WONG KEUNG AND OTHERS v. CHUNG LAP AND OTHERS

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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Introductory

1. The parties to this action are all, with some others, participants in a scheme to provide themselves houses. They entered into an agreement for that purpose, subscribed funds, purchased land and commissioned plans from architects. The implementation of the scheme was left to the 1st Defendant (D1) as chairman, the 1st Plaintiff (P1) as vice-chairman and the other members of a committee (the Preparation Committee). The land purchased was conveyed to D1 and P1 as trustees. D1 and the 5th Defendant were also made signatories to the bank accounts maintained under the scheme and the agreement.

2. To start with, members of the Committee cooperated amicably but progressively a developing degree of dissention set in and came to a head over the choice of a contractor. One faction led by D1 favoured one contractor - Cheong Kee, the other, led by P1, favoured Yau Shing. In the end it was resolved that Cheong Kee should have the contract but for reasons that will be seen, P1 refused to sign. Despite that, D1 handed over the site to Cheong Kee, but finance could not be procured without P1's signature. The construction could not proceed and Cheong Kee instituted proceedings against the Preparation Committee, which are pending in this Court.

3. The Plaintiffs supported by a majority of members, purported to remove D1 as chairman and trustee. D1 refused to recognize their action and on the contrary wrote to the scheme's bankers and effectively froze the bank accounts. And so the Plaintiffs on behalf of a majority of participants (altogether making a total of about 75) instituted this action. They ask for

4. D1 denies the Plaintiffs' claims and countclaims for declarations that -

5. I have made no mention of the other Defendants as the 2nd Defendant has died and his personal representatives have by consent been discharged; and the 3rd, 4th and 5th Defendants in course of the hearing settled the action against them and have also withdrawn, leaving D1 to carry on alone.

The Agreement and its origins

6. There used to be at Yuen Long before the new town was built, a playground or amusement park. In 1968 the residents in the vicinity formed a mutual aid society known as the Yuen Long Chun Hing Mutual Aid Kai Fong Society (the Society) which is still in existence. Some of the provisions of the articles of the Society are of importance. Under these members are given the express right of election and to be elected and to vote; they are subject to dismissal and are obliged to comply with resolutions passed in general meeting and extraordinary meetings. The supreme authority of the Society is vested in general meeting below which the Board of Directors is the supreme executive. The Board is to be appointed by general meeting every two years and its members are to elect from among themselves a chairman and two vice-chairmen. Directors serve on an honorary basis and re-election is permitted but limited to three successive terms. Members and Directors can be expelled for breach of articles or resolution, conviction of criminal offences and malfeasance. In all meetings resolutions are made by a majority of members present. The articles can be amended in general or extraordinary meeting and subject to approval of the Registrar of Societies. The Society has an executive committee and a supervisory committee.

7. In 1970, a couple of years after formation of the Society, the Government published its plans to resume the Arcade area to build the new town. So members of the Society decided to build new houses on a site to be purchased and to call the new development the Chun Hing New Village. In January 1972 those who wished to participate in the project entered into an agreement (the Agreement) for that purpose. Its terms, which lie at the heart of this action, are as follows:-

        CHUN HING KAI FONG MUTUAL AID SOCIETY OF YUEN LONG

        AGREEMENT OF MEMBERS' SUBSCRIPTION OF FUNDS IN THE
        CO-OPERATION OF PREPARING TO BUILD UP CHUM HING NEW VILLAGE

8. We, who entered into this Agreement, are members of Chun Hing Kai Fong Society, totalling one hundred and twenty-one persons, acquiring two hundred and twenty shares. Basing upon the spirit of mutual help and co-operation, to cope with the Government's project of developing Yuen Long District, we are willing to participate in the project proposed by the entirety of the administrative personnels, supervisors and advisers of Chun Hing Kai Fong Society to subscribe funds co-operatively in the preparation of building the new village, and to authorize Mr. Chung Lap and Mr. Wang Chi Keung to organise a Committee for the Preparation and Construction of Chun Hing New Village. Also to appoint the foregoing gentlemen to be Chairman and Vice-Chairman respectively by voting, to represent us, the subscribing members, to purchase the village site and to sign all and any documents pertaining to the building of the village. Those who entered into this Agreement do also entirely approve the undermentioned methods and regulations in connection with subscribing funds amongst the members for the preparation and construction of Chun Hing New Village as stipulated by the Committee.

1.             The name of the new village :- Yuen Long Chun Hing New Village.

2.             Site of the new village :- Yuen Long Shui Bin Wai beside the New Garden Restaurant and flood preventing nullah. The Lots Nos. are 187, 188, 189 and 190 in D.D. 120 and 960, 1308, 1306 and 1314 in D.D. 122.

3.              Reason for erecting the new village :- To cope with the Government's project for the development of satellite town on non-profit making basis, (This Society) is to raise capital and help members to secure an accommodation when their dwelling premises have to be demolished.

4.              Method of co-operation :- To organise a Committee for the Preparation and Construction of Chun Hing New Village. To issue shares and raise capital. To appoint two persons as the representatives to purchase the land for the village, who shall participate on honorary basis together with the Preparation and Construction members in the planning of building the village and also to negotiate with the Bank for a loan. All members who contributed the capital should enter into this Agreement and support all the matters in the construction of the said new village.

5.             The structure of the premises :- each house (thereinafter called "Unit") occupies an area of 400 sq. ft. but the construction area is 300 sq. ft., made of concrete cement, flat roof, two storeys and the final plan is subject to approval by the public Works Department.

6.             The procedure for the construction of the village :- Firstly to raise capital to purchase the village site then to apply to the Government for conversion, and continue to raise capital monthly. Forthwith proceed to reclaim the land, pay the premium, and then raise a loan and to construct the foundation, the building and public facilities until they are completed.

7.             Cost for construction :- According to the aforesaid schedule, the estimate cost would be approximately $16,000.00 for each unit. The above estimation is based on the present cost. The total expenditure will be worked out after completion of the buildings, and shall be borne proportionately by the members according to their shares.

8.             The organisation of the Preparation and Construction Committee :- This organisation consists of one Chairman and one Vice-Chairman and undertaken by Mr. Chung Lap and Mr. Wong Chi Keung respectively. They are to represent all the members and to lead the General and Supervision Departments. In these departments, they are sub-divided into 6 sections namely Finance, External matters, Personnel, Building, Recording and Auditing and they are undertaken by twenty-seven of the Executive and Supervisory Members and advisers of the 4th term of Chun Hing Kai Fong Society on honorary basis.

9.              Collection of Capital :- Collection will be made by instalments in two stages. Those members who apply for a unit have to pay $2,200.00 as the 1st instalment for the purchase of village site, and thereafter to pay subsequent instalments of $300.00 per month commencing from December 1971 without interruption until a sum of $8,000.00 including the first instalment is fully paid. This is the first stage. For the second stage, there will be a loan from a bank for the payment of building materials and work and for all proper expenses. Members of the Society shall repay the bank the capital and interest. Members who have applied for a unit shall sign an agreement with the bank individually and directly and pay the loan including interest by instalments till the whole amount has been paid. (However, those who can pay cost of the construction fee in advance in the course of construction need not pay the bank interest).

10.            Arrangement for non-payment of capital during the period of instalment :- If any member, who has applied for unit (units) fails to pay punctually any instalment which he should pay within the period before the construction work of the houses has commenced, and still fails to pay without any reasonable explanation after notice has been duly given by the Preparation and Construction Committee, the Preparation and Construction Committee has the right to cancel the units which he applied for and transfer (the same) to others to take over. The sum which had been paid previously by the member will be refunded to him without interest, after completion of the new village. If the member fails to make payments after a loan has been obtained from bank and the building work has commenced, the sum which he had previously paid will not be refunded until the house is completed and sold by the bank and the principal and interest due to the bank and all expenses have been deducted. If the proceeds of sale are not sufficient, he shall be legally liable for the deficit.

11.             Way of Allocation :- If the members of the Preparation and Construction Committee who have from the very beginning till the end of the completion of the village participated in the work on an honorary basis, they will have the priority to select the house. Other houses will be allotted to the other members by lot.

12.             Regulations for peaceful dwelling :- When the construction of the new village is completed Messrs. Chung Lap and Wong Chi Keung will immediately execute title deeds and transfer the units which each member entitled to the various landlord members. All landlord members and occupiers shall observe the regulations concerning the hygiene and security of village, including the public squares which is not allowed to be used for personal storage purposes. Illegal business and any business harmful to the public health shall not be carried on in the village. All the occupiers have to acknowledge and sign the acceptance of the regulations before they are permitted to enter into possession of the premises. If landlord members of the village have to assign their premises due to personal reasons, they have to register with the Society first. $200.00 will be charged for registration of the new owner. The said sum will be credited to the Society for use as public expenses.

13.             Those who are not members of the Society, but have participated in designing the erection of the village, have to deposit $1,000.00 to the Society if they desire to apply for one unit. The said sum will be used to subsidize public development and welfare expenses and they have to join as members of the Society.

9. We, participating in this Agreement, have thoroughly understood the foregoing methods and regulations and are willing to observe and perform them. This Agreement is, therefore, an evidence of observance.

24th January, 1972.

10. The Executive and Supervisory Committee of the Society functioned as the Preparation Committee even before the Agreement was executed and indeed drew up the scheme and the substance of the Agreement. But D1 was probably the originator and leading light of the scheme. The Executive and Supervisory Committee continued its role as the Preparation Committee following the execution of the Agreement.

11. According to the Agreement itself, there were 121 subscribers (share-holders). Subsequently some of these did not pay their dues and were expelled. The expulsions were challenged but were confirmed in High Court Action 3569 of 1979. For the purpose of the present action there are 105 shareholders, 106 if the President of the Society is counted. He is Mr. Tang Lai Man, J.P., the leading public figure in that area of the New Territories where the new village is to be located. He did not subscribe to the Agreement, but was given a share apparently in recognition of his assistance to the shareholders and their scheme. Those who were not members of the Society had to join it to become shareholders.

12. For so worthy a cause, the scheme has not faired well. I have already alluded to the expulsion of the defaulting shareholders and the High Court Action that precipitated. Matters took an inordinately long time, not that I would say the Preparation Committee or the chairman or the vice-chairman were to blame. Throughout, with commendable zeal, minutes were kept of all General and Preparation Committee Meetings resulting in a daunting volume of documentary evidence, but which sheds considerably light on the more than 138 meetings of the Preparation Committee and the dozen or so general meetings of shareholders.

Selection of a contractor

13. Tenders were called for in 1981 and in mid-1982. The 1981 invitations were for 98 village-type houses and a club house; whereas the 1982 invitation was only for the 98 houses. It was clearly stated that only contractors registered for construction work with the Public Works Department would be eligible. About 30 organizations responded. These were narrowed down to 12 by the architect and they were asked to put in tenders. The lowest bid was that of Yau Shing at $25,008,980 closely followed by Cheong Kee at $25,267,600. But Cheong Kee's tender was accompanied by a covering letter which said :

"Please note that we will construct the frame-work of the Kai Fong Office for the client without extra charges which will be included in our contract sum".

14. At the 122nd Preparation Committee Meeting on 21 August 1982, Architect Chan reported that in Cheong Kee's bid, a proposal was made to build a "Kai Fong Club structure" free of charge but that the nature of the work was very ambiguous and that if the offer was sincere, the cost should have been set out first and deducted from the total price to avoid future disputes. Others, too, were dubious about Cheong Kee and preference was expressed for Yau Shing as a large company which had built many Government housing estates. But the Chairman, D1, came out very strongly in support of Cheong Kee. He maintained, first, that Cheong Kee's bid was the lowest; second that President Tang had told him the club hall was worth $600,000; third that Cheong Kee said there was too much reinforcing iron in the building plans; fourth that the usual practice of contractors was to give a commission but instead of giving this to selfish persons Cheong Kee was prepared to build the club house; fifth that if Yau Shing got the contract each shareholder would have to pay an additional $3,000; and lastly that Justice of the Peace President Tang was influential in the area where the village was to be built, he had done much to assist the shareholders and had made representations to Government.

15. In the ensuing debate D1 intervened several times to respond to doubts expressed about Cheong Kee by stating that Cheong Kee had planned to give him $300,000 but he refused it; explaining the organization of Cheong Kee; inviting members to have confidence in Cheong Kee; urging them to rest assured as there was a guarantee from the Justice of Peace (President Tang); and claiming that Cheong Kee intended not only to build the club house but to decorate and furnish it at a total cost of $600,000. He even clashed with the architect in persisting with his view that excessive reinforcing iron was called for by the building plan.

16. It was in the end D1 as chairman who decided to get the two tendering companies to clarify their bids. This was done when the meeting resumed a week later on 28 August 1982. Yau Shing emerged as a solid well-organized and staffed construction company with a turnover of $500 million for the preceding year. Cheong Kee on the other hand revealed considerable cause for concern. Its turnover was said to be valued at some $30 million odd. Management staff for the project would have to be procured. Cheong Kee was first stated to be a limited company with a capital of $3 million but later President Tang "clarified" this by saying it was a firm, not a limited company, and that he had no share in it.

17. D1 then raised the matter of fung shui difficulties and said President Tang promised to be responsible for these. President Tang himself said

"As regard Cheong Kee I can sign to take up all responsibility because money matters are planned by me, I will be responsible for all collection and out-going expenses. "

When a proposal was made to vote upon the choice of contractors, D1 opposed it, saying it was a trap and that those of the opposite side would certainly get more votes. He stated bluntly that he would not recognize the result of the vote and that the village could not be built without his signature. So the matter was not decided but it was resolved that the architect would refer the data on Cheong Kee and Yau Shing to the solicitor and the bank; also that some of the Committee would see President Tang, since Dl's reluctance to upset him was the cause of his opposition to the matter being decided by vote.

18. The next meeting i.e. the 123rd Preparation Committee Meeting was held on 19 September 1982. D1 in presenting the data submitted by the two organizations, was critical of Yau Shing and requested members to approve Cheong Kee. There was opposition to this and again the matter was left to the solicitor and the architect who were not present. The solicitor refused to decide, saying it was for the shareholders to do so and that a general meeting should be held. Accordingly at the 124th meeting on 3rd October 1982, it was resolved to hold a general meeting to select the contractor, and that the district officer, solicitor and architect should be invited to attend.

19. Thus the 8th General Meeting of shareholders was held on 23rd October 1982. It was attended by President Tang, Miss Joyce Li and Mr. Li (the solicitors) and Architect Chan and his partner Architect Yiu. D1 as chairman opened the meeting again very strongly recommending Cheong Kee, and announcing to each shareholder formally that Cheong Kee was the "natural, reasonable and lawful contractor to build the new village". He then invited President Tang to speak. President Tang confirmed that Cheong Kee would donate a club house worth $650,000 which would make its bid even cheaper than it was originally, and that furthermore Cheong Kee had asked him to announce a further donation of $300,000 towards the running of the Kai Fong Society and to express Cheong Kee's regards.

20. The 4th Plaintiff (P4) was the General Affairs Supervisor of the Society, occupied a similar position in the Preparation Committee, and was in charge of the keeping of minutes, sending out of circulars and so on. After President Tang had spoken, he reported to the shareholders the proceedings of the previous three meetings of the Preparation Committee. Debate then continued with D1 suggesting that P4 had received benefits from Yau Shing and was using tricks to get fools to speak for him. Solicitor Joyce Li advised that if there were no more questions the matter should be put to the vote in view of the time limit of the development covenant under the land grant and limited life of the mortgage that had been negotiated. Again D1 opposed this saying that his side would be eliminated. He also condemned the prior printing of voting cards without his authority. There was nevertheless majority support for the vote to be taken under the supervision of Solicitor Joyce Li. However President Tang raised the difficulty of establishing the identity and status of voters. Solicitor Joyce Li accepted this and proposed that the meeting be adjourned for a week so that shareholders certificates could be produced by intending voters. Architect Chan pointed out that the tenders would expire on 3rd November (nine days later) so that voting should take place before then. P1 announced that the meeting would be resumed the following Saturday - 30th October 1982.

21. On 26th October 1982, D1 wrote to Solicitor Hu, saying that a minority of shareholders wished to select the higher bid of Yau Shing, and he wished to investigate the reason. He added "It is decided that the next meeting be cancelled?? to protect the interests of all the shareholders. Future correspondence and documents not signed by him would be null and void. That was all said in his letter. It was quite untrue that a minority of shareholders wished to select Yau Shing's bid; a large majority in fact favoured it.

22. As a result of that letter Solicitor Hu informed the Plaintiffs that he would not attend on the 30th October. The Plaintiffs accordingly concluded that it was no use holding the meeting without the solicitor and issued a notice cancelling the meeting. But when the architect asked the contractors to extend the validity of their bids, Yau Shing refused though Cheong Kee agreed.

23. When the next Preparation Committee Meeting, the 125th, was held on 9th November, there was only one tender to be considered. It was accordingly resolved that the contract be given to Cheong Kee subject to execution of a guarantee by President Tang, and shareholders being notified so that they could see it was legal. D1 mentioned that if the solicitor was notified he would prepare documents, the architect would issue the letter of intent and they could at the same time invite the shareholders to a god-worshipping ceremony at the construction site.

24. D1 and P1 wrote to the solicitor and architect to prepare the necessary papers on 11 November 1982. Architect Chan prepared a letter of intent dated 30 November 1982. He signed a copy and on or about the next day handed it to D1 with a Chinese translation. He claims that he asked D1 to sign it and get P1 to do the same and then to return it to him (the architect) who would send it to Cheong Kee for signature. D1 says he was told to sign it and obtain Cheong Kee's signature and then return it to the architect who would obtain P1's signature. The letter was returned to the architect's office with the signature of Di and Cheong Kee but without that of P1. About that time the architect left Hong Kong for a tour of the United States, leaving his partner Architect Yiu to carry on. Architect Yiu returned the letter to the Preparation Committee for P1's signature, after which it disappeared.

25. Meanwhile on 29 November 1982, D1 issued a letter to all shareholders to attend a works-commencement ceremony at the construction site at mid-day on 2nd December 1982. The Preparation Committee later received two letters from Cheong Kee's solicitors, the first dated 18 December 1982 revoking a power of attorney given to a Mr. Choi Kwai Lam and a Mr. Cheng Shui Ping, and the second dated 4 January 1983 withdrawing that revocation. On 23rd January 1983 President Tang presented an insurance bond in the sum of $2.5 million. The Plaintiffs felt it should have been a cash deposit which, there is some evidence to suggest, President Tang had promised. Legal advice was obtained and it was to the effect that everyone should cooperate and not insist upon cash but that instead the guarantee should be amended to cover assignment of the contract. At the same time Cheong Kee's solicitors pressed for execution of the contract. P1 maintained that he was only a trustee, and refused to sign without a Preparation Committee resolution.

26. Some time between 2nd December 1982 and the 129th Preparation Committee Meeting on 7 February 1983, D1 himself handed over the site to Cheong Kee, who entered into possession and poured some concrete. Architect Chan upon his return from the United States found that the site had been handed over and preparatory work had commenced. He was not pleased.

27. The insurance company refused to amend the bond to cover assignment. Various suggestions were then considered as to how Cheong Kee could be restructured to benefit from the bond; all were considered unsatisfactory. On 15 March 1983 P1 submitted his resignation as vice-chairman on the grounds of failing health. A few days later there was a meeting at Solicitor Hu's office attended by P1 and most of the Plaintiffs and Defendants including D1. Solicitor Hu pointed out the dangers inherent in insurance that did not cover assignment, and warned P1 of the danger of signing. In the event P1 never did sign. The insurance bond was never provided, and indeed its necessity was later overtaken by events.

28. At the resumed 9th Shareholders' General Meeting on 28 April 1983, attended by two district board members, the architect, and representatives from the Police, ICAC, District Land Office, and the Press and 88 shareholders, D1 came under severe critism from individual shareholders for his association with an alleged Cheong Kee sydicate and for handing over the site. His removal was called for. He strenuously defended himself against the allegations. In the event only 2 members voted for his retention with virtually all the remainder voting for his removal as Chairman. The resolution for his removal was accordingly carried.

29. The Plaintiffs issued their writ on 12th July 1983. The hearing commenced on 15th October 1984. On 17 November 1984 the hearing was adjourned on the basis of a settlement worked out by the parties' solicitors. Regrettably that came to naught and on 29 January 1986 the trial was resumed.

Documentary Evidence

30. It is not necessary to comment generally upon the correspondence and the other voluminous documentary evidence save the minutes of the shareholders' general meetings and of the Preparation Committee meetings that I have already mentioned. These minutes were originally kept by a Mr. Lee under the supervision of P4 and later by P4 himself who kept notes and let Mr. Lee transcribe them or who wrote them himself in his excellent Chinese calligraphy. Later still a tape recorder was used and a virtually verbatim record produced from recorded cassettes. The minutes are of very considerable length. They were recorded in several bound notebooks. D1 has attacked the accuracy and indeed the truth of the contents of the minutes, alleging that P4 wrote what he wanted and that only the minutes of three meetings which D1 had actually signed, are accurate. I do not accept D1's allegations. In my finding the minutes which were usually read over at subsequent meetings, were accurate records of what took place, save for the minor mistakes one would normally expect, and latterly, presentation of Dl's conduct in less than sympathetic, but not in my view inaccurate, vein. As will be seen I accept P4's evidence as true in substance. Moreover I do not believe that fabrication on the scale suggested by D1 could have been or was accomplished. Finally a number of tapes from which some minutes were transcribed, were supplied to D1's legal advisers at the earlier part of the trial. From the subsequent cross-examination, it was clear they had been examined in detail. The only inference from that and the results of the cross-examination is that the relevant minutes were remarkably accurate. Nonetheless I have deemed it prudent to approach the minutes recorded after the dispute between the parties emerged with some degree of caution.

Oral Evidence

31. Only 5 persons gave evidence at the trial. The Plaintiffs' first witness was P1. In general he impressed me as a truthful witness. His memory, as he himself acknowledged, had for some time been failing and in this respect some parts of his evidence are not reliable.

32. The Plaintiffs' second witness was Architect Chan. His evidence was attacked by D1 as biased on account of his friendship with P1's son, the two having been fellow students at some time. The significance of Architect Chan's evidence lies in the conflict between it and the evidence of D1 in two respects. Architect Chan said first that he never asked D1 to obtain Cheong Kee's signature to the copy letter of intent; and second, that he never asked D1 to hand over the construction site to Cheong Kee. I have no hesitation in rejecting D1's allegations in these respects, and in accepting Architect Chan's evidence.

33. The Plaintiffs' third witness was Chan Kwong i.e. P4. It is essentially upon his evidence that the Plaintiffs rely. He was an impressive witness able to testify knowledgably and credibly over the whole range of the Plaintiffs' case, and to relate this to the very large volume of documentary evidence. He showed no love for D1 whom he regarded as the cause of all the Plaintiffs' troubles. For that reason I found it necessary to approach his evidence with reservation and caution. Nevertheless at the end of the day I concluded that his evidence was trustworthy and reliable, and I accept it almost wholly.

34. The Plaintiffs' fourth witness was Architect Yiu, Architect Chan's partner. He was not able to offer much direct evidence on the matters and dispute. Nevertheless he was a convincing witness whose evidence I accept. It goes some considerable way in confirming the evidence of Architect Chan on their procedure and practice, and in refuting D1's allegations in point.

35. D1 did not call any witnesses but gave evidence himself. For all his years, some 70 odd he repeatedly claimed, he displayed an impressive familiarity with the matters in dispute. He emerged as a forthright, arrogant and forceful personality not at all reluctant to cross swords with counsel. But there were far too many matters which, rather conveniently for himself, he claimed he could not remember. He was also deeply suspicious of Plaintiffs' counsel and, I am satisfied, on that account was reluctant to answer many questions for fear that he would be "trapped" as he put it. But he was also on a number of significant matters clearly evasive and, as will be seen, untruthful.

The Majority Rule

36. I proceed now to the matters in dispute between the two sides. The most important of these came to be referred as the majority rule. D1 claimed, and not altogether without some semblance of validity, that 100% of the shareholders had appointed him to be chairman of the Preparation Committee, to "lead" the General and Supervisory Departments, that as such he was to take all the decisions though he might first ascertain the views of the Preparation Committee (and presumably the shareholders) but only adopting those views where he considered them "reasonable, proper and up to standard"; and that only 100% of the shareholders of whom he was necessarily one, could remove or overrule him.

37. Perhaps D1 had in mind something like the well-established rule in Harington v. Sendall [1903] 1 CH 921, that the rules of a club (and I see no difference in principle between such and the terms of the Agreement between the shareholders in this case) cannot without provision in them be altered without the consent of every single member.

38. The Agreement, D1 adds, is silent upon the existence of any power of amendment or decision by the majority; that is clearly so. On the other hand, as in other contracts, there may be implied terms e.g. the relations between members of a club are governed by a contract between the members which may be express or implied-Chitty (25th Ed. para. 660). To revert to the Agreement itself I am not able to read into those of the provisions upon which D1 seeks to rely, any such well-nigh absolute power as that he contends was thereunder vested in him. And if there were, it would on the express terms of the Agreement, have been vested not only in him but jointly in P1, who D1 denies has any power at all other than to concur and support decisions made by D1, whatever they be.

39. The housing scheme, the Preparation Committee and the Agreement itself all arose very much under the aegis of the Society. As I pointed out at the outset, the articles of the Society provide for decisions by the majority, not only in running its affairs, but also for amendment of the articles themselves. Meetings of the Executive and Supervisory Committee of the Society and of the Preparation Committee were held at the same time and place and the same persons attended. It is most probable the same procedure was adopted notwithstanding that the business of one committee might have been completed before that of the other immediately commenced.

40. I think therefore in terms of the Moorcock principle (1889) 14 PD 64, that had an officious by-stander suggested that the matters in question that were in fact decided by majority were to be resolved in that manner, he would obviously have been suppressed by the parties to the Agreement with a common "oh of course".

41. Furthermore there were obviously matters that had to be decided by the shareholders and the Preparation Committee. Of necessity they could only be decided by a majority; therefore to that extent majority rule is necessary for the efficacy of the Agreement, and upon that basis an implied term in my judgment under the Moorcock decisions

42. In my finding there were several matters decided by simple majority in both the Preparation Committee and in general meetings of the shareholders. D1 himself was party to some of those decisions. They also show that the "majority rule" as it was termed at the hearing, was an implied term of the Agreement or alternatively a term by mutual variation, which could benefit all the parties to the Agreement including D1 (see Chitty - 25 Ed. para. 1491).

43. Furthermore in my finding the denial by D1 of the majority rule is of very reason origin. Until his purported removal from office, neither he nor anyone else had challenged the majority rule. As chairman he presided over proceedings of both the Preparation Committee and shareholders in general meeting at which decisions were taken by a simple majority. To allow him to aver now that there is no such rule would operate to the prejudice of that majority of the shareholders who have relied upon it. In my view he is therefore estopped from doing so (see Phipson 13th Edition para. 41 - 34, 35).

44. I conclude therefore that it is an implied term of the Agreement that the power of both the Preparation Committee and the shareholders to make decisions was vested in the majority. But such power, I should add, in my finding does not extend to amendment of the Agreement itself without the consent of every shareholder, provision to that effect not having been made in the Agreement. That is clear from Harington v. Sendall.

Removal of D1 as Chairman

45. D1 maintains that the Agreement appoints him to be Chairman and that until the building project is completed and individual houses assigned to each shareholder, he cannot be removed whether by a majority vote or otherwise, save by 100% of the shareholders including himself. In the circumstances of this case I cannot believe that the shareholders could possibly have agreed to such a term. For the like reasons as those upon which I rely in holding that the majority rule applied, in my finding it was an implied term of the Agreement that D1 could be removed by a simple majority of the shareholders, at the very least for obstructing or hindering the object of the Agreement. The absence of such a term would seriously undermine the effectuation of the Agreement, particularly as power was vested jointly in the Chairman and Vice-chairman, rendering the possibility of deadlock very real.

46. I have already recorded my finding that the shareholders by an overwhelming majority passed a resolution removing D1 from the office of Chairman. In addition to the claims made in that regard by D1, which I have already rejected, he maintains in his pleadings that his removal was contrary to the principles of natural justice. By that I assume he means that he was not afforded an opportunity to defend himself. But upon clear evidence that I accept, not only were the allegations against him made in his presence but he was afforded an opportunity, to answer them and did in fact avail of the opportunity, stoutly presenting the same defences that he has advanced at the trial of this action.

47. In my finding therefore D1 was duly and effectively removed from the office of Chairman on 28 April 1983. The motion put to the shareholders related only to D1's office of Chairman. Nevertheless since he was directly appointed as Chairman, without ever having been a member of the Committee, I think it must follow that upon removal as Chairman he ceased to be a member of the Committee.

Bank Accounts : Ownership and Authority to operate

48. The evidence shows that the monies subscribed by the shareholders was placed in several bank accounts. Those monies clearly belong to the shareholders. Under the Agreement they were for building the new village. The Preparation Committee is entrusted with the building of the new village. It would seem therefore that the Committee, by decision of a majority of its members can decide who are to be the signatories and to remove and re-appoint signatories, and I so find. In my judgment whatever doubts there may be about that, there can be no doubt that the shareholders by majority decision can do so. Alternatively I have no doubt that would be an implied term under the Moorcock principles. The shareholders at their 11th General Meeting held on 23 June 1983, did, effectively in my finding, remove the former signatories and appoint new signatories.

Resignation of P1 as Vice-chairman

49. I do not accept D1's contention that neither he nor P1 could resign their offices and had to go on until death or completion of project. In my judgment the considerations and reasons upon which I find that the majority rule applies, do mean that the Chairman and Vice-chairman may resign. In my finding P1 resigned and his resignation was accepted at the 133rd Preparation Committee Meeting. That in my finding effectively terminated his appointment as Vice-chairman.

Election of New Members of Preparation Committee

50. I make no finding on the maximum number of members of the Preparation Committee or, indeed, whether there was a limit. In putting themselves up for re-election, that majority of the members of the Preparation Committee that did so must be regarded as having intended to and relinquished their membership of the Preparation Committee prior to re-election. In my judgment it is an implied term of the Agreement that Preparation Committee members can relinquish office and, where they do so, that shareholders in general meeting, if not the Preparation Committee itself, can select new members. In my finding the shareholders did so at their 10th General Meeting on 18 May 1983 notwithstanding the somewhat unusual way in which that was done and recorded. In my finding the members elected as such at the 10th General Meeting are duly elected members of the Preparation Committee.

Authority of Preparation Committee to build the new village

51. The Plaintiffs are concerned about the authority of the new Preparation Committee to handle and deal with all matters in connection with the building of the new village. In my view that authority is clear both from the terms of the Agreement and from the practice long accepted and adopted by the Preparation Committee and the shareholders, and I so find.

D1's liability for damages for breach of duty as trustee

52. The Plaintiffs' claim damages for the breach of duties on the part of D1 as trustee. I am satisfied that the evidence discloses that D1 was a trustee of both the bank accounts of which he was a signatory, and of the land conveyed to him and P1 jointly on behalf of the share-holders. The nature of the trusts is not very clear; they appear to be bare or simple trusts. I am nevertheless satisfied that the monies in the accounts, and the land were held in trust for the beneficiaries and were to be used for the purposes of building the new village as directed by the Preparation Committee or shareholders by resolution. However the complaints of breach of duty against D1 made by the Plaintiffs in their pleadings and evidence and by their counsel relate largely to his conduct as Chairman, conduct that was not necessarily concerned with his duties as trustee. On the contrary it was conduct in a capacity akin to that of a gratuitous agent. Indeed in the context of removal, counsel for the Plaintiffs sought to rely on the principles of termination of agency. Whether or not D1 was an agent does not matter, for the Plaintiffs have chosen to claim damages solely in respect of breach of duty as trustee.

53. The Plaintiffs' complaints in that respect are as follows :-

In my finding, however reprehensible such conduct might have been on the part of any shareholder, a fortiori on the part of a committee member and chairman, it did not pertain to D1's duty as trustee, and is therefore irrelevant in the context of the claim in question.

54. But the Plaintiffs have other complaints that do appear to arise out of D1's duties as trustee. First the complaint that D1 without the authority of the Preparation Committee, Vice-chairman or shareholders handed over the construction site to Cheong Kee. Originally D1 admitted to the shareholders that he had handed' over the site to Cheong Kee to expedite construction. However at the trial he thought better of his admission and claimed he had only given possession for the purpose of holding a commencement ceremony. He also claimed that the architect orally instructed him to hand over the site. In my finding D1 did hand over the possession of the site to Cheong Kee without authority and the architect did not orally instruct him to do so. On the other hand I think it likely that D1 allowed Cheong Kee into possession of the site in his capacity as Chairman and not as trustee. His capacity as Chairman as I have indicated, seems akin more to that of agent rather than trustee. That view, as I have also observed, is consistent with the submissions made on the Plaintiffs' behalf that D1's authority had been terminated upon the principles of the law of agency.

55. Furthermore the Preparation Committee's decision in the end to award the contract to Cheong Kee (albeit engineered by D1) in my judgment is a sufficient answer to the charge of breach of duty by D1 in letting Cheong Kee into possession of the site, particularly when the two associated conditions must be regarded as having in effect been met (i.e. President Tang being willing to sign a guarantee and the shareholders having been notified). In my judgment therefore the Plaintiffs' claim for damages, as pleaded, cannot succeed upon the ground that the construction work site was wrongfully handed over.

56. The second complaint was that D1 wrongfully refused to concur with P1 and the Preparation Committee and shareholders in appointing the 3rd and 4th Plaintiffs sole trustees in respect of the said site. The third complaint was that D1 wrongfully ignored the wishes of the Preparation Committee and the majority of shareholders, and their resolutions, removing him as trustee. Both these complaints depend upon the answer to the question of whether the purported removal of D1 as trustee was legal. If it was not the complaint must fail. I will consider the question of the validity of the purported removal of D1 as trustee later.

57. The Plaintiff's fourth complaint is that D1 prevented the Preparation Committee and the shareholders from operating the bank accounts in which were deposited the funds which shareholders had subscribed. In my finding D1 as joint trustee held those funds in trust for the shareholders and was in breach of trust in not carrying out the lawful decisions of Preparation Committee in relation to them, more particularly in having the accounts frozen by writing to the banks concerned. What damage, if any, followed from such breaches is far from clear, but does not have to be ascertained at the present stage, as it was agreed that only the issue of liability would be dealt with leaving the quantum of damages to be determined later.

Removal of D1, and Resignation of P1 as Trustees

58. The Plaintiffs have not been able to point to any power authorizing a majority of shareholders to remove one or both trustees. In my judgment without such power or provision the purported removal of D1 as a trustee at the 8th General Meeting failed to achieve that effect. Likewise there was no power reserved to the majority of shareholders or to the Preparation Committee to accept the resignation of a trustee. Nor did the purported acceptance by them of P1's resignation, comply with the requirements of section 40 of the Trustee Ordinance (Cap. 29), for it would have let the number of remaining trustees drop below the minimum there provided; furthermore the additional requirement under section 40 that the remaining trustees consent by deed to the discharge of P1 and the vesting of the trust property in the co-trustees, was not met. D1 and P1 therefore remained as trustees.

59. However the Plaintiffs ask for them to be replaced under the court's inherent power or under Section 42(1) of the Trustee Ordinance which provides that :

60. The principles guiding a court in the exercise of its inherent jurisdiction, which in my view apply equally to the exercise of the powers under Section 42(1), are stated at page 408 of the 11th edition of Lewin on trusts, in the following terms which I adopt :

"The general principle guiding the court in the exercise of its inherent jurisdiction is the welfare of the beneficiaries. In cases of positive misconduct the court will, without hesitation, remove the trustee who has abused his trust; but it is not every mistake on neglect of duty or inaccuracy of conduct on the part of a trustee which will induce the court to adopt such a course. The act or omission must be such as to endanger the trust property or to show a want of honesty or a want of proper capacity to execute the duties, or a want of reasonable fidelity.

 

Friction or hostility between the trustees and beneficiaries, or between a trustee and his co-trustees, is not of itself a reason for the removal of a trustee. But where hostility is grounded on the mode in which the trust has been administered, ... or where it is likely to obstruct or hinder the due performance of trustee's duties, the court may come to the conclusion that it is necessary, for the welfare of the beneficiaries, that a trustee should be removed. "

The foregoing is substantially derived from the judgment of Lord Blackburn in Letterstedt v Broers (1884) 9 App. Cas. 371. In addition at page 386 Lord Blackburn said that :

"If it appears clear that the continuance of the trustee would be detrimental to the execution of the trusts, even if for no other reason that human infirmity would prevent those beneficially interested, or those who act for them, from working in harmony with the trustee, and if there is no reason to the contrary from the intentions of the framer of the trust to give this trustee a benefit or otherwise, that trustee is always advised by his own counsel to resign, and does so. If, without any reasonable ground, he refused to do so, it seems to their lordships that the court might think it proper to remove him. "

61. In Uvedale v Ettrick (1682) 2 Ch. Cas. 131 in which a trustee pertinaciously insisted on being continued in office, though his co-trustees were unwilling to act with him, Lord Nottingham L.C. said that he liked not that a man should be ambitious of a trust when he could get nothing but trouble by it, and without any reflection on the conduct of the trustee, declared that he should meddle no further in the trust.

62. In Palairet v Carew 55 ER 222, the Defendant was one of two trustees for sale of an estate, the produce of which was divisable amongst persons sui juris. He refused to concur in a sale agreed upon by his cestuis que trust, until he had been furnished with deeds etc. relating to another and an independent trust, and to which the Court held he was not entitled. He also refused to retire from the trusts to facilitate the sale. Upon a bill by the other trustees and the persons beneficially interested, he was removed from the trusts and ordered to pay the costs of the suit.

63. Applying the foregoing to D1, I have already found that he improperly denied the shareholders the use of their monies in the several bank accounts of which he was a signatory. Also in my finding the lengths to which he went to have the building contract awarded to Cheong Kee, were not motivated by any concern for the beneficiaries' interests; on the contrary they were intended to ingratiate him with President Tang and thereby assure his public and political future, for instance as a member of the Yuen Long Liaison Committee. His candid contempt for the opinion of the majority ("I don't give a damn about majorities") may seem refreshingly honest and even deserving of some admiration. In particular circumstances such an approach might also provide a sound and effective way of accomplishing ventures like building projects. But in the present case it has produced a deadlock and more than that, questionable involvement with a building firm whose organization and ability upon its own communications must be regarded as suspect. The overwhelming majority of shareholders want him removed. He himself has suggested that he would not have undertaken the project if he were not in sole control. I have no hesitation whatsoever in coming to the conclusion that he was guilty of positive misconduct in freezing the bank accounts of the shareholders (notwithstanding that he may have genuinely believed he was entitled to do so); that his conduct shows a want of honesty and reasonable fidelity; that the hostility between him and P1 is grounded in the mode in which the trust should be administered (D1 adamantly maintaining that he alone is to decide); and that such hostility and indeed D1's continuance as trustee is not merely likely but will inevitably obstruct and hinder the due performance of the trustees' duties and indeed the whole object of the Agreement, which is to have the new village houses built and assigned to individual shareholders. Accordingly I would remove D1 forthwith.

64. As to P1, in view of his age and ill health, which even the Preparation Committee and shareholders reluctantly accepted as justifying his retirement, it is clearly expedient that a new trustee should be appointed in his place.

65. By an overwhelming majority the shareholders purported to appoint 3rd and 4th Plaintiffs as replacement trustees. Those appointments were in my view ineffective for the reasons I have stated. The welfare of the beneficiaries, which is the guiding principle, would, I have no doubt whatever, best be served by the appointment of the 3rd and 4th Plaintiffs as new trustees, in substitution of D1 and P1, and I would so appoint them. I would also under section 45 of the Trustee Ordinance make the necessary vesting orders.

66. To summarize my determination of the specific claims of the two sides, I would in respect of the Plaintiffs' claims -

67. As to D1's counterclaim I would -

68. I will now hear submissions on costs and any orders sought at this stage.