CHAP YICK CLANSMAN'S ASSOCIATION LTD v. MOK FAI

1996, No.MP888

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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J U D G M E N T

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1. This is an application by Chap Yick Clansman's Association Limited ("the Company"), a company limited by guarantee, to ascertain the beneficial ownership of the premises known as No.19 Queen's Road East, 6th Floor, Hong Kong, more particularly described in an Assignment dated 1 September 1961 and registered in the Land Office by Memorial No.349763 ("the Property") and if appropriate, for a vesting order. The Defendant, a member of the Company, and prior to its incorporation in 1969, a member of the predecessor unincorporated association, is sued on his own behalf as well as on behalf of all other beneficiaries who are or may be interested in the Trust created by the Declaration of Trust made contemporaneously with the Assignment affecting the Property.

2. At the hearing on 27 February 1997, the Court was presented with a hearing bundle of exhibits. Many of the documents were hand-written Chinese documents which were not readily legible. No English translation (whether certified or not), even of the documents relied on by counsel, was made available in proceedings that were conducted in English. This is plainly undesirable and is to be deplored. In addition, "free" translations and summaries of minutes given in the main affirmation were deficient and inaccurate in some respects. As a result, considerable time and resources have been taken up since the first hearing on 27 February which would not have been necessary had the parties' legal advisors discharged their responsibilities. A further hearing (which took place on 30 April 1997) was necessitated by the failure to put before the court certain minutes the Company that were material to the issues raised. This emerged after the Minute Book of the meetings of the 1st Session of the Company was supplied to the Court at its request because of inaccuracies identified.

Legal title to the Property

3. By an Assignment dated 1 September 1961, the Property was assigned to Tsou Choh, Leung Kin Kai, Chung Cheun and Tso Siu Hung as joint tenants ("the Original Trustees").

4. After the death of three of the four Original Trustees, the surviving trustee Tso Siu Hung executed a Deed of Appointment on 13 June 1990 appointing the Company, which was incorporated on 29 April 1969, to act as a new trustee jointly with him. Tso Siu Hung died on 7 July 1995. The Company as the sole surviving trustee appointed Mok Fai, the Defendant herein, as a new trustee in place of the late Tso Siu Hung to act jointly with the Company. The 1996 Deed of Appointment contained an error in the third recital in as much as it recited a Deed of Appointment dated 29 April 1969 which effected the appointment of the Company as trustee. Plainly, the reference intended was to the Deed of Appointment dated 13 June 1990 since there is no Deed that is dated 29 April 1969 which was the date of the Company's incorporation.

5. Accordingly, the Property is presently vested in the Company and Mok Fai as joint tenants upon the trusts of the 1961 Declaration of Trust.

Purchase of the Property

6. In about 1933, Clansman from the three counties of Sun Hing (新與), Wan Fau (雲浮) and Yuen Chuen (陽春) of mainland China formed the Chap Yick Clansman's Association, an unincorporated association, ("the Association"). As such, it had no separate legal existence apart from the members of which it was composed. There is in evidence a membership record from 1933 to 1958. This consists of membership certificates numbered 1 to 540, the last certificate being dated 20 September 1958. Certain of the membership certificates bear a cancellation mark. There is an affirmation filed on behalf of the Company by Sin Siu Chung who became a member of the Association on 10 August 1953. His then membership number was 406 and he is now a member of the Company. According to Mr Sin, the Association did not admit new members after 20 September 1958. This appears to be an inference drawn from the last entry in the record of membership rather than a statement of matters within his knowledge. Prima facie, it seems odd for the Association which was still active and continued to be so to cease to admit new members.

7. Be that as it may, the Property was purchased some three years later on 1 September 1961. By a contemporaneous Declaration of Trust, after reciting that the Property was in fact purchased by the Original Trustees for and on behalf of the Association and that the purchase price of $28,000 in the Assignment expressed to be paid by the Original Trustees to the vendor was money provided by and belonging to the Association, the Original Trustees declared that they should stand possessed of the Property and rent, profits and proceeds of sale thereof :

"UPON TRUST for the said Association and each and every member thereof absolutely and the Trustees hereby agree to assign transfer or otherwise dispose of the said premises at the request and costs of the said Association unto any person or persons at such time or in such manner as the said Association shall direct or appoint."

8. As noted above, the Declaration of Trust itself recited that the source of the funds for the purchase "was money provided by and belonging to the said Association". As the Association had no separate legal existence, that could only mean monies belonging to the then members. Mr Sin's evidence is that part of the purchase price was raised from donations which came from the then members of the Association. He himself made a donation for that purpose but cannot now recall what he had contributed. The balance came from the then existing funds held by the Association. It would appear that from time to time, the Association had organised donation campaigns for specific causes. Whilst Mr Sin believes that records of donations received at the time would have been maintained, they cannot now be located. In any event, the Property has been used by the members as the meeting place of the Association since its acquisition.

Incorporation of the Company

9. There is a donation book of the Association dated 2 November 1968. The first page of the donation book contained a statement to the effect that the Association for the purpose of reorganisation into a limited company, was specifically campaigning for donations and invited each member of the executive committee and supervising committee and staff of the Association to donate freely.

10. Minutes of the first joint meeting of the 20th Session of the executive and supervisory committees of the Association held on 2 November 1968 recorded a decision by the members at the general meeting of the Association to reorganise the Association into a company. At the fourth joint meeting of the 20th Session of the executive and supervisory committees of the Association held on 2 February 1969, it was resolved that the Memorandum and Articles of Association for the Company be put before the members at an extraordinary general meeting of the Association to be held on 23 February 1969. On 23 February 1969, the proposed Memorandum and Articles were read out to the meeting and duly approved. The minutes of the fifth joint meeting held on 3 May 1969 referred to the incorporation of the Association as a limited company and to the need to convene a general meeting of the Company for the election of officials in accordance with the Memorandum and Articles.

11. On 3 June 1969, two meetings were held. At 8 pm that evening, a meeting of the election sub-committee of the 1st Session of the Company was held to establish election procedures etc. for the election of officials to the Company on 29 June 1969. That meeting concluded at 9 pm. Mr Sin's affirmation (para.15) is therefore inaccurate in describing this meeting as one of the two last meetings of the Association. The second meeting commenced at 9 pm but was the sixth joint meeting of the 20th Session of the executive and supervisory committees of the Association which dealt, inter alia, with the application of condolence money for a deceased member, whether a dinner should be held after the election on 29 June 1969 and an application for membership by a new member. This appears to have been the last recorded meeting of the Association.

The Memorandum of Association

12. The objects of the Company include the following :

"(o) ... to purchase ... or otherwise acquire any real or personal property, and any rights or privileges which the [Company] may think necessary or convenient for the purposes of the [Company];

(p)(A) to hold ... any property ... as trustee either solely or jointly or severally with other trustee or trustees, for any beneficiary or beneficiaries, and to act as such trustee and to exercise the privileges and rights and fulfill the duties and obligations of such trustee. (This object was added by a special resolution passed at an extraordinary general meeting of the Company held on 3 June 1990.)

(q) To accept any gift or property, whether subject to any special trust or not, or for any one or more of the objects of the [Company]."

The Articles of Association

13. Article 6 provided that :

"Any member of the unincorporated Chap Yick Clansman's Association, having paid up his subscription and other monies payable to the said Association, shall automatically become a member without ballot or payment of entrance fee."

The first General Meeting of the Company

14. The minutes of the first General Meeting of the Company held on 29 June 1969 show that after dealing with the election results, the Chairman reported on the audited income and recurring expenditure accounts of the Association and of its welfare unit for the period of 2 October 1968 to 30 June 1969. The minutes recorded, inter alia, that :

"(4) ... the revenue and expenditure account was read out in public. However according to the account, the balance of the bank deposit of regular fees was $2,023.95 and balance of cash $740.00; members' regular subsidy fees to be received $1,534.00; members' regular subsidy fees received in advance $1,061; payable to Welfare Group $1,000.00; Welfare Group balance of bank deposit $7,108.30 and balance of cash $947.50; receivable for loans lent out for the regular expenses of the Association $1,000.00, receivable for welfare fund $807.50; receivable for wreaths $1,544; advanced receipt of welfare fund $527; the above assets and liabilities should be passed on to this Association's limited company which is to take over the handling thereof. Proposal for resolution.

Resolution :- Passed unanimously."

15. It has to be noted that nowhere in the minutes was there any reference to the Property or any resolution by the members of the Association at the time relating to their interest in the Property.

The trusts affecting the Property

On 1 September 1969

16. It is common ground that the Association was an unincorporated non-charitable association. It is trite law that an unincorporated association is not recognised by law as having an independent legal existence. The validity of gifts made to such an association depends on the construction of the gift : Leahy v. AG for New South Wales [1959] AC 457 at 477.

17. In Neville Estates Ltd. v. Madden [1962] 1 Ch.832 at 849, Cross J. analyzed the position as follows :

"... Such a gift may take effect in one or other of three quite different ways. In the first place, it may, on its true construction, be a gift to the members of the association at the relevant date as joint tenants, so that any member can sever his share and claim it whether or not he continues to be a member of the association. Secondly, it may be a gift to the existing members not as joint tenants, but subject to their respective contractual rights and liabilities towards one another as members of the association. In such a case a member cannot sever his share. It will accrue to the other members on his death or resignation, even though such members include persons who became members after the gift took effect. If this is the effect of the gift, it will not be open to objection on the score of perpetuity or uncertainty unless there is something in its terms or circumstances or in the rules of the association which precludes the members at any given time from dividing the subject of the gift between them on the footing that they are solely entitled to it in equity.

Thirdly, the terms or circumstances of the gift or the rules of the association may show that the property in question is not to be at the disposal of the members for the time being, but is to be held in trust for or applied for the purposes of the association as a quasi-corporate entity. In this case the gift will fail unless the association is a charitable body."

18. To these three categories namely, (1) joint tenancy, (2) contract-holding theory and (3) trust for purposes, a fourth (which was not discussed by Cross J.) should be added : that is a trust for members. These four methods of holding property for unincorporated associations are considered in depth in Warburton's Unincorporated Associations 2nd Edition (1992) pages 43 to 52 as well as an article by the same author entitled "The Holding of Property by Unincorporated Associations", 1985 Conveyancer 318.

19. As a matter of construction, the terms of the Declaration of Trust do not sit happily with the notion that the then members (namely the members as at 1 September 1961) of the Association were to take as joint tenants to the exclusion of future members. Nor do they sit happily with the notion that the Property was to be applied for the purposes of the Association rather than for the benefit of the members. The absence of any reference to the purposes of the Association militates against there having been a trust for purposes.

20. Counsel for the Plaintiff submitted that the present case is within the second category in Cross J.'s classification in Neville Estates Ltd. v. Madden i.e. the contract-holding theory. This method of property holding by unincorporated associations was further analyzed by Brightman J. in Re Recher's Will Trust [1972] Ch.526 where he said (at 539) :

"In the case of a donation which is not accompanied by any words which purport to impose a trust, it seems to me that the gift takes effect in favour of the existing members of the association as an accretion to the funds which are the subject-matter of the contract which such members have made inter se, and falls to be dealt with in precisely the same way as the funds which the members themselves have subscribed. So, in the case of a legacy. In the absence of words which purport to impose a trust, the legacy is a gift to the members beneficially, not as joint tenants or tenants in common so as to entitle each member to an immediate distributive share, but as an accretion to the funds which are the subject-matter of the contract which the members have made inter se."

It is to be noted that the rules of the Association are no longer available and it will therefore not be possible now to ascertain the terms of that contract.

21. It would appear that the contract-holding theory does not apply where there is a specific trust. Indeed, where property is vested in trustees on trust for members of the association, the trust is imposed either by the trustees entering into a separate declaration of trust in respect of property already vested in them or by the conveyance or transfer of property to the trustees containing a declaration of trust. See Warburton (supra) at 45.

22. For this reason, in my judgment, on its true construction, the Declaration of Trust is a trust for the members for the time being of the Association. Such a trust is valid because at any one time all the beneficiaries can be ascertained. As there is nothing in the terms of the Declaration of Trust to prevent the members of the Association from freely disposing of the whole of the Property, there is no infringement of the rule against perpetuities. Although the rule applies to unincorporated associations, it is the rule against inalienability and not that against remoteness of vesting that is relevant : see Morris and Leach, The Rule Against Perpetuities, 2nd Ed., pages 324-327.

Upon incorporation of the Company

23. There is no doubt that immediately prior to the incorporation of the Association, the then members could have directed the Trustees to hold the beneficial interest in the Property upon trust for the Company absolutely. Such a direction would have to be in writing in order to meet the requirements of s.5(1) of the Conveyancing and Property Ordinance, Cap.219. Although counsel for the Plaintiff referred to the resolution passed on 29 June 1969 at the first General Meeting of the Company whereby the members of the Company resolved to assume the liabilities and to take over the assets of the Association, that resolution was in terms limited to the assets and liabilities specifically mentioned therein. As recorded, they were all cash assets and did not extend to the Property itself.

24. Within a few months of the Company's incorporation, several meetings were in fact held relating to the transfer of the assets of the Association (including the Property) to the Company :

(1) On 6 September 1969, at the 1st Meeting of the Executive Committee of the Company the task was delegated to three members of the Company to liase with solicitors regarding legal formalities. The matter was left to be dealt with at the next joint meeting of the Executive and Supervisory Committees.

(2) At the Extraordinary General Meeting of the Company held on 8 October 1969, Mr Tso Siu Hung and Mr Leung Kang Kai, past chairmen of the Association's executive committee, wrote to object to the proposed transfer of the Property to the Company. The matter was put before the meeting. It was resolved that, inter alia, the Property be transferred to the Company by completing legal formalities. It was unanimously agreed that the Executive and Supervisory Committees of the First Session be authorized to handle the matter in line with the resolution.

(3) At the 2nd EGM of the 1st Session of the Company held on 25 February 1970, it was noted that no steps had been taken to implement the resolution passed on 6 September 1969 regarding the transfer of the Property to the Company. It was resolved that the matter be proceeded with when the Company had sufficient funds.

25. The matter fell into abeyance and nothing was done to implement the resolution passed by the members at the EGM to transfer the Property to the Company. Although the question was resuscitated from time to time (in December 1970, November 1971, August 1974, September 1984 and August 1987), it was never followed through.

26. There is no evidence that the Association was ever formally dissolved although as from early June 1969, for all practical purposes, it became defunct. By virtue of Article 6 of the Company's Articles of Association, members of the Association who were not in arrears with their subscription and other monies payable to the Association automatically became members of the Company. In a sense, the Association continued to function but in the guise of the Company.

27. Who is now entitled to the Property beneficially? The possibilities are (a) the persons who were members of the Association immediately prior to the incorporation of the Company; and (b) the Company.

28. As to (a), where an unincorporated association is dissolved, the assets do not necessarily go to the members. The then members would be entitled if, for example, the association ceases to function altogether and the relationship between members inter se is terminated. In Hall v. Job, (1952) 86 CLR 639, a branch of a larger unincorporated association ceased to function. It was held that the parent association which was still functioning was entitled to the assets rather than the members of the branch. It was held that there was, inter alia, no termination of the contractual relationship which provides the occasion upon which the right to a distribution arises.

29. Although the facts of the present case are a little different, by analogy, the falling of the Association into desuetude did not bring about the termination of the relationship between the members of the Association who continued to function as members of the Company. Rather, by approving and adopting the Articles of Association, the members effected a "novation" of the terms of their relationship inter se. There is also the resolution passed by the members of the Company at the EGM of 8 October 1969. Whilst the decision or resolution to transfer was ostensibly made by the Company rather than the Association, there was no difference in the composition of members given that members of the Association automatically became members of the Company and during that period the records do not reveal any change in membership. The only two members who are on record as ever having raised any objection appeared to have subsequently abandoned it and, in any event, have never asserted any claim to a beneficial interest in the Property itself.

30. Since the incorporation of the Company, for over 20 years before the Company came to be appointed a trustee of the Declaration of Trust, and since it became one of the trustees, all relevant parties have conducted themselves on the footing that the Company was and is beneficially entitled to the Property. This is wholly consistent with the "novation" of the pre-incorporation contractual relationship of the members inter se which coupled with the resolution of 8 October 1969 constituted a sufficient direction. In any event, on the facts, members of the Association immediately prior to its incorporation would be estopped from asserting a beneficial claim to the Property. In these circumstances, I hold that the Company rather than the members of the Association as at 29 April 1969 is beneficially entitled to the Property and that the Property is held by the Trustees in trust for the Company.