TO KAN CHI AND OTHERS v. TO KIN WAH AND OTHERS

HCMP 509/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 509 OF 2002

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BETWEEN

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REASONS FOR DECISION

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Introduction

1.  This is the hearing of the Defendants’ summons dated 23 November 2012 seeking payment of seven items of expenditure from the funds of the T’ong Tsing Wan Kun (“the T’ong”). The Plaintiffs, as managers of the T’ong, consented to payment of items (1), (2), (3) and (7) under paragraph 1 of the summons.  The Defendants’ application in respect of items (4), (5) and (6) was adjourned for argument.  At the adjourned hearing on 21 December 2012, I dismissed the Defendants’ application.  Hereunder are the reasons.

The background

2.  The Plaintiffs are the managers of the T’ong which consists of members from time to time of the To Ka Yi Tso and the To clan (“the Clan”).  The Defendants are some of the members of the Clan.  In the previous proceedings in Secretary for Justice v To Kan‑chi and Others [2000] 3 HKCFAR 481, the Court of Final Appeal declared that the T’ong’s proprietary rights in the temple Tsing Wan Kun’s assets are vested rights and that the T’ong is entitled to withdraw such assets from devotion to the purpose of due observance of the customary ceremonies of the temple, the maintenance of its temple buildings and temple properties at any time provided it does so in a manner which conforms with Chinese law and custom.  The Plaintiffs, who were and remained managers of the Tso, were appointed managers of the T’ong at a meeting of Tsing Wan Kun held on 13 May 2001.  At a further meeting convened on 12 August 2001, it was resolved that except for certain specified assets including the site of Tsing Wan Kun, all surplus property, assets and funds (“the surplus funds”) shall be applied for such purpose and in such manner as the T’ong may from time to time determine.

3.  On 5 February 2002, the Plaintiffs, as managers of the T’ong, took out an ex parte originating summons in HCMP 509 of 2002 to apply for payment out to them of surplus funds from the T’ong’s assets which consist of compensation received for resumption of land belonging to the T’ong.  As at August 2002, the compensation stood at over $280 million.  In April 2002, the Defendants objected to the payment out on the ground that the Plaintiffs’ appointment as managers did not comply with the requirements of Chinese law and custom which required unanimity and was thus invalid.  There was also concern as to how the Plaintiffs proposed to handle the surplus funds which are subject to purpose trusts and, in any event, it was said that the managers were unsuitable to administer the trusts affecting the surplus funds.  By 15 December 2002, it became clear from the Plaintiffs’ affirmation that their intention was to distribute the surplus funds among the members by a method to be decided in future meetings.  On 8 July 2004, the Defendants, as plaintiffs, commenced action in HCA 1603 of 2004 seeking to challenge the validity of the Plaintiffs’ appointment as managers of the T’ong.

4.  The two sets of proceedings progressed very slowly.  There were some interlocutory orders made by Yam J, against which the Defendants appealed in CACV 107 of 2008 and CACV 108 of 2008.  The two appeals were settled and allowed on terms which have the effect, inter alia, of a pre‑emptive costs order indemnifying the Plaintiffs and the Defendants of their costs in both sets of proceedings and that the costs of four related summonses and of the two appeals are to be paid out of the assets of the T’ong.

5.  Then, on 23 December 2010, pursuant to the above order of the Court of Appeal, Yam J made, inter alia, the following order in HCMP 509 of 2002 (“the 2010 Order”):

“A sum of $150,000.00 be paid forthwith from the said funds of the Tong to To Mei Lun, To Cheong Lam and To Siu Lam (the 2nd Plaintiffs in HCMP 562/92 & 2084/94, CACV 32/99 and FACV 8/2000) to be used for operational running costs for the To Clan for 6 months only”.

(My emphasis underlined)

The above order was amended on 9 July 2011 as follows (“the amended 2010 Order”):

“A sum of $150,000.00 be paid forthwith from the said funds of the Tong to To Mei Lun, To Cheong Lam and To Siu Lam (the 2nd Plaintiffs in HCMP 562/92 & 2084/94, CACV 32/99 and FACV 8/2000) to be used for operational running costs for the purpose of the litigation in HCMP 509/2002 and HCA 1603/2004 and the party and party taxation for HCMP 562/92 & 2084/94, CACV 32/99 and FACV 8/2000 for 6 months only.”

(Amendment underlined)

The said sum of $150,000 was accordingly released to the Defendants.

6.  On 16 November 2012, the Plaintiffs took out a summons seeking payment from the assets of the T’ong to meet the cost of employing a secretary for the T’ong; renovation of a T’ong’s property; operational expenses for the managers; and fees for preparation of yearly accounts of the T’ong for 2012 and 2013.  The summons was set down for hearing on 29 November 2012.  Then, six days before the hearing, the Defendants took out a mirror summons seeking payment from the assets of the T’ong to meet the three items of expenditure and the other four items which were not contested by the Plaintiffs.  The three contested items of expenditure are:

(1) a sum of $105,000 for rental of an office for the To clan for one year;

(2) a sum of $120,000 for salary of a secretary for the To clan; and

(3) a sum of $75,000 as operational running costs for the To clan for six months from 15 December 2012.

The Defendants’ stance and approach in their application

7.  It can be seen from the orders sought, the affirmations filed in support of the application and the submission of Mr Lo, counsel for the Defendants, that the Defendants’ stance is that they are entitled to represent members of the To clan opposing the Plaintiffs as managers of the T’ong and for that purpose to operate an association comprising of members of the To clan to antagonise the Plaintiffs and be reimbursed from the assets of the T’ong of all costs of such operation whether in connection with the litigation or otherwise.  Indeed, at the hearing on 29 November 2012, the Defendants exhibited the unamended 2010 Order (see paragraph 5 above) which authorised expenditure for the operational running costs of the To clan.  In their latest affirmation of 11 December 2012, they repeated that the court had ordered the release of $150,000 to them “to be used for operational running costs of the To clan for six months”.  That must be the basis on which they now seek provision for renting accommodation for setting up an office, purchase of office furniture and equipment and employing a secretary etc.  All these reflect that the Defendants made the application on the false premise that they were entitled to be paid all operational expenses of the Clan in antagonising the Plaintiffs.

8.  The Plaintiffs, by dint of their appointment as managers are entitled to authorise expenditures for the operational running costs of the T’ong; but the Defendants as representatives of opposing members are not.  They are of course entitled to voice their objections to the Plaintiffs’ decisions through general meetings and have their disputes resolved by resolutions at the meetings.  But they are not entitled to set up a “shadow t’ong” and be paid its, the T’ong’s or the Clan’s operational running costs out of the assets of the T’ong.  What they were allowed was to be indemnified of their costs in certain litigations specified by the Court of Appeal (see paragraph 5 above).  It was pursuant to that order that Yam J made the 2010 Order.  Similarly, I do not consider I have power to order the T’ong to pay the operational running costs of the Clan or the T’ong incurred by the Defendants.  My power to make pre‑emptive costs orders is also circumscribed by that order of the Court of Appeal.

9.  The Defendants persistently relied on the 2010 Order.  Miss Leung, counsel for the Plaintiff, helpfully refers me to counsel’s skeleton submissions and the transcript of the hearing on 23 December 2010 before Yam J and the subsequent correspondence between the parties’ solicitors and the court leading to the amended 2010 Order.  After that hearing, the Defendants’ solicitors, Messrs Miller Peart (“MP”) submitted a draft order on 10 March 2011 stating that the sum of $150,000 was for the operational running costs of the Clan.  On 25 March 2011, MP issued a reminder to Yam J’s clerk pressing for the order to be sealed.  Apparently, the draft order and MP’s letter dated 25 March 2011 had not been copied to the Plaintiffs’ solicitors, Messrs Cheung & Choy (“C&C”).  Yam J’s clerk then wrote to C&C to seek their comments.  On the same day, C&C responded, stating that the sum was for the purpose of this litigation and not for the operational running costs of the Clan.  However, the draft order was sealed on 28 March 2011.  On 6 April 2011, Yam J’s clerk wrote to MP enquiring if they would agree to the amendment suggested by C&C.  MP disagreed.  On 12 May 2011, Yam J directed the 2010 Order to be amended because the amendment proposed by C&C reflected the court’s intention and wording.  MP again objected.  Following further correspondence, Yam J approved the amended 2010 Order in its present form by specifying the various litigation involved.  The amended 2010 Order was sealed on 9 July 2011.  It is amply clear from the above events that the intention of the court was that the payment was to meet the Defendants’ operational running costs for the purpose of certain specified litigation but not for the purpose of meeting the operational running costs for the Clan generally, let alone for the purpose of antagonise the managers of the T’ong.

10.  The Defendants’ approach that they are entitled to be paid in advance the operational running costs of the Clan is seriously flawed.  They are only entitled to be paid the operational running costs of the litigation.  For the purpose of the present application, I would adopt the order of the Court of Appeal as the starting point and on that basis consider the Defendants’ application afresh.  While I would not consider I am bound by Yam J’s order, I would do the least to interfere with it.

Item 4:  A sum of $105,000 for rental of an office for the Clan for one year

11.  The general thrust of the Defendants’ argument is that there are two camps in the Clan: one represented by the Plaintiffs as managers of the T’ong and one by the Defendants challenging the validity of their appointment and their dealing with the assets of the T’ong.  The Defendants’ camp need to have their own office separate from the T’ong’s office to conduct the litigation.  They have concerns about security and preservation of documents which may contain information adverse to the Plaintiffs.  This is particularly so as the caretaker of the T’ong’s office appointed by the Plaintiffs was a member of the aggressive group in the T’ong which sided with the Plaintiffs.  The Defendants were informed by their solicitors that about 350 box files and five large boxes of documents in relation to the previous proceedings will have to be returned to the Defendants shortly.  Hence, they need to rent accommodation of about 800 square feet in Tuen Mun which will also be used as an office, a workplace for their secretary, a place for meeting and for storage of the voluminous documents.  The Defendants also rely on the unamended 2010 Order releasing $150,000 to them as their entitlement to claim office rental as part of the operational running costs for the Clan.  That argument, as I have already indicated, is set on the wrong premise.  On the face, renting an office, purchasing office furniture and equipment and hiring a secretary for the purpose of the Clan fall well outside the purpose of the litigation.

12.  The question is whether renting an office is necessary for the purpose of the litigation.  Apparently, Yam J considered it was.  Back in December 2010, the taxation of the previous proceedings was still ongoing and the case management conference of the present proceedings was still to be heard.  It was under those circumstances that Yam J considered it necessary to release $150,000 for the Defendants for the operational running costs, including renting an office to store documents and hold meetings, and I should emphasise, for six months only.  On the fact, the Defendants spent the $150,000 for purposes other than renting an office or hiring a secretary.  Indeed, for the past two years, they never had an office or a secretary: see paragraphs 24-30 below.  The Defendants conducted meetings in the home of one of the Defendants while the documents were kept in the solicitors’ office.  The fact is that they never had an office for the past two years. This fact casts serious doubts on whether the Defendants have a genuine need for an office.

13.  Furthermore, Miss Leung submits that the previous proceedings have now been settled.  The only outstanding matters are a few minor taxation issues and to fix a date for trial for the present proceedings.  As for storage of the box files, the Plaintiffs have offered to provide storage for the documents in the T’ong’s office as most of them are related to the previous proceedings which have been concluded and they belong to the T’ong anyway.  In those previous proceedings, the Plaintiffs and Defendants stood on a united front and shared common interest.  I think the Defendants’ concern about security is being grossly exaggerated.  If the Defendants really feel uncomfortable with accepting the offer, they can store the documents in cheaper mini storage facilities.  Of course, documents relating to the present proceedings should continue to be kept in the solicitors’ office for the purpose of the litigation. 

14.  Mr Lo argues that for the purpose of the present proceedings the Defendants need to refer to documents in the 350 box files from time to time. The files have to be placed in a conveniently accessible manner readily accessible by the secretary.  Hence, it would be inconvenient to have them stacked up in cheap mini storage.  However, the issues in the previous proceedings and the present proceedings are markedly different.  The previous proceedings concerned the ownership of the temple Tsing Wan Kun and the assets standing in its name.  The issues in the present proceedings are: whether unanimity is required for the appointment of the managers and distribution or preservation of the assets of the T’ong; the trusts affecting the surplus funds; the fitness and suitability of the managers; and whether there was any breach of trust on the part of the Plaintiffs.  The only outstanding matter for the present proceedings is to fix a date for trial.  It is difficult to see why the papers of the previous proceedings would be relevant.

15.  Mr Lo argues that there are still some outstanding minor issues on taxation.  Miss Leung’s reply is that it is doubtful whether for those minor taxation issues it is necessary to refer to the 350 box files.  Even if there may be rare occasions when access to the documents in the previous proceedings becomes necessary, incurring such hefty recurring expenditure to cater for such a remote possibility or the few occasions when access to the documents is needed is not justified.  It is all a question of balancing.  There is no reason why the cheaper option of mini storage should not be preferred.  It also provides facilities for searching for documents or items stored. 

16.  The Defendants heavily criticise the Plaintiffs for building a columbarium and argue that the Plaintiffs’ conduct reflect adversely on their suitability as managers of the T’ong.  Mr Lo argues that as the hearing date draws near there will be need for meetings to discuss the further issue relating to the building of the columbarium and other issues.  He submits that the Defendants have a genuine need for an office and but for the lack of funds, the Defendants would have rented one.  At present, the Defendants held meetings at the lobby of a nearby hotel, village offices of the Clan and the home of one of the Defendants.  The columbarium has been built.  The temple was not renovated but demolished.  Much has been said about these matters by the Defendants.  They are incontrovertible.  Witness statements have been exchanged.  The evidence is all there.  There is nothing more to be done or to discuss, but to fix a date for trial.  There is no need for calling for more meetings to be attended by more members of the Clan to criticised the columbarium or the Plaintiffs’ decision or their conduct.  It is going to be a matter for the trial judge.  There is nothing to suggest the Defendants could not conduct the litigation or the meetings in the way they have been conducting them in the past two years.  As the matter now stands, it is a matter of balancing.  What purposes are to be achieved by those meetings?  How often would the Defendants have to hold meetings involving a large number of attendants?  Is it reasonable to incur hefty recurring rental to provide an occasional meeting place for the few Defendants and perhaps additional members of the Clan for the purpose of preparing the litigation?  The Defendants’ assertion that they need an office to conduct meetings to discuss these matters is a bald one.  I am not satisfied that they have made out a good case for having an office.

17.  On the contrary, I do entertain some real doubts about their need for an office.  If there was a real need for an office and there was a lack of funds, they should have applied for funds just as did the Plaintiffs.  Yet, for two years, they did nothing.  I cannot help feeling suspect about the Defendants’ motive.  They never thought it necessary to apply for funds to rent an office or hire a secretary, until after seeing the Plaintiffs’ present summons and six days before this hearing.  Even if there was a real need for an office in the past, they are not entitled to reimbursement of expenses which they never spent.  At this stage, I only assess their present need.  As the matter now stands, there is no need for an office.  I reject the Defendants’ application for funds under this item.

Item 5:  A sum of $120,000 for salary of a secretary for the Clan

18.  The Defendants apply for a sum of $120,000 for hiring a secretary for the Clan for a period of twelve months.  They need a secretary to file and retrieve documents for the present proceedings.  They argue that Yam J’s order dated 17 December 2002 allowed them to employ a secretary.  That is a gross misunderstanding, if not a deliberate misrepresentation of the order.  The relevant part of Yam J’s order is:

“Upon the Plaintiffs’ undertaking (…) to call a meeting of the t’ong Tsing Wan Kwun (“the T’ong”) to discuss and appoint by a majority of the attending members: -

i) a secretary to perform such secretarial duties as may be required by the T’ong;

 …

IT IS HEREBY ORDERED AND DIRECTED THAT;-

1. …

2. The sum of HK$3,000,000 (“the said Sum”) be released from HSBC International Trustee Limited to the account in the name of Tsing Wan Kwun with Bank Of China (Hong Kong) Limited under a/c no. … for the purpose of:-

i) the day to day expenses of the T’ong and the temple  Tsing Wan Kwun including the payment of salaries of    2 watchman and the secretary to be appointed;

 …”

(Emphasis underlined)

Even on a casual reading of the order, it is clear that it was the T’ong which was allowed to employ a secretary to perform duties as required by the T’ong.  The order did not allow the Defendants to employ a secretary for the purposes of the Clan.  Even the appointment of the secretary by T’ong would have to be approved by the majority of the members of the T’ong attending a meeting convened for the purpose of discussing such appointment.  No meeting was convened for the purpose of discussing the appointment of a secretary for the Defendants’ camp, let alone the approval of the appointment.

19.  Besides, the Defendants’ need for a secretary had been raised at the hearing of 23 December 2010 before Yam J.  In To Siu Lam’s affirmation dated 6 September 2010, the Defendants argued that the sum of $150,000 was to cover the salary of a secretary.  That was opposed by the Plaintiffs.  As indicated by the Defendants’ Skeleton Submission, the Third Supplemental Submission and their counsel’s oral submission as recorded in the transcript, that request was abandoned.

20.  Furthermore, the Defendants only represent those who oppose the distribution of the funds.  They are not representing the T’ong or the Clan.  They have no justification to be reimbursed from the assets of the T’ong their cost of employing a secretary for the Clan or the T’ong.

21.  As the matter now stands, in the present proceedings, pleadings have been closed, documents and witness statements have been exchanged and case management conference has been held.  The only outstanding matter is to fix a date for trial.  The employment of a secretary for the Defendants’ camp is redundant.  So far as the litigation is concerned, there is nothing that the Defendants’ solicitors could not attend to.  If there are any documents to be retrieved, the Defendants certainly know better where to retrieve them than a secretary who is a total stranger to the litigation.  The Defendants have not satisfied me that they have a genuine need for a secretary.  It seems to me that they were only provoked to make this claim when they learned that the Plaintiffs are seeking funds for continuing the employment of their secretary for the T’ong.  I dismiss this item of claim.

Item 6: A sum of $75,000 as operational running costs for the Clan for six months from 15 December 2012

22.  In the fifth affirmation of To Siu Lam filed on 23 November 2012 in support of the Defendants’ application, To Siu Lam said the sum of $150,000 released to the Defendant had almost been used up and he was too busy to prepare an account of the expenditure.  Hence, he simply asked for another sum of $75,000 which is half of the first sum released to the Defendants. They had two years to account for the expenditure, but they chose to leave it to a few days before they made the application for more funds to say that they had no time to give an account.  There is an air of insincerity in his affirmation as to how the Defendants had spent the sum of $150,000.

23.  In his sixth affirmation, To Siu Lam said that the sum of $75,000 is being sought for one-off purchases of office furniture and equipment and recurrent expenses for six months.  The office furniture and equipment include office desks, conference table, chairs, shelves, photocopier, water dispenser, stationery, paper and water.  The recurrent expenses include charges for office cleaning, telephone, electricity and broadband facility and travelling expenses.  These expenses have not yet been incurred.  They are financial provision for the Clan office to be set up by the Defendants.  As there is no need for such an office to be set up, this claim must fall away.

The Defendants’ account as to how the sum of $150,000 released to them under the amended 2010 Order had been spent

24.  The Defendants had been given a sum of $150,000 to be used for the operational running costs for the purpose of the litigation.  To Siu Lam gave the following account as to how the sum of $150,000 was spent:

(1)   $8,000 for compiling the Clan’s accounts;

(2)   $52,000 for expert fees of Professor Hugh Baker;

(3)   $22,859 on computer and accessories kept in the 5^th Defendant’s home;

(4)   $57,000 for newspaper notice relating to the alleged unauthorized construction of the columbarium;

(5)   $1,800 for conducting land and company searches relating to the unauthorized construction of the columbarium; and

(6)   $11,700 for travelling expenses for the Defendants to and from Tuen Mun and Central.

Obviously, not all of these expenditures were incurred for the purpose of the litigations.

25.  The Defendants only represent those members of the Clan or T’ong opposing the distribution of the surplus funds, but not the Clan as a whole.  It is difficult to see how compiling an account of the Clan could constitute their operational running costs for the litigation.

26.  A sum of $52,000 was paid to Professor Hugh Baker as his expert fee.  That fee was paid by a cheque dated 9 November 2009.  On the face, it should have been regarded as the Defendants’ legal costs and expenses in the previous litigation, which should have been included in their previous payment out application as per their summons dated 6 September 2010 when they applied for and were granted $200,000 for expert fees.  If for whatever reason they had not claimed that fee, they have no authority to pay it out from funds set aside for the present litigation. They should have made a separate application under the previous litigation.  If they had been paid, then they should not seek double recovery.  On the face, it could not have been paid for the purpose of the present litigation.  While I have no doubt that the fee had been paid to the professor, I am not satisfied what was it paid for; whether it was paid for the purpose of the present litigation; and whether it had not been claimed under the previous proceedings.  There is no explanation or supporting documents to show that the fee was incurred for the present litigation.  There is much left unexplained.  I am not satisfied that this amount has been spent for the purpose of the present litigation.

27.  As for the sum of $22,859 spent on the computer and accessory kept in the 5^th Defendant’s home, given this date and age and the fact that the Defendants had no office, I would give the Defendants the benefit of doubt and accept that this amount was properly spent for the purpose of the present litigation.

28.  A sum of $57,000 was spent on newspaper notices advising the public that the columbarium is an unauthorized construction and a sum of $1,800 was spent conducting company and land searches in respect of the columbarium. The Plaintiffs’ decision to demolish the temple and build the columbarium is incontrovertible and may be evidence of their unfitness as managers of the T’ong. But, however laudable was the Defendants’ motive, advising the public of the illegal columbarium has nothing to do with the purpose of the present litigation.  Likewise, the land search and company search were unnecessary.

29.  As for the travelling expenses of $11,700, I would accept on the face of the Defendants’ assertion that those expenses were properly spent.

30.  Thus, in the end, of the amount of $150,000 released to the Defendants, they could only prove that they have properly spent $34,559, leaving a balance of $115,441 unaccounted for.  I do not think it could be recovered from the Defendants, nor is it necessary in view of the fact that the litigation is still on-going.  It is also my intention not to interfere with Yam J’s amended 2010 Order.  Thus, it would be best to leave the balance with the Defendants to be used for the same purposes under the amended 2010 Order.  If any new need arises, including the need for an office as a result of change in circumstances, it could be met from the balance.  The Defendants cannot complain that they have no funds for the litigation.  If they can justify the expert fee, which I have disallowed, by adequate evidence and show that the balance is exhausted or about to be exhausted, they have liberty to apply for more funds.  The sum of $117,000 mentioned in the sealed order dated 21 December 2012 prepared by the Defendants’ solicitor was an error which escaped the notice of my clerk and should be amended under the slip rule.  The correct balance is $115,441.

Conclusion

31.  Accordingly, I dismiss the Defendants’ application under items (4), (5) and (6) of paragraph 1 of their summons dated 23 November 2012 and allow the balance of the sum of $150,000 released to them under the amended order dated 23 December 2010 to be retained by the Defendants to be used for the same purpose under that order for another period of six months from 21 December 2012.

32.  The Plaintiffs have successfully resisted the Defendants’ application on behalf of the T’ong.  Furthermore, they had the benefit of the Beddoe order.  I therefore award them the costs of and occasioned by the Defendants’ application to be paid out of the assets of the T’ong and  to be taxed on a trustee basis, if not agreed.  The Defendants are unsuccessful.  They are to bear their own costs.  I make no order as to their costs.