TO KIN WAH AND OTHER v. TO FOOK TIM AND OTHERS

HCA 1603/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1603 OF 2004

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BETWEEN

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J U D G M E N T

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1.  This is an application by the defendants for an order that the plaintiffs be precluded from admitting and adducing any evidence as per the witness statements of the witnesses identified in the summons dated 15 April 2010. On the defendants’ case those witness statements contain inadmissible and objectionable evidence and they ask for an order that the objectionable parts be struck out. They also seek an order that the plaintiffs do re-serve fresh witness statements of those witnesses without the objectionable parts and that they be at liberty to serve witness statements in reply.

2.  By the order of the Court of Appeal (Le Pichon JA and Barma J) on 16 December 2008 it was ordered, inter alia, that this action (“HCA 1603”) and Originating Summons HCMP No. 509 of 2002 (“HCMP 509”) be tried at the same time. 

3.  The defendants To Fook Tim, To Kam Chau and To Kan Chi (“the managers”) are the three managers of the ancestral t’ong of the To clan called the Tsing Wan Kun (“the t’ong”).  In the course of the hearing I was informed that To Fook Tim has passed away but he still remains a party.  No doubt the proper steps will be taken to deal with this in due course.  For the purpose of this application, however, I shall continue to treat him as a party.

4.  Both HCA 1603 and HCMP 509 are proceedings concerning the management and the application of the funds belonging to the t’ong.  

5.  In Secretary for Justice v To Kan Chi & Others [2000] 3 HKCFAR 481 the Court of Final Appeal held that the declaration that was made that the Tsing Wan Kun Temple and its assets were owned by the t’ong whose members were ultimately the members from time to time of the tso and the To clan would stand.  The Court of Final Appeal in the joint judgment of Bokhary and Chan PJJ at page 498 varied the declarations that had been made by declaring instead:

“(1) The temple Tsing Wan Kun and all its assets, including the Funds, are owned by the t’ong Tsing Wan Kun, the members of which t’ong are the members from time to time of the Tso and the Clan.

(2) 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 Chinese law and custom.

(3) The temple Tsing Wan Kun is a Chinese temple within the scope of the Chinese Temples Ordinance, and the Ordinance applies to it.”

6.  HCMP 509 was taken out as an ex parte Originating Summons by the managers on 5 February 2002 for payment out of the funds.  The proceedings were made inter partes on 28 June 2002 when To Kin Wah and his son were added as objecting parties.

7.  HCA 1603 was commenced on 8 July 2004 by To Kin Wah as plaintiff against the managers as defendants.  On 3 November 2008 the other plaintiffs were added as plaintiffs.

8.  The Court of Appeal (Le Pichon JA and Barma J) was dealing with interlocutory appeals in CACV 107 of 2008 (“CACV 107”) and in CACV 108 of 2008 (“CACV 108”).

9.  CACV 107 was an appeal from 3 orders made in HCA 1603 by Yam J on 8 April 2008 dismissing (1) the plaintiffs’ summons dated 23 May 2005 for leave to amend the statement of claim; (2) the plaintiffs’ summons dated 18 November 2004 for consolidation of the action with HCMP 509; and (3) the plaintiffs’ summons dated 23 May 2005 for a pre-emptive costs order in their favour.

10.  CACV 108 was an appeal from an order made in HCMP 509 by Yam J also on 8 April 2008 dismissing the application in HCMP 509 for consolidation with HCA 1603.

11.  The relevant background is succinctly set out in the judgment of Le Pichon JA which I gratefully adopt for the purpose of this application.  Le Pichon JA said :

“4. The managers and the appellants belong to the t’ong Tsing Wan Kun. The members of that t’ong are the members from time to time of the To Ka Yi Tso (“the tso”) and the To clan.

5. In the previous proceedings, the Court of Final Appeal declared that the t’ong Tsing Wan Kun’s proprietary rights in the temple Tsing Wan Kun’s assets are vested rights and that the t’ong Tsing Wan Kun 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 Court of Final Appeal explained that the proviso was necessary in 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. While the court did not deal with the details of the relevant requirements of Chinese law and custom, it made the observation that “unanimity in some form is generally required”.

6. After the Court of Final Appeal’s decision, the managers (who were and remain managers of the tso) were appointed managers of the t’ong at a meeting of Tsing Wan Kun held on the 13 May 2001. A further meeting was convened on 12 August 2001 which resolved that apart from certain land including the site of the Kun together with $50 million to be set aside for devotion to temple purposes, all other property, assets and funds “shall be applied for such purpose and in such manner as the T’ong Tsing Wan Kun may from time to time determine”.

7. The District Officer of the Tuen Mun Home Affairs Department approved the appointment of the managers as managers of the t’ong Tsing Wan Kun as from 2 January 2002 under the provisions of section 15 of the New Territories Ordinance.

8. As earlier noted, in February 2002, by dint of their appointment as managers and the resolution of 12 August 2001, the managers applied, ex parte, for payment out of the funds to them. The supporting affirmation did not reveal the managers’ intention as regards “the surplus funds”, namely, the funds other than the $50 million to be set aside for temple purposes. In Apri1 2002, the appellants objected to the payment out on the ground that the appointment of the managers did not comply with the requirements of Chinese law and custom which required unanimity and was thus invalid. Further there was concern as to how the managers 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 an affirmation filed by on behalf of the managers that their intention was to distribute the surplus funds among the members by a method to be decided in future meetings.

9. HCMP 509 was made inter partes in June 2002. By mid-2004, it had not progressed further: there were no directions for the filing of pleadings so that the issues could be defined or for the underlying issues to be otherwise formulated. The only issue on the face of the summons was still whether the funds should be paid out to the managers which was not a satisfactory state of affairs given the matters raised in the opposing affirmations. In those circumstances, the appellants instituted HCA 1603 against the managers in July 2004. This took place a week before the hearing of judicial review proceedings challenging the validity of the administrative decision to register the managers.

10. HCA 1603 challenged the validity of the appointment of the managers in 2001 and the validity of a resolution of 27 June 2004 ratifying their appointment on the basis that the decisions did not comply with Chinese law and custom which required the decisions to be unanimously supported by the members or alternatively some form of unanimity and that the custom of the t’ong, clan and tso did not allow retrospective ratification of such appointment. Further, it was said that the managers were not fit and proper persons to be managers of the t’ong. The relief sought was for a declaration that the managers had not been validly appointed and for an injunction to restrain them from acting as managers of the t’ong.”

12.  Mr Chan SC, with Ms Leung, for the managers, submitted that there were two groups of objectionable evidence in the witness statements.  The first was in respect of allegations made by those witnesses of gangster involvement by the managers which include threats made and violence used on members of the clan and the second was as to the suitability of the managers to be managers and trustees of the funds.

13.  In a lengthy schedule to his written submissions Mr Chan gave a summary of the evidence of the various witnesses with paragraph numbers in their witness statements falling under the two groups of objectionable evidence.  He divided these up into the 5 subgroups (A) to (G) in the schedule.

14.  Mr McDonnell QC, with Mr Wong, for the plaintiffs submitted that the evidence complained of was relevant and admissible evidence at the trial.  He pointed out that the witness statements were served in respect of both HCA 1603 and HCMP 509 which had been ordered by the Court of Appeal to be tried at the same time.

15.  As Le Pichon JA observed at paragraph 1 of her judgment, the plaintiffs in HCA 1603 and the defendants in HCMP 509 adopt the same stance as regards the management and application of the funds and so can be said to have an identity of interest in the two sets of proceedings.  It was ordered that HCA 1603 and HCMP 509 be tried at the same time.

16.  It is clear that the orders made by the Court of Appeal in CACV 107 and CACV 108 on 16 December 2008 were in relation to the further conduct of both proceedings.  Identical directions were given as to the exchange of lists of documents, inspection, exchange of witness statements and expert reports on Chinese law and custom.

17.  Le Pichon JA observed that the issues underlying HCMP 509 had not been formally crystallized.  It was for that reason that the plaintiffs applied before Yam J for leave to amend the statement of claim in the terms of the draft amended statement of claim presented to him and the Court of Appeal (“the draft amended statement of claim”).  Le Pichon JA also helpfully analysed the draft amended statement of claim and identified the issues.  She said at paragraph 11 of her judgment :

“The continuing absence of any crystallization of the issues underlying HCMP 509 despite further affirmations setting out the parties’ respective stance led to the application for an amendment in HCA 1603. In brief, the issues in HCA 1603 (with the proposed amendments which the judge did not allow) involve the following :

(1) whether under Chinese law and custom unanimity or, alternatively, some form of unanimity is required for

(a) the appointment of managers; and

(b) decisions concerning the distribution or preservation of the surplus funds;

(2) the trusts affecting the surplus funds;

(3) the fitness or suitability of the managers;

(4) whether there have been breaches of trust.”

18.  In respect of HCMP 509, on 29 September 2005 Yam J made a pre-emptive costs in favour of the defendants in HCMP 509 but adjourned the other summonses including the summons for leave to amend the statement of claim in HCA 1603.  Le Pichon JA was critical of the fact that nothing had been done by then to enable the issues in HCMP 509 to be crystallized and for the matter to progress when 3½ years had already elapsed from the date of the Originating Summons (paragraph 13).

19.  One of the matters that the Court of Appeal was concerned with was the appeal from the order of Yam J dismissing the application for leave to amend the statement of claim in HCA 1603.  Another matter was the dismissal by Yam J of the application by the plaintiffs for a pre-emptive costs order in HCA 1603.

20.  As is reflected in the judgment, at the hearing of the appeal the Court expressed its tentative views as to the merits of the appeal and in particular, the difficulty in obtaining a pre-emptive costs order when one of the issues was whether there were breaches of trust by the managers (paragraph 15).

21.  At paragraphs 15 to 18 of her judgment Le Pichon JA went on to make some observations as to the proper approach as to trustees’ costs generally and on pre-emptive costs order in the context of the proceedings.

22.  She observed at paragraph 19 that it had become clear that

“the issues underlying HCMP 509 (yet to be properly formulated in those proceedings), are issues that affect the administration of the trusts of the t’ong. Accordingly, it would appear appropriate for the costs of both sides to be provided for out of those funds.”

23.  She further said at paragraph 20 that

“ So far as the ‘hostile’ elements in HCA 1603 are concerned such as allegations of breaches of trust, pre-emptive costs order are wholly inappropriate, whether in respect of the costs of the trustees or the beneficiaries who are making the allegations. Costs should normally be dealt with at the end of the proceedings when the court would be in a position to decide where the costs should fall. As a general rule, a trustee who is found to have acted in breach of trust would be excluded from any entitlement to indemnity out of trust assets and a beneficiary who unsuccessfully sues trustees will normally have to pay their costs.”

24.  What follows is important.  Le Pichon JA said :

“ 21. When the hearing resumed, Mr McDonnell offered a ‘practical solution’, namely, that if this court were otherwise receptive to the appellants’ appeals, they would be willing to abandon the ‘hostile’ elements in HCA 1603 such that allthe issues raised in that action would be non-hostile and wouldsimply be formulations of the Issues underlying HCMP 509. The hearing was then adjourned to the afternoon to enable the parties to consider and to take instructions on that proposal. [Emphasis added]

22. In the event, the parties were able to compromise their differences on the appeals. Although the terms required fine-tuning, essentially it was agreed in principle that if this court were minded to grant leave to the appellants to amend the statement of claim so as to ‘sanitize’ it by removing all allegations that could give rise to hostile litigation, the managers would not oppose the application for leave to amend and upon the grant of such leave, the appeals would be allowed with orders

(1) for HCMP 509 and HCA 1603 be tried together;

(2) extending the pre-emptive costs order in favour of the appellants to HCA 1603;

(3) granting the managers the same pre-emptive costs order for both proceedings;

(4) under Order 15, rule 13 for representation so that any decision made would be binding on all members of the t’ong including unborn and unascertained members; and

(5) that the costs below on the 4 summonses and of these appeals be paid out of the assets of the t’ong.”

25.  It is clear from the above passages that the appeals were compromised in the manner as set out by Le Pichon JA.

26.  The orders that were eventually drawn up in CACV 107 and CACV 108 reflect the position as set out in the judgment.

27.  Mr Chan in his submissions analysed the draft amended statement of claim and the amended statement of claim in respect of which leave to amend was given by the Court of Appeal after it had been ‘sanitized’ as a result of the compromise (“the amended statement of claim”).

28.  Mr McDonnell submitted before me that the allegations of breach of trust were dropped as were the claims for misappropriation and misapplication of the funds of the trust.  He, however, submitted that allegations about the fitness or suitability of the managers to manage the trust funds were still very much live issues and had not been dropped.

29.  On a perusal of the draft amended statement of claim and the amended statement of claim after it had been ‘sanitized’ it seems to me that the plaintiffs have indeed abandoned all allegations of breach of trust.  It seems to me that the plaintiffs have also abandoned allegations that the managers were not fit and proper managers of the t’ong on the ground that they were not “able and just (公正才幹)”.  This was previously pleaded in paragraph 23 of the draft amended statement of claim with particulars given at paragraph 24 but which were deleted and dropped when the draft amended statement of claim was ‘sanitised’ culminating in the amended statement of claim.  I would also observe that paragraphs 23 and 24 are under the heading “Defendants not fit and proper to be the Managers of the T’ong” which was also deleted in the amended statement of claim.

30.  Prayer (2) in the draft amended statement of claim seeking an injunction to restrain the managers from claiming to be and/or acting as managers of the t’ong was also deleted as was paragraph 35.

31.  By paragraphs 36 and 37 of the draft amended statement of claim the plaintiffs pleaded that the t’ong came into existence for the purpose of providing and endowing the temple for the benefit of the tso and the To clan.  According to Chinese law and custom, any monies of the t’ong should be dedicated to the primary purpose of maintaining and enhancing the temple and supporting the worship and other activities traditionally carried out there (“the primary purpose”).

32.  It was further pleaded by paragraph 38 that according to Chinese law and custom any surplus monies of the t’ong which are not required for the primary purpose should be dedicated to projects or activities of a similar character beneficial to the present and future members of the t’ong (“the secondary purpose”).  By paragraph 39 it was pleaded that any assets of the t’ong which are held by the managers and/or under their control are held and/or controlled by them as trustees for the primary and secondary purposes.

33.  By paragraph 40 the plaintiffs assert that as a result of the disposals of land belonging to the t’ong there are very large sums of money held by or under the control of the managers which are surplus to the requirements of the primary purpose and should be applied to the secondary purpose (“the surplus fund”).  And by paragraph 41 they assert that contrary to the secondary purpose the managers have taken no steps to propose or instigate any projects or activities under which the surplus fund would be applied for the benefit of present and future members of the t’ong.

34.  The above paragraphs in the draft amended statement of claim were repeated in the amended statement of claim.

35.  By prayers (2A) and (2B) of the amended statement of claim the plaintiffs claim for an order that the trusts affecting the assets of the t’ong or alternatively the surplus fund should be administered by the Court with all necessary accounts, inquiries and directions.  By prayer (2C) they claim for the appointment of fit and proper persons to be the managers and trustees of the assets of the t’ong or alternatively the surplus fund.  By prayers (2D) they claim for the appointment of a Judicial Trustee to take into safe custody the assets of the t’ong or alternatively the surplus fund and administer them under the directions of the Court.

36.  Mr McDonnell submitted that with the above reliefs claimed which remained in the amended statement of claim the issue as the suitability of the managers to be the managers and trustees of the assets of the t’ong was still a live issue.

37.  No doubt at trial the Court will be concerned as to whether the managers are fit and proper persons to be managers and trustees of the assets of the t’ong.  However, the pleadings define the plaintiffs’ allegations as to the unsuitability of the managers to be managers and trustees of the assets of the t’ong or the surplus fund.  The allegation made at paragraph 41 of the amended statement of claim is that the managers have wrongfully taken no steps to propose or instigate any projects or activities under which the surplus fund would be applied for the benefit of present and future members of the t’ong.  The imputation is that because of that they are not fit and proper persons to be managers and trustees of the assets of the t’ong or the surplus fund.

38.  It is significant that paragraphs 23 and 24 of the draft amended statement of claim which particularized the reasons why the plaintiffs had earlier alleged that the managers were not “able and just and not fit and proper” to be the managers of the t’ong were deleted and abandoned when the amended statement of claim was sanitized.  The particulars included allegations that the managers

(a) failed to repay monies to the t’ong,

(b) failed to honour undertakings to the Court,

(c) failed to explain amounts withdrawn from the t’ong accounts controlled by them,

(d) attempted to use the t’ong monies to finance their own litigation,

(e) failed to explain why they agreed with some members of the tso and the clan that loans from those members for the purpose of financing previous litigation with the Government would be repaid 5 times the capital with 20% interest,

(f) issued the notice which was misleading and concealing material facts,

(g) failed to account for the compensation received from the Government for resumption of lands of the tso.

39.  It seems to me that not only were allegations of breach of trust abandoned but also the allegations of mismanagement and misappropriation on the part of the managers.  This is reflected by the deletion of the paragraphs in the draft amended statement of claim that I have mentioned.

40.  As regards the first group of objectionable evidence in the witness statements, I agree with Mr McDonnell that the manner in which the meetings were conducted is relevant to the question of whether there was unanimous support for them and for the validity of the resolutions passed as being unanimous.  Paragraph 8 of the amended statement of claim pleads that according to Chinese law and custom resolutions proposed in the general meeting of the t’ong can only be passed if it is unanimously supported by members of the t’ong alternatively, the passing of resolution requires some form of unanimity.  The evidence as to gangster involvement by the managers including threats made and violence used is in view relevant and should not be excluded.   In my view the first group of objectionable evidence should not be excluded at the trial.

41.  As regards the second group of objectionable evidence, it seems to me that the pleadings have confined the allegations made by the plaintiffs as to why they say the managers are unsuitable and not fit and proper managers and trustees of the assets of the t’ong or surplus fund.  The only allegation made as to their unsuitability is their failure as set out in paragraph 41 of the amended statement of claim namely, their failure to apply the surplus fund for the secondary purpose.

42.  It seems to me that the evidence of the witnesses dealing with the mismanagement and the misappropriation of the assets of the t’ong by the managers should be excluded at the trial.  

43.  As I have said, the schedule to Mr Chan’s submissions summarizes the parts of the witness statements containing the objectionable evidence.  In my view the following paragraphs of the witness statements of the various witnesses do fall under the second group of objectionable evidence namely, breach of trust and mismanagement and misappropriation of the assets of the t’ong by the managers :

(1) To Siu Lam, paragraphs 47 to 51, 56 to 62, 68 to 69;

(2) To Kam Wah, paragraph 8 (save for the first six sentences), paragraph 9, paragraphs 14 to 16, 26 to 28;

(3) To Cheong Lam, paragraphs 9 to 11, 17, 22 , 25 to 26;

(4) To Che Ming, paragraph 9;

(5) To Kai Wah, paragraphs 22 and 25;

(6) To Kam Cheung, paragraph 13;

(7) To Cheuk Wing, paragraph 11 (save for the first six sentences), the last sentence in paragraph 12, paragraph 13, the last sentence in paragraph 14, paragraph 15;

(8) To Ka Tak, paragraphs 8 to 9, paragraph 19;

(9) To Kap Po, paragraph 16;

(10) To Chi Tsuen, the last sentence in paragraph 7.

44.  In my view the plaintiffs cannot seek to adduce the above evidence as being relevant to the issues underlying HCMP 509.  As Le Pichon JA observed at paragraph 21 of her judgment, the ‘practical solution’ offered by Mr McDonnell was that the plaintiffs “would be willing to abandon the ‘hostile’ elements in HCA 1603 such that all the issues raised in that action would be non-hostile and would simply be formulations of the Issues underlying HCMP 509”.  On that basis the Court of Appeal made the pre-emptive costs orders in CACV 107 and CACV 108.

45.  I make an order that the witnesses as set out in (1) to (10) in paragraph 43 above should be precluded from giving evidence at the trial as set out in the paragraphs of their witness statements that I have mentioned.  It would be a waste of time and costs to require them to re-serve witness statements and I am not prepared to so order.

46.  As far as the witness statements of To Shu San, To Tat Sun and To Kin Wah are concerned, I do not think that they should be precluded from giving evidence in accordance with their witness statements.

47.  I also give leave to the managers to serve witness statements in reply within 21 days, if so advised.

48.  I have not heard any arguments on the costs of this application.  As this is a matter of case management I make an order nisi that the costs of all parties in respect of this application be paid out of the assets of the t’ong in view of the pre-emptive costs order made by the Court of Appeal.