ASIA PACIFIC GROUP INTERNATIONAL LTD v. CHEUNG KIU CHUNG AND OTHERS

HCA 1071/2021

[2023] HKCFI 2986

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1071 OF 2021

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D E C I S I O N

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A.  Introduction

1.  Before this Court there are 2 summonses, both taken out by the plaintiff (“P”):

(a)  P’s summons taken out on 3 January 2023 (the “Summons”, with a schedule attached (“Schedule”)) under O.33 r.3 for an order that there be a trial of the preliminary issues (the “Preliminary Issues”) as set out in the Schedule;

(b)  P’s further summons of 4 October 2023 (the “Amending Summons”) to amend the Summons by making clear P’s intention to rely upon O.14A r.1.

2.  Mr KM Chong with Ms Vivian Li appeared for P. Mr Ernest Koo with Mr Alvin Chong appeared for the 17^th defendant (“D17”). The other defendants (“D1” to “D16”) did not appear, and were not represented.

3.  Mr Koo did not, save on costs, object to the Amending Summons. I allowed the amendment. I ordered further that P should bear costs in the sum of HK$1,070.

4.  I will call the Summons as amended the Amended Summons.

5.  The Amended Summons is supported by the affirmation of Chu Kin Kam filed on 3 January 2023 (“Chu”, and “Chu/Aff”). Chu is P’s Executive Secretary. In opposition, D17 has filed his 2^nd affirmation (“D17/Aff2”).

6.  Placed before me are also Chu’s affirmation filed on 30 September 2021 in support of P’s application for an interlocutory injunction against D1 to D16, and D17’s 1^st affirmation filed in support of his application to be joined as a defendant to this action (“D17/Aff1”). I will refer to them as appropriate.

B.  The Orders sought

7.  The Amended Summons now seeks:

(a)  pursuant to O.33 r.3 and/or O.14A r.1, that there be a trial/determination of the Preliminary Issues and/or points of law listed in the Schedule (§(a) thereof). For ease of reference, I will simply call those issues or points the Schedule Issues;

(b)  consequential upon an Order to be made under §(a) above, that there be directions on the filing of evidence including expert report on Chinese law and custom relevant for trial/determination of the Schedule Issues (§(b) thereof); and

(c)  costs be in the cause of the trial/determination of the Schedule Issues.

8.  The Schedule Issues (“Schedule Issue 1” to “Schedule Issue 4”) are framed in the following terms:

“1. On the assumption that ‘Cheung Yung Kai Tso’ (‘the Tso’) was, and still is, at all times, an ancestral tso instead of a business tong, within the meaning of Chinese law and custom, whether, by it holding Lot Nos.2063 and 2064RP [sic][1] in Demarcation District 96, New Territories Ordinance [sic] (‘the said land lots’) upon trust specifically for the benefit of, inter alia,:-

(a) [D1 to D16] personally and individually:-

(i) with definite and specific share of interest amongst them in the said land lots; and

(ii) for their own personal benefit,

instead of

(b) all the living male descendants of their common focal ancestor at the time when the Tso was set up:-

(i) with no definite share of interest in the said land lots whose interest therein being confined to each of their life time; and

(ii) for the purpose of ancestral worship,

the said land lots were, and still are, being held by [D17] or the Tso for the benefit of [D1 to D16] personally to the extent of their share of interest or alternatively for the benefit of all existing and future male descendants of their common focal ancestor.

2. Upon determination of Issue 1 above, whether [D17] or the Tso held, and still holds, the said land lots upon trust or the benefit of:-

(a) each of the [D1 to D16] personally and individually, each of them having specific share of interest therein, or

(b) all the living male descendants of the Tso collectively but none of them having specific share of interest therein but their interest being confined to their lifetime and for the purpose of ancestral worship.

3. Upon determination of Issues 1 and 2 above, whether in the absence of a deed prohibiting sale and disposal of their share of interest in the said land lots, under Chinese law and custom,:-

(a) [D1 to D16] have, and each of them has, right of disposal of their specific share of interest in the said land lots to the extent of their share of interest therein;

(b) [D1 to D16’s] contracts with the [P] as pleaded in the Statement of Claim constituted sale and disposal of their personal interest in the said land lots to the extent of their share therein; and

(c) [D17] was, and still is, a bare trustee holding the said land lots upon trust for the benefit of, inter alia, [D1 to D16], and each of them, to the extent of their share of interest therein.

4. Upon determination of Issues 1, 2 and 3 above, whether [D17], as the manager of the Tso, has locus standi in the dispute between [P] and [D1 to D16] in the subject matter of the former’s claim against the latter.”

C.  Factual and procedural background

9.  Cheung Yung Kai Tso (張容溪祖, the “Tso”) is a traditional Chinese land holding institution registered under the New Territories Ordinance Cap 97.

10.  D17 is now the sole surviving registered manager of the Tso.

11.  Registered in the name of the Tso are two groups of land:

(a)  6 specific lots of land in 3 Demarcation Districts (collectively called “Tso’s Own Lots”); and

(b)  Lot No. 2063 and Lot 2064 s.B RP in Demarcation District 96 (the “Subject Lots”[2]).

12.  The Writ herein was issued on 14 July 2021. At that stage, only D1 to D16 were named as defendants. D17 was not.

13.  P’s claim concerns the Subject Lots. Its pleaded case goes as follows. The Subject Lots “were, at all material times, and still are, held and registered in the name of [the Tso], a business t’ong (hereinafter called the ‘the Business T’ong’), pursuant to s.15 of the New Territories Ordinance.”[3]. The share of interest of and in the Business T’ong has been divided into 72.8 Dou (斗). Dou is chose-in-action. D1 to D16 have been members of the Business T’ong. They each hold “share of interest” as set out in the 1^st Schedule to the Statement of Claim (the “1^st Schedule”), variably of 0.55 to 13.5 Dou. Between 13 August 2012 and 3 July 2013, D1 to D16 agreed to sell and transfer their respective share of interest to P and to make P a member of the Business T’ong to replace them (the “16 Sales Agreements”). They have however recently denied P’s right and interest in the Business T’ong “to the extent as represented by and through their share of interest therein”, and denied their capacity as trustee holding their respective shares of interest in the Business T’ong to the extent as set out in the 1^st Schedule. P seeks:

“(1) A Declaration that [D1 to D16] hold, and each of them, holds, their share of interest of and in the Business T’ong to the extent of the share of interest set out in the 1^st Schedule hereof for the benefit of [P] as their beneficiary;

(2) An Order that [D1 to D16] do, and each of them doth, forthwith transfer or cause to be transferred by executing assignments and all necessary documents so as would effect the transfer of their legal title of and in their share of interest of and in the Business T’ong as set out in the 1^st Schedule hereof.”

14.  Mr Chong in his written submissions informs this Court that none of D1 to D16 had filed any Acknowledgment of Service or Notice. That is not quite correct. According to the court’s records, at least D5 to D7, D9 to D11, and D14 to D16 have in fact each filed an Acknowledgement. They however all indicated that they did not intend to defend the action.

15.  According to D17, he had no knowledge of the present action until 23 October 2021 when P served upon him the injunction which P had obtained against D1 to D16.

16.  By summons of 19 November 2021, D17 applied to be joined as a defendant. He was ordered to be joined on 26 November 2021.

17.  On 25 January 2022, D17 filed his Defence. On 24 May 2022, further and better particulars were provided (“F&B”). Relevantly, the following facts have been pleaded:

(a)  The Tso is an ancestral tso formed for ancestral worshipping of the focal ancestor Cheung Yung Kai (the “Ancestor”). It is not a business t’ong;

(b)  The Tso’s Own Lots are different from the Subject Lots. All surviving male descendants of the Ancestor shall have beneficial interests in the Tso and the Tso’s Own Lots. The Subject Lots were however not left by the Ancestor, “but were subsequently opened up and/or reclaimed by some of the Tso’s members, and the Subject Lots were and are at all material times held by the Tso (or the manager(s) of the Tso) on trust for the benefit of only some of the Tso’s members who had and have beneficial interests in the same (‘Beneficiaries’)”[4];

(c)  The beneficial interests in the Subject Lots that the Tso has been holding on trust for the benefit of the Beneficiaries have been quantified or represented by Dou, 68 in total;

(d)  Amongst D1 to D16:

(i)  Only D1, D3 to D7, D9 to D12, and D14 are, and D8 and D13 were before they passed away, members of the Tso and of the Beneficiaries;

(ii)  D2 is a female, and is neither a member of the Tso nor a Beneficiary;

(iii)  D15 and D16 are not t’ongs, business t’ongs or any entities in their own right, but are merely “names referred to and/or known for two specific portions and/or parts of the Subject Lots”. D5 is not their managers. Their Dou are actually beneficially owned or enjoyed by all the Beneficiaries jointly;

(iv)  By virtue of Chinese Customary Law governing the Subject Lots, no share of interest in the Subject Lots shall be transferred or sold to an outsider unless there is unanimous consent from all members of the Beneficiaries (“Alienation Restriction”);

(e)  Apart from D1, and D3 to D14, there are other persons being members of the Beneficiaries. All the names of the persons who are members of the Beneficiaries have been to the best knowledge of D17 set out in Annexure 2 attached to the F&B;

(f)  D17 had no knowledge of P’s alleged purchases from D1 to D16 until April/May 2021 when P’s solicitors wrote to him and provided to him 16 “張容溪祖田份買賣契約” all dated 28 June or 2 July 2013 (the “16 Deeds”). Each of the 16 Deeds bears what purports to be the Tso’s Chop, and D5’s signature purportedly as the Duty Manager of the Tso (值理), and the verifier (確認人). The Tso in fact never has any chop like the one shown. D5 was not a duty manager of the Tso, nor did he have any authority to sign as such;

(g)  Even if the Tso were a business t’ong, only D1, D3 to D14 had any interest to sell, but that none of D1 to D16 in any event had the rights or been allowed to sell their shares in the Tso in any to P as an outsider.

D.  The applicable legal principles

18.  For a question of law or construction to be ordered to be determined pursuant to O.14A r.1, 2 conditions will have to be satisfied first: (1) such question is suitable for determination without a full trial of the action; and (2) such determination will finally determine (subject only to any possible appeal) the entire cause or matter or any claim or issue therein.

19.  It is not appropriate to adopt the O.14A r.1 procedure if the issues of facts are interwoven with the legal issues to be determined – Shell Hong Kong Ltd. v Yeung Wai Man Kiu Yip Co. Ltd. (2003) 6 HKCFAR 222, §24.

20.  Even if the conditions are satisfied, the court still has a discretion to decide whether to entertain an application under the Order –Shell Hong Kong Ltd, §25.

21.  In Rockwin Enterprises Ltd v Shui Yee Ltd [2003] 3 HKC 174, Recorder Geoffrey Ma SC (as he then was) in the exercise of his discretion refused an application under O.14A r.1 for the reason that the framed question might well turn out to be academic or simply unnecessary to decide, so that the time and costs involved would potentially be wasted. In my view, the same consideration equally applies if any adoption of the O.14A r.1 procedure would not result in any saving of time and costs, and a fortiori if any adoption would result in added costs and time.

22.  In Lee Yiu Kwan v Ting Yin Wah (CACV 311/2002, 21 April 2004), the Court of Appeal set out a number of considerations relevant and common to the court’s discretion under bother O.14A r.1 and O.33 r.3 (the page numbers in brackets being those in Hong Kong Civil Procedure 2004), that:

“The question of law or construction to be determined by the court under the Order should be stated or formulated in clear, careful and precise terms, so that there should be no difficulty or obscurity, still less any ambiguity, about what is the question that has to be determined.” (page 188)

“Where the issues of fact are interwoven with the legal issues raised, it will be undesirable for the court to split the legal and factual determination, for to do so would in effect be to give legal rulings in vacuo or on a hypothetical ruling, which the court will not do.” (page 188)

“An order for the separate trial of separate issues is a departure from the general rule that all disputes should be tried together, and therefore, generally speaking, such an order should only be made in exceptional circumstances or on special grounds.” (page 557)

“Where costs can be saved by obtaining a ruling on a point of law which requires serious argument and consideration being disposed of before trial, the point should be raised in the pleading and application should be made under O.33, rr3 and 4(2) for the trial of this point as a preliminary issue….

The order, as a rule, will only be made if the objection raises a serious question of law, which, if decided in favour of the party objecting, would dispense with any further trial, or at any rate with the trial of some substantial issue in the action. … The order should not be made in respect of matters which by reason of the obscurity either of the facts or the law ought to be decided at the trial.

The order for the trial of a preliminary point of law should not be made where there are facts in dispute, and if made may be set aside at the hearing…

A point of law may in special circumstances be ordered to be set down and argued before the trial, although it is not raised on the pleadings…

The order should make clear what is the precise point of law to be decided.” (pages 295-296)

“Only such questions of law can properly be raised as preliminary issues as must necessarily arise in the action and the court will not decide fictitious questions or questions in which those who are interested, or are likely to be, are not present or are not in esse…

The House of Lords has strongly protested against the practice of the Court of First Instance allowing preliminary points of law to be tried before and instead of first finding the facts, since this course frequently adds to the difficulties of the Courts of Appeal and tends to increase the cost and time of legal proceedings.

Where for the purposes of deciding questions of law it is necessary or desirable to ascertain the facts beyond those that appear in the pleadings, the court should not order the trial of those questions as a preliminary point of law, especially where the law is itself unsettled or obscure.

An ‘issue’ which involves dealing with the whole subject-matter of the action without any evidence is not a preliminary point and should not be ordered to be tried as such.” (Page 555)

E.  Application of the law

23.  For the following reasons, I refuse the application.

24.  First and foremost, the Schedule Issues are not drafted with the requisite care and precision:

(a)  Schedule Issue 1 proceeds, by virtue of the wording in 1(a), on the premised basis that the Tso holds the Subject Lots “upon trust specifically for the benefit of … [D1 to D16] personally and individual with definite and specific share of interest amongst them in the [Subject Lots]”. But upon that premise, it proceeds to ask further whether the Subject Lots have been held “by [D17] or the Tso for the benefit of [D1 to D16] personally to the extent of their share of interest …” The question is circular;

(b)  Perhaps realizing the circular nature of Schedule Issue 1, Mr Chong in his written submission re-hatched the issue by taking out the premised parts in 1(a), as follows (his emphasis):

“… if the Tso being an ancestral tso, whether by it holding the said land lots:-

(i) for D1-D16 with specific share of interest in the said land lots (i.e. the Trust);

instead of

(ii) for all the existing and future male descendants of the Tso (whose interest would be confined to life interest without specific share for ancestral worship) (i.e. ancestral worship trust)

the said land lots would be held for the benefit of D1-D16 personally …”

25.  Further, the Schedule Issues are not pure issues of law, and is at the very least closely interwoven with issues of facts. One prime example is whether the Tso is an ancestral tso or business t’ong. Mr Chong submitted that that was irrelevant. I do not agree. The reality is this. P says that the Tso is a business t’ong. D17 denies that. He says that the Tso is an ancestral tso. Mr Chong then points to certain of D17’s own evidence[5], which he said supported the conclusion that the Tso is in fact a business t’ong. But the matter remains facts-sensitive. The effects of D17’s evidence (or the contents of his affirmations) will have to be considered in the light of the expert evidence to be adduced. The resolution of that issue will affect the nature of the Tso’s interest in the Subject Lots, and whether the Subject Lots are subject to the Alienation Restriction.

26.  And expert evidence is indeed envisaged to be called, even if the Amended Summons is granted. That is obvious from §(b) of the Amended Summons. Assessment of competing expert evidence on Chinese Customary Law will most likely be involved even if the Schedule Issues are to be considered or tried first.

27.  There are the issues as to whether D2 is a member of the Tso and Beneficiaries, whether D15 and D16 are entities capable of holding Dou, and whether D5 has been appointed as the manager to represent them.

28.  The 16 Deeds were signed during the same period when P says the 16 Sales Agreements were signed. D17 disputes the purported status of D5 as the Duty Manager. He also disputes the authenticity of the chop. Mr Chong says that the 16 Deeds are irrelevant because P is not suing on them. I do not agree. They do not become irrelevant merely because P has not pleaded them. This is particularly so when they were produced to D17 by P’s solicitors under cover of a number of pre-action letters. They will also have to be considered in the light of any expert evidence to be adduced, and in particular as to why D5 purported to sign them as the verifier.

29.  All the above bear on the nature of the Tso’s interest in the Subject Lots which either affect the resolution of the Schedule Issues or which the Schedule Issues cannot resolve.

30.  Even assuming in P’s favour that (2) the Schedule Issues are pure questions of law, and (2) the satisfaction of all the other requisite requirements, so that this Court’s discretion is engaged, this case in my view remains clearly one in which this Court would exercise its discretion against the application.

31.  As I have recorded above, none of D1 to D16 have filed any notice of intention to defend.

32.  Given the nature of the relief which P is seeking against D1 to D16, on the facts of the case, and consistent with the usual practice, I am of the view that no default judgment should be given in P’s favour, and that P will have to proceed to prove its case against them in any event. Mr Chong submits that that exercise by itself may not be complicated.

33.  One therefore compares the situations of adopting the O.14A r.1/O.33 r.3 procedure on the one hand, with the application of the general rule (namely proceeding with the trial un-truncated) on the other.

34.  If the Amended Summons is to be acceded to, there will be a hearing or trial dealing with the Schedule Issues. The procedure will not be a straightforward one. Expert evidence is envisaged. The court will also have to proceed on the basis of inter alia the assumption that the Tso is an ancestral tso, which assumption is inconsistent with P’s case against D1 to D16.

35.  If the general rule is adhered to, the trial will involve P proving case against D1 to D16, at the same time consideration of the Schedule Issues (if still being pursued). If, as Mr Chong has submitted, proving case against D1 to D16 will not be complicated, and that the resolution of the Schedule Issues will dispose of D17’s defence altogether, having them heard together will not involve extra time or costs when compared with considering them as preliminary issues.

36.  Rather, I can see all sort of issues trying to isolate D17’s case and to try to deal with them on a principal assumption which is inconsistent with P’s case against the rest of the defendants.

37.  I add one point. Whereas Mr Chong has been using the term “locus standi” in his submissions when dealing with D17’s case, he accepted in the course of the hearing that we are not talking about a party’s locus standi in an action, as the Court of Appeal was doing in Liquidation Committee of Foshan Hongda Development Ltd v East Legend Investment Ltd [2009] 1 HKLRD 169. Mr Chong said that he what P was address was more the interest of D17 as Manager of the Tso.

38.  I can see all the advantages of having everything dealt with in one single trial. The manager will be there to argue his case for the Tso. Evidence, including expert evidence, will be called in one goal. Relevant facts can be considered. Assumptions can be done away with. One single judgment can be given. No judicial time will be wasted.

39.  Truncating the case into two parts, and calling evidence in two batches, in contrast will simply add to the time and costs.

40.  I add that I have considered Mr Chong’s several pages of submissions on the issue as to whether the relief which P is seeking is in rem or in personam. I do not find them of assistance. I see no reason to shut the trustee/manager of a tso (D17) out from the trial which involves lands (the Subject Lots) that it has been holding on trust for someone else (the Beneficiaries).

41.  This is simply not one of those cases where exceptional circumstances or special grounds exist for the departure from the general rule. Indeed, in my view, adhering to the general rule will save time and costs.

F.  Conclusion

42.  For the above reasons, I dismiss the Amended Summons.

43.  I make a costs order nisi that P shall bear the costs of and occasioned by the Amended Summons (both before and after amendment), with certificate for counsel, to be assessed summarily.