在禁止盜賣。所謂「盜賣」者，以無出賣權之人而私擅出賣之謂。如未經各房同意，僅由一房或數房主持出賣，固在「盜賣」之例；若已經各房全體越同意，自不得以「益賣」論。」 （四年上字第七七一號判決） See 郭衛編<大理院判決例全書> (1972 Taipei) p.168.”

64.  The Supreme Court confirmed the principle that clan land is meant to be indivisible and inalienable, but held that under certain compelling circumstances, or in its words “necessary conditions” (bi-yao qing-xing 必要情形), ancestral worship property could be disposed of if all members of the clan unanimously decide to do so. 

65.  In the second decision (Appeal No. 977 of 1915) the Supreme Court held that

族人處分祖遺祭產，以共有物之常規言之，自當以得族人全體之同意為有效要件。惟依地方舊有之習慣或族中特定之規約，各房房長可以共同代理全體族人，以為處分；抑或各房房長集眾會議，可依族眾多數議決，以為處分者，則依該習慣或規約之處分行為雖未得族人全體同意，亦應認為有效。（四年上字第九七七號判決）”

66.  The Supreme Court held that while normally for disposition of clan property unanimous decision by all members of the clan is essential, in practice such a decision could be valid if there is an established local custom or a provision in the clan’s charter permitting the decision be made unanimously by the heads of the fongs jointly representing all the members of the clan or by a majority of the clan members at a meeting called jointly by the heads of the fongs.  

67.  In the third decision later that year the Supreme Court further held

“	祀產在現行法上，雖以不可分割為原則，然遇有必要情形（如子孫生計艱難，或因管理而生重大之糾葛），並得各房全體之同意時，仍准分析。此項必要情形如已如顯然存在，各房中仍存意圖自利，不表示同意者，審判衙門據其他房之請求，亦得准其分析。(四年上字第一八四九號判決)”

68.  The Supreme Court held that where necessary conditions for division of clan property exists, any of the fongs, for some private gain to itself, stubbornly refuses to give its consent to the division, a court can, responding to the petition from the other fongs, permit the division. 

69.  Professor Chang’s comments on these decisions are as follows :

“	23.	In the first decision mentioned above the Court was only recognizing a reality that clan property can be disposed of by a unanimous decision of all members of a clan.  There is no way to prevent the division, but to say that there is an established Chinese custom (wo-guo guan-li 我國慣例) for this practice is not quite appropriate because most clan charters have provisions against division regardless however the decision is made and, in any event, the practice is not frequent and widespread.
	24.	The second decision of the Court gave local custom and clan rule priority over the general principle.  But to prove a local custom is rather difficult and not many clan charters authorize division by majority vote.
	25.	The Court by its third decision sanctioned majority rule, a concept unfamiliar to the traditional Chinese mind and a practice followed by very few clans.  As one of the changes introduced by the Court, its effect is doubtful in regions outside of the Court’s jurisdiction where people continue to follow established Chinese tradition.”

70.  Judge To was of the view that,

“

In the case of compensation for compulsory acquisition of land in modern times, the compulsory acquisition has provided the circumstances of necessity which make the disposition inevitable, but that does not mean the compensation should as of course be distributed amongst the members.  The compensation should likewise be reinvested in other landed property or held by the t’ong for the very purpose for which the t’ong was set up.  I therefore find that the true principle under Chinese customary law is that proceeds of sale and compensation from compulsory acquisition of t’ong land should be reinvested in land or otherwise held by the t’ong and if not so reinvested or held, it may not be distributed to its members unless under circumstances of necessity which make the distribution inevitable and then only by unanimous consent of all its members.”

71.  I agree with Judge To’s view on the requirement of necessity and that the distribution of compensation on resumption should not be distributed as a matter of course.  Compelling circumstances include ‘serious disputes with the management’ of the Tso（‘因管理而生重之糾葛’）.  If the condition which enables distribution is set as high as one which requires ‘compelling circumstances’ then obviously it cannot mean any disagreement in the management but rather a deadlock.  I do not regard that a disagreement on the mode of distribution i.e. whether the asset should be distributed equally among the fongs on the one hand or equally among the members on the other hand constitutes a deadlock in management because this proceeds on the basis that there should be distribution in any event.  It begs the question as to why there should be distribution at all in the first place.

72.  The fact that there had been distribution of Tso or Tong assets in the past in breach of this requirement does not mean that such a distribution is valid.  The Court would only be able to adjudicate on the validity until such time as a challenge is raised.

73.  Further the view expressed in Re Lau Wai Chau Tso (2000) 3 HKCFAR 98 by the Court of Final Appeal that a Tso can be dissolved by the unanimous consent of the heads of the fongs does not exclude the requirement that compelling circumstances must be present before the dissolution.  The existence of ‘compelling circumstances’ was not an issue which required address in that case.

74.  As to the requirement of unanimous consent it may well be due to modern circumstances this requirement may not be able to be faithfully observed : members of the Tso or Tong may no longer be living in the same locality and the members may in practice and in accordance with their clan customs delegate to the head of their individual fong to represent them in matters concerning the Tso or Tong.  In the circumstances I would reserve the question as to whether a decision could only be made by the unanimous consent of all members or whether the unanimous consent of the fongs would be sufficient.  In this case, irrespective of the issue of ‘compelling circumstances’ and unanimous consent, I am firmly of the view that the 1982 agreement was invalid because it affects the interest of future generations by reason of the agreement on the disposal of future compensation that may come into the hands of the managers.

Hon Lam J:

75.  I agree with the judgment of the Vice President.  I only wish to add a few observations on the governing law in respect of the compensation money.

76.  I agree that the definition of land under the New Territories Ordinance does not include compensation money as such.  Hence, Chinese customary law cannot be applicable simply by reason of Section 13.  I have read Cheung JA’s judgment in draft.  With the greatest respect, I do not consider the expression ‘profits issuing out of land’ in the definition of land under Section 2 of the New Territories Ordinance to be wide enough to cover such compensation money.  In the common parlance, profit does not carry with it the original capital value of the asset in question.  In the context of Section 2, ‘profits issuing out of land’ is used in association with ‘rent’.  This is another indicia suggesting that the ‘profits’ in question do not include anything representing the capital value of the land.

77.  Nor do I find anything in the context of Section 13 alone that requires an extended meaning be given to the word ‘land’ in that section. 

78.  Having said that, it does not mean Chinese customary law cannot be applicable to compensation money paid to the Tong on account of resumption of New Territories land.  Section 13 is not the only source of jurisdictional basis for the court in Hong Kong to apply Chinese customary law.

79.  As a matter of logic and common sense, I agree with the observations of Cheung JA regarding the undesirability of having a different system of law governing the compensation money.  In fact, as explained below, I will go further and say such a result will be unjust and oppressive.

80.  Article 18 of the Basic Law provides that the law in force in Hong Kong shall be, amongst others, the laws previously in force in Hong Kong as provided for in Article 8.  Article 8 says that the laws previously in force in Hong Kong includes common law and customary law.  Hence, the restrictions on the application of the English common law and the rules on the applicability Chinese customary law previously in force before the 1 July 1997 shall continue to be the law in Hong Kong.

81.  Before 1 July 1997, the restriction on the application of English common law to Hong Kong had been set out in Supreme Court Ordinance 1844 and the Application of English Law Ordinance 1966.  Section 3 of the 1844 Ordinance reads:

“

3.

And be it further enacted and ordained, that the law of England shall be in full force in the said Colony of Hong Kong, except where the same shall he inapplicable to the local circumstances of the said Colony, or of its inhabitants …”

82.  Section 3 of the 1966 Ordinance provided that common law shall be in force in Hong Kong “so far as they may be applicable to the circumstances of Hong Kong and subject to such modifications thereto as circumstances may be required”. 

83.  It has been established in Hong Kong that these statutory provisions mean that English common law is not applicable if its application would cause injustice or oppression and in such circumstances, the court can apply Chinese customary law: see Re Tse Lai-chiu [1969] HKLR 159.

84.  It follows that the non-application of a particular English common law principle to cases where it would cause injustice or oppression is part of the law previously in force in Hong Kong prior to 1 July 1997.  In such situations, the court in Hong Kong can apply Chinese customary law.  As explained above, by reason of Articles 8 and 18 of the Basic Law, this remains to be the position today.

85.  The underlying rationale for holding that the rule against perpetuities should not be applicable to Tso or Tong holding New Territories land is that it would destroy these types of social institutions, see Tang v Tang [1970] HKLR 276. 

86.  If the common law rule against perpetuities were to apply to the compensation money payable on resumption of Tso or Tong land in the New Territories, it would bring chaos to the administration of the Tso or Tong.  Mr Ho submitted that in such event, the ancestral worship trust will fail and there comes into existence a resulting trust in favour of the settlor.  But there can be all sorts of difficulties in identifying the settlor (as pointed out by Mr Ho, the name of the Tso might not be the name of the settlor) and the rightful beneficiaries to his estate.  It may take lenghty costly proceedings by way of administration actions or other forms of legal actions to resolve the matter.  Such proceedings may cause serious dissension amongst the members which can be destructive to the social cohesion essential to the clan.  In my view, the imposition of such a burden on the Tso is unjust and oppressive.  This provides the jurisdictional basis for holding that the rule against perpetuities shall not be applicable to Tso holding compensation monies on account of resumption of lands in the New Territories.  Similar view was held by Deputy Judge Tang QC (as he then was) in Kan v Kan [1987] HKLR 516 at p.527.   

87.  Huggins J observed in Wong Kam Ying v Man Chi Tai [1967] HKLR 201,

“

As I remarked in Chan Wei-keung v. Reg. 6 Cr.App. No. 386 of 1965 with reference to the common law of England one of the attributes of the English Common Law is that it does not change although it may develop to meet new circumstances. That remark appears to be equally applicable to the Chinese customary law. Thus in 1843 the marriage law, although still theoretically based on the Six Rites, was very different from what it was a thousand years earlier. Accordingly, the words ‘as it existed prior to the cession’ would not mean, as I think Mr. Haydon was disposed to suggest in his learned article that the courts had held, that customary law was ‘ossified’ as at 5th April, 1843 any more than the common law of England, in so far as it applies in Hong Kong, was ossified at that date: in many respects it will have developed and it lies within the jurisdiction of the courts in Hong Kong to decide how and to what extent it has developed and even to take a part in deciding the course of its development. Mr. Haydon refers to ‘the living customary law’ of the peoples of Africa and I find nothing in any decision which is binding on me which compels me to hold that Chinese customary law is any different in its nature or that it has become ossified for over a century: one merely looks to 1843 to ascertain the applicability of the customary law and the basic rules as they then existed and thereafter one applies those rules subject to such developments as may have taken place since that date.”

88.  Hence, Chinese customary law should continue to apply to a Tso or Tong that originally held land in the New Territories after the land had been changed to other form of assets. 

89.  This analysis coincides with the observations of the Court of Final Appeal in Secretary for Justice v To Kan Chi [2000] 3 HKCFAR 481 at 493 cited at paragraph 14 of the judgment of the Vice President and His Lordship’s conclusion at paragraph 15.  It is also consistent with Cheung JA’s test on applicability of Chinese customary law.    

90.  I also respectfully agree with Cheung JA’s observations on the requirement of necessity and unanimous consent.

Hon Tang VP:

91.  The appeal is dismissed with costs.