CHAN KONG v. CHAN LI CHAI MEDICAL FACTORY (HONG KONG) LTD AND OTHERS

HCA 4101/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4101 OF 2001

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JUDGMENT

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The applications:

1.  The summons, issued by a number, but not all, of the Defendants, is essentially in three parts.  First, by way of appeal, an order is sought setting aside an order of the Master made on 28 November 2005, giving leave to the Plaintiff to file a Re-Amended Statement of Claim.  That application relies upon O 58 R 1.  Second, an order is sought extending the time to appeal.  That application relies upon O 3 R 5.  Third, an order is sought pursuant to O 18 R 19, striking out the proceedings upon the alternative grounds that no reasonable cause of action is disclosed, or that the proceedings are frivolous and vexatious, or are an abuse of the process of the court.

The Master’s appeal:

2.  The application to extend time to appeal against the order of the Master may be dealt with shortly.  It is plain from O 58 R 3 that the time for filing a notice of appeal from an order of the Master is 14 days from the date upon which the order was made.  Consequently, time to appeal against the order giving leave to file a Re-Amended Statement of Claim expired on Monday 12 December 2005.  The summons was not filed until 11 January 2006, by which time it was nearly 1 month late.

3.  While it is right that the Court has power to extend time under O 3 R 5, a proper basis must be shown for an order extending time: see Postwell Ltd v Cheng Kap Sang [2004] 1 HKLRD 355 at 364.  No affidavit has been filed in support of the application to extend time, and no proper grounds have been made out to extend time.  There is no explanation for the delay.  There is no basis upon which the court could exercise its discretion.

4.  Sensibly, Mr Swain did not press this matter.  The application for leave to extend time is refused.  It follows that the appeal must be dismissed.

The application to Strike Out:

5.  Mr Chan takes the point that the summons to strike out ought to have been heard by the Master.  It is quite right that under O 32 R 11 the Master has power to make the order.  It is further right that in the notes to O 18 R 19 in Hong Kong Civil Procedure, at para 18/19/3(c) it is said that the application is made to the Master by summons. 

6.  However, I am of the view that this is an appropriate case to hear the application myself.  It should not be further delayed.  In the notes to O 32 R 13 at para 32/13/1,  Smith v Glennon (unreported (1990) The Times, June 26, CA), is cited as authority for the proposition that O 32 Rule 11 does not deprive the judge of jurisdiction to determine the matter where the rules require such determination to be made by “the court”, even where the application ought to have been made in the first instance to a Master.

7.  No affidavit has been filed in support of the application to strike out.  No evidence is admissible on an application to strike out upon the ground that a pleading discloses no reasonable cause of action: see O 18 R 19(2).  Evidence is admissible if the applicant is proceeding upon the other grounds.  Mr Swain confined his application to an assertion that the statement of claim disclosed no reasonable cause of action.

The background to the action:

8.  The background to the litigation may be conveniently set out by reciting the first three paragraphs of the statement of claim. 

“1.     In or about 1600 (i.e. the Ming Dynasty) Messers Chen Tiquan and Li Shengzuo formed a partnership in China to carry on business of manufacture and sale of Chinese medicine (the said “Partnership”).  The said Partnership business has since then been carried on in China and Hong Kong as particularized herein below.

2.      Two family Tongs were later formed for, into alia, the purpose of carrying on the said Partnership business, namely the Chan Him Muk Tong, of Ho Ching Heung, Kau Kong, Nam Hoi District, Kwangtung Province, China, and the Lee King Sun Tong, of Lee Chuen, Nam Hoi District, Kwangtung Province, China.  Members of the Chan Him Muk Tong and the Lee King Sun Tong are lineal descendants of Messers Chen Tiquan and Li Shengzuo (the Two Tongs).  The profit and loss of the Partnership business were shared equally between the members of the Two Tongs.

3.      The Plaintiff was and is at all material times a member and/or beneficiary and/or partner of the said Chan Him Muk Tong and/or the To Tongs and/or the said Partnership.” (Italics as in the re-amended statement of claim).

9.  It is next alleged that in about the 1920’s the partnership, comprising the two Tongs, decided to set up its base of operations and business in Hong Kong, and that land was purchased in Hong Kong for the purpose of carrying on the partnership business.  In particular it is alleged that two properties, one in Belcher’s St, and the other in Queen’s Road, both on Hong Kong Island, were purchased by the partnership, in the fictional names of Chan Him and Li King as joint tenants.

10.  The plaintiff then alleges the occurrence of at least 16 breaches of trust or breaches of partnership duties, on occasions ranging from 1924 to 2001, in relation to persons now deceased and others still alive, who apparently at the time controlled the administration of the Tongs and the partnership business.

11.  On the basis of these allegations the plaintiff seeks first a declaration that he is entitled, as a descendant or member or beneficiary of the Tongs or the partnership, to share in the rights, properties and assets of the Tongs or the partnership.  He next seeks declarations that the properties in Belcher’s Street and Queen’s Road are properties held in trust for the Tongs or the partnership, and declarations following therefrom that the various breaches of trust or partnership duty have occurred.  Consequent upon such declarations, accounts or inquiries and orders for payment to the Plaintiff are sought.

12.  The fundamental basis of the action is the plaintiff’s allegation that he is a member and/or beneficiary and/or a partner of the Tongs and/or the partnership.  His claim is a claim in which he seeks in the Hong Kong courts to enforce his rights as a member, beneficiary and/or partner of one or both of the Tongs and/or the partnership.

13.  I am satisfied that the entire action is wholly misconceived and that it is appropriate that the statement of claim be struck out.

A claim based upon membership of a Tong:

14.  A “Tong” is a legal entity well known to the law of Hong Kong.  It is a form of Chinese customary rights in relation to land that is otherwise unknown at English law.  A Tong is described in Vol 16 Halsbury’s Laws of Hong Kong para 230.0128 as:

“a trust created, usually inter vivos, by the owner of land who intends that the land is to be used by his sons and their male descendants in perpetuity.”

The only power of the Hong Kong courts to enforce Chinese customs or customary rights in relation to land arises through s 13(1) New Territories Ordinance, Cap 97:

“Subject to subsection (2), in any proceedings in the Court of First Instance or the District Court in relation to land in the New Territories, the Court shall have power to recognise and enforce any Chinese custom or customary right affecting such land.”

It is abundantly plain from the decisions in Tang Kai-chung v Tang Chik-shang [1970] HKLR 276 and Kan Fat-tat v Kan Yin-tat [1987] HKLR 516, that the power of the courts in relation to the enforcement of Chinese customs is restricted to land in the New Territories.

The basis of the application to strike out:

15.  Having regard to the way in which the claim was pleaded, and in particular the decision of the pleader to both capitalise, and italicize, the word “Tong” when it first appeared in the statement of claim, and thereafter to italicize it throughout the statement of claim, it seemed plain that what was being asserted was membership of a Tong, as that institution is known to Hong Kong law.  Consequently it is not at all surprising that the primary basis upon which the application to strike out is brought, is simply that the claim, being based as it is on a membership of a Tong, and in relation to two properties on Hong Kong Island, and a partnership business, is unenforceable in the courts of Hong Kong.

16.  The primary objection under English law to a Tong is that by its very nature it offends against the rule against perpetuities.  It does so in two respects. 

17.  In the first place the mode of devolution of rights to membership of a Tong, by descent, limited to the male members of the common descent group, in which the successive heirs, having become members at birth, and take life interests only, is a mode of devolution unauthorised by English law: see Halsbury’s Laws of England, Vol 32, para 905(1). 

18.  Second, as the successive heirs take only a life interest, which will expire upon their death, with their sons acquiring an interest at birth, they also taking only a life interest, the gift will never vest and may last for an indefinite time: see Vol 32, para 905(3).

19.  The entire rationale of a Tong is to restrict the alienability of land so that it can be enjoyed by the creator’s sons and their male descendants in perpetuity.  That rationale, while entirely understandable, is prohibited at English law, save only when the beneficiary of the gift is a charity.  It is not suggested, nor could it be suggested that either of the Tongs or the partnership that are at the centre of this litigation, have charitable purposes.

20.  It is clear that, subject to the provisions of the New Territories Ordinance, the rule against perpetuities applies in Hong Kong: see Yeap Cheah Neo v Ong Cheung Neo (1873-75) LR 6 PC 381 and Kan Fat-tat v Kan Yin-tat [1987] HKLR 516.

21.  On the face of the claim of therefore, founded as it is upon the Plaintiff’s membership of a Tong, the claim is doomed to fail as it is plain that the courts of Hong Kong will not enforce the rights of a member of a Tong in relation to land on Hong Kong Island or a business.

When is a Tong not a Tong:

22.  In order to counter this apparent limitation to the proceedings, Mr Chan submitted that the Tong in question was not a traditional Tong as it is known to the law of Hong Kong.  He submitted that there were marked differences that set this Tong apart, and saved it from the rule against perpetuities.  Consequently he said it was, at least arguable, that the courts of Hong Kong would enforce rights arising from such a Tong.  Mr Chan acknowledged that the use of the word “Tong”, in the manner in which it was used in the statement of claim, would inevitably lead one to consider a traditional Tong.  He said however that the word was not used in the traditional sense and was merely part of the name of the “organisations” that were established in China to form the partnership business.

23.  First, Mr Chan said that the rights acquired by a member of the Tong were freely alienable during the member’s lifetime.  Second, together with this right, was a power in the manager of the “organisation” to dispose of the business or any assets of the business at any time.

24.  As to the first, the submission did not conform to the pleaded case.  Paragraph 5 of the statement of claim contains comprehensive assertions as to the relative law governing the Tongs and the partnership.  The following assertions are made:

“5E  (b)      a partnership did not dissolve automatically upon the death of a partner.  In the case of the Chan Him Muk Tong and the Lee King Sun Tong, the partnership share remained undivided family property of the respective Tongs.

(d)     in the premises, the properties of the said Partnership, whether movable or immovable, did not belong to the said Partnership as a separate entity and remained as the common properties of the partners thereof.”

(j)      ownership of undivided clan or lineage property was limited to the male members of the common descent group from whose descent from the common ancestor (in this case Chen Liquan and Li Shengzuo) was agnatic.  Under the traditional law, all the living male descendants of Chen Tiquan or Li Shengzuo would be co-proprietors to the extent of a specific share of Chen Tiquan’s or Li Shengzuo’s a half-share respectively in the said Partnership and its assets.”

Such assertions are in direct contradistinction to a right of free alienation.  I pressed Mr Chan at some length as to whether or not it was part of his case that a member of the Tong had the right to freely dispose of his interest by way of his will.  Mr Chan was not willing to concede that that right was part of the rights of a member of the Tong.

25.  On the claim as it is pleaded it is not open to argument on the part of the Plaintiff  that a member of the Tong, of which he claims to be a member, has the right to freely dispose of his interest either by sale during his lifetime or by testamentary disposition upon his death.

26.  As to the second, it is clear that a right in the managers of a Tong to dispose of Tong property, they as the registered manager being invested with the power of sole owners, does not protect the Tong from the objection that it offends against the rule against perpetuities: see Tang Kai-chung v Tang Chik-shang [1970] HKLR 276 per Mills-Owens J at 294.

27.  Mr Chan next submitted that the fact that the Tongs in question were formed in order to carry out a business separated those Tongs from a Tong that would be enforceable only in the New Territories in relation to land.

28.  The most usual customary rights in relation to New Territories land are the Tong and the T’so, both forms of Chinese customary trusts.  A Tong is created when a land owner wishes to restrict the inalienability of his land so that it can be enjoyed by his sons and their male descendants.  A T’so on the other hand, is created when, after the death of the land owner, his sons or later descendants decide to set aside a whole or part of the deceased’s land for the purpose of veneration of the deceased.  Again, alienation of the land is restricted, and ownership passes through the male lineage only: see Halsbury’s Laws of Hong Kong Vol 16 para 230.0967

29.  There is nothing in the purpose for which a Tong is created, the mere enjoyment of land, which impacts upon the fundamental objection to a Tong at English law, namely the contravention of the rule against perpetuities.  Equally there is nothing in the purpose for which a T’so is created, the veneration of ancestors, that impacts upon that fundamental objection.  I accept Mr Swain’s submission that the only relevance of purpose in relation to a Tong is whether or not its purpose is charitable, for if it is charitable it may be enforceable outside the New Territories.  The Tongs in this case are not charitable.

30.  In any event, the rule against perpetuities applies equally to personal as well as real property: see Halsbury’s Laws of England Vol 35 para 925.  Plainly, it makes no difference whether a Tong is created to hold real property, or the personal property constituting a business.  In both circumstances, by its very nature, it offends against the rule against perpetuities.

31.  I am satisfied that the nature of the Tong that has been pleaded, which is fundamental to the Plaintiff’s claim, is an institution that is objectionable as being against the rule against perpetuities, and that accordingly, the Tongs being quite unrelated to New Territories land, any rights purportedly acquired by the Plaintiff through membership of such an institution cannot be enforced in the courts of Hong Kong.

A claim based in partnership:

32.  Insofar as the claim is based upon partnership rights it is equally clear that the action is fundamentally misconceived.  Partnership, as it is known to English law, is a contractual relationship between persons, not a system of rights - let alone obligations - that pass from generation to generation.  The nature of a partnership has recently been described by Lord Millett in Hurst v Bryk [2002] 1 AC 185 at 194 in these terms:

“while partnership is a consensual arrangement based on agreement, it is more than a simple contract (to use the expression of Dixon J. in McDonald v Dennys Lascelles Limited 48 CLR 457 at 476); it is a continuing personal as well as commercial relationship.”

33.  In the present case the sole allegation upon which the plaintiff claims to be a member of the partnership is his claim that he is a descendant of one of the two founders of a partnership formed in about the year 1600.  Mr Chan accepted that membership of the Tong, or association, call it what you will, and consequently the partnership, was automatic on birth, and was extinguished on death.  Consequently the number of partners and the size of a partners’ share was in a state of constant flux.

34.  No assertion is made of any agreement with any other member of the partnership.  No assertion is made of any personal or commercial relationship with any other member of the partnership, other than the fact of the Plaintiff’s birth and the Plaintiff’s demand for relief and payment of sums to him.

35.  I accept Mr Swain’s submission of a partnership of this nature is simply not known to English or Hong Kong law.  Mr Swain submits, and I accept, that it would be quite contrary to public policy to impose upon a person, purely by virtue of his birth, all of the liabilities consequent upon membership of a partnership.  Partnership at English and Hong Kong law is a matter of contract.  A person must decide for himself whether, if he wishes to have the rights and advantages of membership of a partnership, he will also take on the liabilities and responsibilities of that partnership.  Neither English nor Hong Kong law will, except in the very exceptional circumstances of a New Territories Tong or T’so, impose those liabilities and responsibilities on a person.

36.  The partnership proposed by Mr Chan is a partnership which would be indefinite in duration, indeterminate in size, and the shares in which would from time to time change, without any consent of a partnership member.  The recognition by the courts of Hong Kong of such a partnership would equally be quite contrary to public policy.  At the very least that would be so because a partnership that was indefinite in duration would, by that very characteristic, offend against the rule against perpetuities.

37.  I accordingly conclude that the plaintiff has no right capable of enforcement under the alleged partnership, since no such institution could validly exist at Hong Kong law.

The enforcement of foreign law:

38.  Mr Swaine further submits that to permit the action to proceed would be, in effect, to ask the Hong Kong courts to apply foreign law.  When considering the submission I proceed upon the assumption that the basis upon which the Plaintiff seeks to proceed is a basis upon which he would succeed, were he to sue in China.

39.  Again, the law is clear.  Where an arrangement, lawful in a foreign country, would be contrary to the public policy of Hong Kong, the courts of Hong Kong will not enforce that arrangement.  That conclusion follows from the following statement of Fry J in Rousillon v Rousillon (1880) 14 Ch D 351 at 369:

“It seems to me, however, plain on general principles that this Court will not enforce a contract against the public policy of this country, wherever it may be made.  It seems to me almost absurd that the Courts of this country should enforce the contract which they consider to be contrary to public policy simply because it happens to be made somewhere else.”

40.  A Tong, being an entity which may last for an indefinite time, offends against the rule against perpetuities.  It is equally so in respect of the partnership proposed.  It is contrary to public policy to permit an entity which offends against the rule against perpetuities: see Yeap Cheah Neo per Sir Montague E Smith at 394:

“This rule, which certainly has been recognised as existing in the law of England independently of any statute is founded upon considerations of public policy, which seems to be as applicable to the condition of such a place as Penang as to England; viz., to prevent the mischief of making property inalienable, unless for objects which are in some way useful beneficial to the community.” (Emphasis added)

41.  Both a Tong, and a partnership of the nature relied upon by the Plaintiff, would fail at English and Hong Kong law as being in breach of the rule against perpetuities.  It would plainly be contrary to public policy to enforce rights arising from such arrangements in Hong Kong.

Should the pleadings be amended:

42.  Mr Chan suggested that he be permitted to further amend the statement of claim in order to clarify the pleadings and avoid the criticisms that have been raised of the action.  I am satisfied that this is not a case where simple amendments to the pleadings can improve the Plaintiff’s situation.  The elements of the Tong and the Partnership, that exist in the institution upon which the Plaintiff relies, that of membership by birth, descent through male lineage only, and existence in perpetuity, are so inconsistent with the elements that would be required to remove the objections: free alienability, and membership by contract, and the absolute vesting of property within the perpetuity period, that the matter is incapable of repair by amendment.

Conclusion and costs:

43.  I accordingly conclude that the statement of claim discloses no reasonable cause of action and ought to be struck out.

44.  There will be an order nisi that the Plaintiff must pay the Defendants’ costs of the action, to be taxed on a party and party basis, his own costs to be taxed on Legal Aid Regulations.