XCHRX MAN MEI KWAI v. MAN PING NAM

HCA9852/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.9852 OF 1998

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J U D G M E N T

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Application to strike out

1. The Plaintiff applied to strike out the Defence and Counterclaim of the Defendant. The Registrar struck out part of the Defence and the whole of the Counterclaim. The Defendant now appeals against the decision. The appeal is only in respect of one part of the Defence and the whole of the Counterclaim that were struck out by the Registrar.

Background

2. Man Sham Chung Wui ("the Wui") is an unincorporated association. It is also a body within the scope of section 15 of the New Territories Ordinance ("the Ordinance"). Mr Man Ping Nam ("Mr Man") is the registered manager of the Wui.

3. The Defendant is a member of the Wui. The Plaintiff complains that by a tenancy agreement, certain land of the Wui were let by the Defendant and some other members of the Wui purportedly for and on behalf of the Wui to the Defendant himself and two other members of the Wui.

4. The letting was without the consent and knowledge of the Wui or the manager of the Wui. The Plaintiff seeks, among other things, a declaration that the tenancy agreement is not binding on the Wui.

Paragraph 12 of the Defence

5. Paragraph 12 of the Defence states that the Defendant and the other members were only desirous of granting the tenancy. He had never treated the tenancy as binding as neither Mr Man nor the District Officer (now the Secretary for Home Affairs) had signified their consent to the granting of the tenancy under section 15 of the Ordinance. The Defendant was unsuccessful in requesting Mr Man to give his consent.

6. The Plaintiff succeeded in striking out this paragraph. The Defendant now appeals against this decision.

Basis of striking out

7. The striking out proceeded on the basis that the Defendant, who Mr Chong, Counsel for the Plaintiff, claims is being sued only in his capacity as a tenant, is bound to fail on this defence because he admits that the letting is subject to the consent of Mr Man and the District Officer and such consent is lacking.

Defendant sued both as landlord and tenant

8. While the Defendant was not the only person who granted and obtained the tenancy, he was the only one that was sued. This, of course, is a matter for the Plaintiff. But more importantly, from the Statement of Claim, it is not clear that the Plaintiff's case against the Defendant is based solely in his capacity as a tenant. Paragraph 13 states that :

" The purported tenancy agreement was entered into by, inter alia, the Defendant purportedly for and on behalf of the Plaintiff and/or the said Man Ping Nam, its Manager without the knowledge or consent of the Plaintiff or the said Man Ping Nam."

If the Defendant is also sued in his capacity as a landlord, in my view he can surely raise an issue on the legal effect of the document he had signed.

Factual issues

9. The evidence showed that the Defendant had indeed asked the Plaintiff for consent to be given. The evidence further showed that the Defendant had found some intended sub-tenants. But in view of the disputes between the Plaintiff and the Defendant, these sub-tenants informed both the Plaintiff and the Defendant that their solicitors would hold the rental deposit and rentals as stakeholder pending the resolution of the dispute between the parties. As a matter of fact, the Plaintiff had since allowed the sub-tenants into possession of the property in question. This evidence was not available before the Registrar. Thus factually the Defendant had not done something which showed that his position is totally inconsistent with his defence that he does not treat the agreement as legally binding.

Lack of consent of District Officer

10. The fact that the Defendant had physically signed a tenancy agreement and that the agreement was duly stamped does not mean that the agreement must be binding on the Plaintiff. Even leaving aside the question of consent of Mr Man, it is clearly an arguable point that under section 15, the consent of the District Officer is required for the letting. The section refers to the right of the manager to dispose of land subject to the consent of the District Officer. Lai Chi Kok Amusement Park (No.2) [1966] HKLR 124 refers to the supervision by the District Officer over the acts of the manager.

11. Mr Chong argued thatLai Chi Kok Amusement Park shows that the tenancy agreement is a valid one, the lack of consent of the District Officer only goes to the question of its enforceability. Whatever the position may be in that case, the Court of Appeal in Light Ocean Investment Ltd. v. Enway Development Ltd. [1994] 3 HKC 31 had this to say :

" I would add that, approaching the matter from the different direction of simple statutory construction, consent is on the plain meaning of s.15 necessary, and cannot be dismissed as surplusage or insignificant, given the object of the legislation as explained by Briggs J (as he then was) in Lai Chi Kok Amusement Park Co Ltd (No 2) v Tsang Tin Sun [1966] HKLR 124, 130." (per Nazareth J.A.) (emphasis added)

" What it boils down to in my judgment is this : where a manager of t'so land has been duly appointed, but before his appointment as such has been registered in the land office, and before the consent of the Land Officer has been given to the sale, any agreement for sale entered into by the manager can, at best, only be conditional sale. Until he is registered as manager, and consent for the sale has been given, he cannot pass a good title to the purchaser." (per Litton J.A.) (emphasis added)

12. In my view the reasoning applies equally to a letting of land belonging to the Wui. This being a striking out application, I am not satisfied that the matter is so plain and obvious that the Defendant should not be entitled to rely on paragraph 12 of the Defence. The Defendant must be given an opportunity to argue on the legal effect of the letting.

Counterclaim

13. The other aspect of appeal is on the striking out of the Counterclaim. The Defendant complains in the Counterclaim that Mr Man had let out the property of the Wui without the consent of the District Officer under section 15. The claim is made against both Mr Man and the former tenants of the letting.

Defendant suing in personal capacity

14. It is argued by the Plaintiff that the cause of action and the relief sought in the Counterclaim are all related to the Wui and the Counterclaim is brought by the Defendant on behalf of the Wui. As such the Defendant has no right to bring the Counterclaim.

15. While the remedy sought may affect the Wui, the question of whether the Defendant is suing on his own or on behalf of the Wui is a question of fact. The Defendant does not state in the pleadings that he is suing on behalf of the Wui. There is no indication that he is suing in a representative capacity. The question arises as to whether the Defendant can personally bring an action against the former tenants. While the former tenants may complain about the cause of action by the Defendant against them, I have difficulties in accepting that the Plaintiff can apply to strike out this part of the Counterclaim which is related also to the claim by the Defendant against the Plaintiff as the manager of the Wui.

16. It is said that the Wui may end up with liabilities in respect of the Defendant's claim against the former tenants. As the matter now stands, the Defendant is simply pursuing the Counterclaim in his personal capacity as a member of the Wui. Whether as an individual member he can succeed against the former tenant remains to be determined but the Plaintiff clearly cannot have this part of the Counterclaim struck out.

Rule in Foss v. Harbottle

17. Reliance is placed in the rule In Foss v. Harbottle ("the Rule") that it is only the manager who can sue for redress to wrong done to the Wui. The Rule is that the proper plaintiff in an action in respect of a wrong alleged to be done to a company or association of persons is, prima facie, the company or the association of persons itself.

Rationale of the Rule

18. The rationale of the rule is discussed in MacDougall v. Gardiner (1875) 1 Ch D 13 which was referred to in Hodgson v. National and Local Government Officers Association & Others [1972] 1 WLR 130 :

1) If every member of a company or association is allowed as an individual plaintiff to complain against a thing that is done in the course of the company's or association's business, life would really become intolerable because in a large body there are often a number of difficult members who would take every opportunity to involve the company and its officers in litigation.

2) If the thing complained of is a thing which in substance the majority of the company are entitled to do, or if something has been done irregularly which the majority of the company are entitled to do regularly, or if something has been done illegally which the majority of the company are entitled to do legally, there can be no use in having a litigation about it, the ultimate end of which is only that a meeting has to be called, and then ultimately the majority gets its wishes.

Application of the Rule

19. In Hodgson, Goulding J., following previous decisions, held that the two requirements for the application of the Rule are that :

1) there is a legal entity capable of suing in its own name, and

2) the individual members should be bound by rules giving the majority the power to bind the minority.

Exception to the Rule

20. The judge further referred to one of the exceptions of the Rule, namely where individual plaintiffs can say that something in the nature of a proprietary right of theirs is being infringed, as where subscriptions are being altered, or qualifications for office are being altered, or benefits are being altered.

21. In Hodgson, which was concerned with an unregistered trade union, the judge held that the defendant which was not an incorporated body cannot sue in its own name and hence the plaintiffs who were members of the defendant were not subject to the Rule.

Further discussion

22. A further discussion of the Rule in its application to unincorporated associations can be found in the work by Warburton on Unincorporated Associations : Law and Practice 2nd Ed. where at page 78, the author stated that :

" It has been argued, by analogy with company law, that an individual member cannot bring an action in connection with a wrongful act by an officer of the association which could be ratified by a majority of the members at a general meeting. Whilst it is now clear that the rule in Foss v. Harbottle applies to trade unions in respect of intra vires matters, it probably still does not apply to unincorporated associations in general because they cannot sue in their own names. In any event, an individual member can bring proceedings in respect of any application of funds or other act by an officer of the association which is ultra vires. The court, however, will not entertain any action if the purposes of the association are illegal because the contract, on which the action is based, will be void for illegality.

If a member considers that the committee or the treasurer are using funds for purposes other than those of the association, he can apply to the court for a declaration that payments made were unauthorised. Such an action will usually be based on the rules which represent the contract between the parties but an action can be brought for breach of trust when the treasurer or other members of the committee are trustees. Even if the rules give a very broad discretion to the committee in relation to funds, such rules are subject to the limitation that any payment must be for a purpose within the objects of the association, i.e. intra vires."

Wui is not a legal person

23. In this case the Wui recognized under section 15 is an unincorporated body of a group of members. It is not a legal person. This is clearly stated in Tang Yau Yi Tong & Another v. Tang Mou Sou Tso & Others [1996] 2 HKLR 212 at page 219 when the nature of a Tong and Tso was discussed. If the Wui is not a legal entity then the Rule is not applicable.

Application of English authorities

24. Mr Chong argued that the English authorities are not applicable to the situation in Hong Kong because of the operation of section 15 which provides, among other things, that :

" Whenever any land is held from the Crown .... in the name of a clan, family or t'ong, such clan, family or t'ong shall appoint a manager to represent it. ..... and the Secretary for Home Affairs on receiving such proof as he may require of such appointment shall, if he approves thereof, register the name of the said manager who shall, after giving such notices as may be prescribed, have full power to dispose of or in any way deal with the said land as if he were sole owner thereof, subject to the consent of the Secretary for Home Affairs, and shall be personally liable for the payment of all rents and charges and for the observance of all covenants and conditions in respect of the said land. ......" (emphasis added)

25. Mr Chong argued that the property of the Wui is vested in the manager who has both the right and liability as if he were himself the owner of the property. He is the person capable of suing (and be sued) on behalf of the Wui and nobody else. He referred to a number of authorities to support his submission.

26. Wing Tung Yick Investment Co. Ltd. & Others v. A.G. HCMP 2557 of 1995 is concerned with section 17 of the Ordinance which deals with the registration of successors to the estate of a deceased person. It was held that the registration vested the land in the successors.

27. In A.G. v. Lam Mei Chai [1997] HKLRD 196, it was held by the Court of Appeal that section 15 contemplates that a manager is vested with the duties and responsibilities incidental to the ownership of land. The section is consistent with the manager assuming the responsibilities referred to in section 21(1) of the Town Planning Ordinance which deals with the service of a notice by the Building Authority on the land owner in respect of unauthorised development.

28. In Chau Mei Lee Fragrance & Another v. Ng Yee Tim [1996] 4 HKC 46 the Court construed section 16 of the Multi-storey Buildings (Owner Incorporation) Ordinance, which provides that the rights of the owners in relation to the common part of the building shall be exercised by the corporation to the exclusion of the owners. It was held that the Ordinance does away with a derivative or minority action.

Manager as owner is not conclusive

29. The fact that the Wui may sue or be sued in the name of the manager or that the manager is vested with the rights to the property cannot be a complete answer to the problems associated with the application of the Rule to unincorporated associations. If the manager has the rights and liabilities as if he were the owner, then clearly the majority rule is inapplicable. On the other hand, the majority rule is one of the rationales for applying this Rule.

30. Furthermore, the letting of the Wui's property clearly affects the propriety interest of the Defendant. The infringement of the propriety right of the Defendant constitutes one of the exceptions to the Rule. It is clearly an arguable point.

31. Where the wrong done to the Wui is by the manager himself, the fact that under the Ordinance, the members of the Wui can ask for his removal may not be the only remedy that is available to them. The matter is clearly not so plain and obvious that the Counterclaim should be struck out at this stage of the proceedings.

Conclusion

32. Accordingly, I will allow the appeal and reverse the decision of the Registrar to the extent as indicated. The Defendant is to have the costs nisi of the appeal. It has to be pointed out that the case of Hodgson and the work by Warburton were not referred to the Registrar by the parties during the hearing before her. The costs order of the Registrar is not to be disturbed.