Lai v Tiao (No 2)
[2009] WASC 22
•12 FEBRUARY 2009
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: LAI -v- TIAO [No 2] [2009] WASC 22
CORAM: JOHNSON J
HEARD: 19 23 & 26 NOVEMBER 2007, 22 FEBRUARY 2008
DELIVERED : 12 FEBRUARY 2009
FILE NO/S: CIV 1442 of 2005
BETWEEN: SHENG CHIN LAI
Plaintiff
AND
CHENG CHIH TIAO
HUI PING WANG
First DefendantsAUSTRALIAN CHINESE CONFUCIUSMENCIUS SAINT TAO CENTRE INC
Second DefendantLEVEL HOLDINGS PTY LTD
Applicant for joinder
Catchwords:
Incorporated association - Failure to abide by constitution - Membership - Failure to keep and maintain records - Lack of quorum at board meeting - Failure to give proper notice of meeting - Effect of financial contributions to Association - Sale of association property without authorisation of board or membership
Legislation:
Associations Incorporation Act 1987 (WA)
Result:
Judgment for the plaintiff
Category: B
Representation:
Counsel:
Plaintiff: Mr K G Robson & Mr R W H Tan
First Defendants : Mr P G McGowan
Second Defendant : Mr P G McGowan
Applicant for joinder : Mr S D Pentony
Solicitors:
Plaintiff: Tan & Tan
First Defendants : Butcher Paull & Calder
Second Defendant : Butcher Paull & Calder
Applicant for joinder : Hotchkin Hanly
Case(s) referred to in judgment(s):
Broadlands Finance Ltd v Gisborne Aero Club Inc (in liq) [1975] 2 NZLR 496
Garden Clubs of Australia Inc v Eyres [2002] NSWSC 801
Green v Page [1957] Tas SR 66
Popovic v Tanasijevic (No5) [2000] SASC 87
Popovic v Tanasijevic [2001] SASC 289
Table of Contents
Background
The issues
Incorporation of the Association under the Act
I-Kuan Tao worship groups
Affiliation of the association with other organisations
Management of the Association
Credibility
Contribution of assets
(i) Evidence of the board members
(ii) Documentary evidence
(iii) The DVD evidence
(iv) The letter of commitment
(v) Conclusion
Meeting of 8 April 1996
Involvement of Lai and Chou in the Association following the 8 April meeting
The financial position and record keeping of the Association
The Level Holdings contract
(i) The decision to enter into the Level Holdings contract
(ii) The failure to advise all directors and members of the Association of the Level Holdings contract
Solicitor's letter
Meeting on 21 January with Eric Archer
Translation of the constitution
Letter of 1 February 2005
Membership and baptism
(i) Foundation Members
(ii) Ordinary Members
8 February 2005 board meeting
26 February 2005 members' meeting
Validity of the 26 February 2005 meeting
Subsequent events
Final conclusions
Questions
JOHNSON J: This case is an object lesson in the importance of operating an incorporated association as a legal entity, separate and distinct from those who operate it, and in accordance with the association's constitution. It also underscores the importance of maintaining proper records. If the parties had adhered to these fundamental requirements it is unlikely that these proceedings would have been necessary.
The second defendant, the Australian Chinese Confucius‑Mencius Tao Centre Incorporated (the Association), is a religious and charitable organisation, the primary purpose of which is to provide a temple and other facilities for the followers of I‑Kuan Tao. I‑Kuan Tao is a religious movement that originated in Twentieth Century China. It incorporates elements of Confucianism, Taoism and Chinese Buddhism. The Association was incorporated under s 9(1) of the Associations Incorporation Act 1987 (WA) (the Act) on 22 December 1992 and is the registered proprietor of land located at lot 42 Warton Road, Canning Vale, being lot 42 on diagram 64776 in Certificate of Title vol 1660 folio 668 (the land). The Association's temple is located on the land. The purchase of the land and the construction of the temple were substantially, if not wholly, paid for from monies contributed to the Association. Whether the contributors of the monies became members of the Association is one of the questions to be determined by this action.
The plaintiff seeks to prevent what he claims is the unauthorised sale by the first‑named first defendant, purportedly on behalf of the Association, of a portion of the Association's land. The plaintiff claims that he donated the land, or contributed the money for the purchase of the land, and had a right to have his approval obtained before any such action was taken. The plaintiff also seeks to identify the membership of the Association and those persons entitled to act on behalf of the Association, issues relevant to whether the sale of the land was authorised.
Background
The plaintiff, Sheng Chin Lai, and the first defendants, Cheng Chih Tiao and Hui Pin Wang, were amongst a group of mostly Taiwanese migrants who worshipped at a temple in the house of Ho Ming Wang, said to be an I‑Kuan Tao master. Because of the number of people attending, it was decided that a larger temple was needed. Six members of the worship group came together form an association for the purpose of raising money, purchasing land and building a temple. According to Tiao, the idea of forming an association was that of Master Wang.
The six people involved in the formation of the association were Master Ho Ming Wang, Sheng Chin Lai, Cheng Chih Tiao, Yung Sen Chou, Hui Pin Wang and Song Tyan Kuo. Because issues of membership are yet to be determined, I propose to refer to these six men as the 'originators'; a term used to describe them at a meeting of the Association held in August or September 1993.
With the exception of Ho Ming Wang, for convenience I will refer to every witness by surname only. However, when it is necessary to refer to both Tiao and Hui Ping Wang, on occasions I will revert to the joint description of 'first defendants'. As Ho Ming Wang and Hui Ping Wang share a surname, I will differentiate between them by referring to Ho Ming Wang as 'Master Wang' and using Hui Ping Wang's full name at all times. The name of Lai's daughter‑in‑law, who was also a witness, is Yu Chin Wang. To avoid confusion I will refer to her as 'Ms Wang'.
Almost form the outset it was decided that the association should be incorporated. The incorporation of the association was arranged by Tao Tong, an accountant by profession, who was living in Australia at the relevant time and operating an accounting practice. At the time of giving evidence, Tong could not recall the instructions given to him for the incorporation of the association and all his records were destroyed when he left Australia to live in Thailand. Tong initially said that he recalled that Lai, Tiao and Wang instructed him to incorporate the association so that a temple could be purchased with funds contributed by members of the Association. However, in cross‑examination, Tong stated that, to his recollection, he only met with Lai. Irrespective of who provided those instructions, it is apparent from Tong's evidence that he was instructed by the originators to incorporate an association so that a temple could built with funds donated by members.
Mr Tong does not recall where he obtained the precedent from which he prepared the constitution for the Association. He did recall that no instructions were given to him by any director regarding the membership criteria for the Association or any of the clauses of the constitution. Clearly then, the requirements for membership contained in cl 6.2, which include that an applicant for membership must be baptised at the centre, were not considered by those involved in setting up the Association to be fundamental to membership. In light of later developments, this factor becomes of particular significance
The application forms for the incorporation of the Association, filled out by Tong, include a form requiring the applicant, inter alia, to identify the purpose behind the formation of the Association. The purpose is stated to be 'charity and benevolence'. Another form requires the applicant to certify, inter alia, that the Association has more than five members, a requirement under s 4(1)(a) of the Act for the incorporation of an association. Tong could not remember whether he actually verified the number of members or not.
Following incorporation, the six originators acted as the board of directors and managed the affairs of the Association. One of the originators asserted that he was nominated as a board member. However, it is not the case that there were any formal nomination and certainly no election of board members.
Master Wang assumed the title of chairman and the position of vice‑chairman was held by Lai. At this stage, the remaining board members had no specific titles.
The Association operated two Citibank bank accounts which required three signatures for the withdrawal of funds. The signatories to the accounts were Master Wang, Lai and Tiao. The Association has at all stages relied on financial contributions. Initially, financial contributions were made by each of the board members. The amounts of the initial contributions, and the purpose to which those funds were put, were the subject of dispute and are amongst the issue which will be dealt with later in these reasons.
In 1993 or 1994 Lai's daughter‑in‑law, Yu Chin Wang, was appointed by Master Wang, Lai, Tiao, Wang and Chou to be the unofficial bookkeeper for the Association. She was handed an accounts receivable and payable book which had been maintained by the Association. There was no evidence before the court of who kept the accounts before Ms Wang.
On 12 May 1993 the Association entered into a contract to purchase the land (the land purchase contract). In that contract the purchaser is described as 'Tiao Cheng-Chi and/or nominee' and signed by Tiao without the seal of the Association being affixed. The purchase price was $152,500. Settlement was effected on 9 June 1993.
Having acquired the land, the next step for the Association was the construction of a temple. Whilst the temple was being built, Master Wang spent a lot of time in Taiwan obtaining contributions to the Association. According to Ms Wang, it was her responsibility to collect from the contributors of funds the money to be put towards the construction of the temple. Receipts were issued only to those who requested one and the moneys collected were subsequently banked in the Association's bank accounts. Ms Wang prepared a list of names of the first contributors and that document was tendered into evidence. With the exception of the recording of the year, the document is written in Chinese. Consequently, it is impossible to tell whether any description such as 'member' is given to those who contributed funds. As far as I am able to tell, the document simply records dates, names and amounts of money.
Construction of the temple building, which included areas for accommodation and functions, took place in two stages. The contract for stage one was entered into on 1 March 1995 (the first building contract). In the contract the Association was described as the owner and Tiao was identified as the owner's authorised representative. The Association's seal was affixed to the contract. The contract for stage two was entered into on 5 October 1995 (the second building contract). Once again, the contract was under seal, the Association was identified as the owner and Tiao as the authorised representative. It can be seen that, by this stage, contracts were executed in the name of the Association and under seal.
Construction of the temple was completed in March 1996. On 17 March 1996 the Association held an opening ceremony. All those who made contributions towards the purchase of the land and the building of the temple were invited to attend the opening of the temple. The names of those on the list who had contributed funds to the Association were written on a red commemorative banner displayed at the opening ceremony. Later, the information on the commemorative banner was engraved on a marble plaque, which is on display in the temple. Ms Wang said that the difference between the content of the red banner and that of the marble plaque was that the marble plaque contained only the names of those who had donated more than $100. An independent English translation of the content of the marble plaque headed 'List Of Contributors For The Construction Of The Australian Chinese Confucius Mencius Tao centre' (List of Contributors) was tendered into evidence.
After the opening ceremony Master Wang mostly lived at the temple until his death in December 2001.
On 8 April 1996 a meeting of all members of the board took place. There is a dispute between the parties as to the issues raised at the meeting and the outcome. There is also a disputed allegation that, after this meeting, Lai and Chou played no further role in the management of the Association and rarely, if ever, attended the temple.
On 11 May 2004 Tiao entered into a contract stated to be between the Association, as seller, and Level Holdings Pty Ltd (Level Holdings), as purchaser, to develop a portion of the land (the Level Holdings contract). In the contract, the address given for the Association is Tiao's address and he has signed the contract on behalf of the seller without affixing the seal of the Association. The seal of Level Holdings is affixed next to the signature of the buyer's representative. Under the contract, the relevant portion of the land was to be subdivided into 10 lots. In return for meeting all costs of the subdivision, the title to five of the lots would be transferred to Level Holdings. As to the five lots retained by the Association, as many as necessary would be sold to meet the Association's need for funds arising from its then allegedly parlous financial position.
The Level Holdings contract was never put before a meeting of members of the Association and hence no resolution was ever passed authorising Tiao to enter into the contract. In fact, at no stage was the idea of developing and selling part of the Association's land put to members either individually or at a meeting of members. Neither were the members advised of the difficult financial circumstances which were said by the first defendants to justify the action. Even the first defendants agree that there was no consultation with the members. However, the first defendants maintain that the issue was discussed at a board meeting attended by them and by Kuo who was contacted by telephone and at which Tiao was authorised to act on the Association's behalf.
On 6 January 2005 Lai caused a caveat to be lodged over the Association's land. In the accompanying statutory declaration Lai stated that the basis of his caveatable interest was the fact that the Association used his moneys to build a temple on the land. In the caveat, the estate or interest being claimed is identified in these terms: 'As claimant based upon the doctrine of resulting trusts'.
According to the evidence of Lai and Chou, they had not been made aware of any need for additional funds, of the intention to sell part of the Association's land, nor of the Level Holdings contract. Having become aware of the subdivision and sale of part of the Association's land under the Level Holdings contract, Lai instructed solicitors to write to the first defendants and demand that they provide documents relating to the contract and the minutes of all meetings of the Association. Letters to that effect were sent on 17 January and 1 February 2005. The first defendants refused to comply with his demand although at the time they considered Lai to be a director and a member of the Association.
Lai then sought an injunction to prevent the subdivision and sale. An interlocutory injunction was granted by Master Newnes on 19 April 2005 by which the first and second defendants were restrained until 5.00 pm on 13 June 2005 from giving effect to, or further proceeding with, the Level Holdings contract. By the time the injunction was granted the subdivision was 90% completed. On 13 June 2005 Master Newnes extended the injunction until further order.
At some point the first defendants appointed Conal O'Toole as the solicitor for the Association. Mr O'Toole entered an appearance for the second defendant in these proceedings. Lai took issue with the appointment on the basis that neither the members, nor the board of the Association, ever authorised that appointment.
At various times up to the commencement of the trial of this action the plaintiff and the first defendants have purportedly held or attempted to hold meetings of members for the purpose of considering the development and sale of the Association's land under the Level Holdings contract and other matters relevant to this action. The validity of the meetings called by the first defendants has also been called into question by the plaintiff.
On or about 26 February 2005 the first defendants purported to hold a meeting of the members of the Association (the 26 February meeting) at which time, according to the English translation of the minutes of the meeting produced by the first defendants, those present at the meetings retrospectively ratified 'all acts, actions, deeds, transactions and omissions of whatever nature of each and every person that has acted or purported to act for or on behalf of the Association' from the date of the Association's registration on 22 December 1992. Further, again according to the minutes produced by the first defendants, a motion was passed approving the development of part of the Association's land to raise infrastructure funds for the Association.
On 13 April 2005, Lai requested Tiao, at that time acting as secretary‑general of the Association, to convene a meeting of the members of the Association on 29 May 2005 (the 29 May meeting). The first defendants declined to convene the meeting and, as a result, on 13 April 2005 Lai issued the Notice.
The first defendants sought an interlocutory injunction restraining the plaintiff from convening a general meeting of the Association. On 25 May 2005 Commissioner McKerracher QC granted the injunction for the purpose of maintaining the status quo pending the resolution in this action of the issue of the membership of the Association.
The issues
In the Statement of Claim, the plaintiff alleges that the only members of the Association are the persons named in the List of Contributors, all of whom are said to be foundation members, and seeks a declaration to that effect. According to the plaintiff, the criteria under cl 6.2 was never applied and no person was ever formally admitted to membership as an ordinary member under cl 6.5 of the constitution.
The defendants maintain that the foundation members are the plaintiff, the first defendants, Song Tyan Kuo and Yung Sen Chou and that the original foundation members also included Ho Ming Wang. The defendants deny that no ordinary members were admitted and assert that in February 2005 Tiao received applications for membership of the Association which were approved by the board on 8 February 2005. The plaintiff disputes that such a meeting was ever held.
The plaintiff further alleges that neither the Board of the Association nor its members authorised Tiao to sign the Level Holdings contract. In that regard, the plaintiff alleges that no meeting of the board of the Association or general meeting of members was held at which such authorisation was given to Tiao. A meeting held on 26 February 2005 at which it is alleged by the first defendants that Tiao's action in entering into the Level Holdings contract was ratified, is said by the plaintiff to have been invalidly held. The plaintiff seeks a declaration that any and all purported resolutions passed by persons purporting to be office bearers or members of the Association at the meeting held on 26 February 2005 are invalid and not binding on the Association. The plaintiff also seeks a permanent injunction restraining the first defendants from giving effect to or further proceeding with the Level Holdings contract.
The defendants deny that Tiao was not authorised to sign the Level Holdings contract and maintained that in or about March or April 2004 at a board meeting attended by Tiao, Hui Ping Wang and Kuo, it was resolved that the Association would enter into a contract to sell the land and that Tiao had authority to execute any documents on behalf of the Association to give effect to the resolution. The defendants also maintain that, if Tiao lacked authority, Tiao's actions and the Level Holdings contract were ratified at the special general meeting on 26 February 2005.
The plaintiff alleges that Tiao, purportedly the secretary‑general of the Board of the Association at the time, refused the plaintiff's request made on 13 April 2005, pursuant to cl 11.2.1 and cl 11.2.2 of the constitution, to convene a meeting of the members of the Association on 29 May 2005. The plaintiff also seeks an order that the plaintiff is authorised to send a notice of a general meeting to be held on 13 April 2005. Of course, that date had passed by the time the action was heard. The plaintiff's request will be considered in the context of determining the appropriate way in which the activities of the Association may move forward.
The defendants admit that the plaintiff requested a meeting of the members of the Association but say that on 11 April 2005 the plaintiff placed an advertisement in the Australian Chinese Times newspaper giving notice of a purported meeting of the Association to be held on 29 May 2005.
The plaintiff further alleges that the purported appointment of Conal O'Toole as the Association's solicitor by the first defendants was invalid in that neither the board, nor the members of the Association authorised the appointment. The plaintiff seeks a declaration that Conal O'Toole is not the solicitor for the Association and never has been.
The defendants deny the allegation and maintain that Tiao and the Association engaged Conal O'Toole to act as solicitor for the defendants. Further, the defendants assert that, insofar as it was necessary to do so, the appointment was the subject of formal ratification at the special general meeting on 26 February 2005.
In addition to an order for costs, the relief claimed by the plaintiff addresses two further matters. The plaintiff seeks a permanent injunction restraining the first defendants from representing that they are directors of the board of the Association. The plaintiff also seeks an order that the first defendants hand to the plaintiff all bank account statements of the Association from July 2001 to 31 March 2005.
Therefore, the questions to be determined by this action are these:
1.Who are the foundation members of the Association?
2.Are there ordinary members of the Association?
3.Was Tiao authorised by the Board, or by the members of the Association by retrospective ratification or otherwise, to enter into the Level Holdings contract?
4.Was the meeting of 26 February 2006 valid?
5.Was Tiao required to call a meeting of members as requested by the first defendants?
6.Did Tiao fail to comply with the plaintiff's request to call a meeting of members?
7.Was Conal O'Toole validly engaged as solicitor for the defendants?
8.Are the first defendants elected members of the board of the Association?
There are, of course, a number of ancillary issues, but these questions identify the primary matters requiring resolution before any relief may be granted.
Incorporation of the Association under the Act
As a consequence of the process of incorporation, an association gains the grant of corporate status, evidenced by the issue of a certificate of incorporation, and all the traditional attributes of a corporation, recognition as a separate legal entity, with perpetual succession and a common seal, and an ability to contract, to acquire, hold or dispose of real or personal property and to sue or be sued in its corporate name: s 3 and s 6.
However, as an incorporated association, the Association is bound by the provisions of the Act. Section 4(1)(a) of the Act provides that, subject to the Act, an association is eligible to be incorporated if it has more than five members and is formed for a religious, educational, charitable or benevolent purpose. As noted above, at the time of incorporation, the Association had six 'members', the originators, and identified its purpose as being for 'charity and benevolence'.
On applying for incorporation, the application must be accompanied by a copy of the rules of the association conforming to the requirements of the Act: s 5(1) and s 5(2). The Association's rules are in the form of a constitution, the relevant clauses of which will be referred to in the course of these reasons. The certificate must also verify that the association has more than five members: s 6(2)(b)(v). There are other requirements which are not relevant to this claim.
There is no requirement under the Act for the constitution to be formally adopted at an AGM, although cl 10.1.6 of the Association's constitution provides that only ordinary members are eligible for election to the board of directors 'at the AGM at which this constitution is adopted'. Consequently, rather than including an express requirement for the constitution to be adopted at an AGM, the Association's constitution includes the concept only by using it as a description of the particular AGM at which ordinary members may be elected to the board of directors. Further, even within respect to the issue of election to the board of directors, the provision does not make sense. Generally speaking, a constitution is only adopted once. Hence, it follows that there can be only one occasion on which ordinary members may be elected to the board of directors; a result so restrictive and impractical it could not have been intended.
The Act provides that the application for incorporation must be accompanied by a copy of the rules and the rules must conform to the requirements of the Act: s 5(2) and s 16. In Popovic v Tanasijevic (No5) [2000] SASC 87 [84], Olsson J observed that it was necessary for founding members to meet, formally adopt a constitution and rules and resolve to constitute an eligible unregistered association, prior to application for incorporation. Whilst it cannot be said that, in this case, the originators formally adopted a constitution and rules and resolved to constitute an unregistered association, they were a combination of persons with a common purpose to purchase land and build a larger temple for adherents of the I-Kuan Tao religion and who agreed to become incorporated under the Act. No point has been taken with respect to any failure to formally adopt the constitution.
Further, although nothing turns on this point, I am also of the view that, contrary to s 16 of the Act, the rules of the Association do not include provision in respect of each of the matters that are specified in sch 1 of the Act.
The consequences of incorporation are set out in pt III of the Act. Amongst the effects of incorporation is that the association becomes a body corporate with perpetual succession and a common seal and the association may sue or be sued in its corporate name: s 10(a) and s 10(d). Further, upon incorporation all real and personal property held by any person for or on behalf of the association shall be vested in and held by the incorporated association subject to any trusts that may affect that property: s 11(1). Upon incorporation, the association may do all things necessary or convenient for carrying out its objects and purposes including to acquire, hold, deal with, and dispose of any real or personal property and to open and operate bank accounts: s 13(1)(a) to s 13(1)(g). Under the Act, the association may also enter into contracts: s 14. Such a contract must be in writing under seal or in writing signed by the parties, in the event that the contract were between natural persons, and may be varied or rescinded: s 14(2).
In order for the association to be incorporated under the Act, the commissioner must be of the opinion that certain statutory requirements have been met: s 9. One of the statutory requirements is that the rules of the association lodged with the commissioner conform to the requirements of the Act: s 9(1)(b). The rules will not conform unless they include provisions in respect of each of the matters that are specified in sch 1 of the Act: s 16. A consideration of the requirements of sch 1 and the provisions of the constitution indicate that the Association's constitution does not, in fact, comply with all of the requirements outlined in sch 1. Indeed, it is surprising that the omissions did not preclude, or at least delay, incorporation. Once the Association's immediate problems are addressed, attention should be given to amending the constitution to ensure compliance with sch 1.
The Act also provides for the association to add to and alter its rules (s 17), to change its name (s 18) and to alter the objects of incorporation (s 19). This power to alter the rules is of particular significance with respect to the issue of membership. In this case, the clause of the constitution dealing with membership contained a particularly restrictive condition which did not even apply to all of the Association's original board members. It was, of course, open to the Association to have changed that requirement but at no stage were any attempts made to address that issue. The evidence revealed that the reason for this was that no member of the board was even aware of the terms of the constitution.
Part V of the Act deals with the management of the affairs of the association. Section 20 provides that the persons who under the rules have the power to manage the affairs of the association constitute the committee of the association. Under s 23(2) of the Act, the association may hold its first annual general meeting at any time within 18 months after incorporation. Thereafter, the association must hold an annual general meeting in every calendar year within four months after the end of the association's financial year or such longer period as may in a particular case be allowed by the commissioner: s 23(1).
The reason the board members were unaware of the provisions of the constitution was that the constitution was in English and it was alleged that they neither read English nor spoke English. Unfortunately, no one thought to have the constitution translated into Chinese. The result was that, prior to these proceedings being commenced, there was no compliance by the original board members with the preceding requirements. The board members were equally ignorant of the provisions of the Act. Indeed, at no stage did the original board members make an attempt to obtain any information about their obligations as foundation members or as directors of an incorporation association. It was never suggested to Mr Tong that any one of the board members had asked for advice from him on the responsibilities of managing the Association.
Of particular significance in this case because of the allegations of the Association's financial problems is that the Act requires an association to keep such accounting records as correctly record and explain the financial transactions and financial position of the association: s 25(a). The association must also keep its accounting records in such manner as will enable true and fair accounts of the association to be prepared from time to time: s 25(b). The Act also requires the association to keep its accounting records in such manner as will enable true and fair accounts to be conveniently and properly audited: s 25(c). Further, an incorporated association must submit to its members at the annual general meeting accounts of the association showing the financial position of the association at the end of the immediately preceding financial year: s 26. None of these legal requirements were complied with by the Association.
An incorporated association is also required to keep and maintain in an up‑to‑date condition, a register of the members of the association and their postal or residential addresses. Upon the request of a member, the association must make the register available for the inspection of the member and the member may make a copy of or take an extract from the register but shall have no right to remove the register for that purpose: s 27. Similarly, the association must keep and maintain the rules in an up‑to‑date condition and, on request of a member, make them available for inspection. The member is entitled to make a copy of or take an extract from the rules but has no right to remove them: s 28. In this case, the dispute over membership would have been easily addressed if the Association has complied with these provisions of the Act.
Further, an incorporated association is required to maintain a record of the names and residential addresses or postal addresses of the persons who hold the offices of the association provided for by the rules, including all offices held by the person who constitute the committee of the association and persons who are authorised to use the common seal of the association: s 29(a). Each of these records is to be made available on request of a member and may be inspected and a copy may be made of the rules, but the member has no right to remove the record for that purpose: s 29(c).
Part VI of the Act provides for the winding up and cancellation of incorporation. An incorporated association may be wound up voluntarily if the association is solvent and resolves by special resolution that it should do so: s 20(1). An incorporated association can also be wound up by the Supreme Court in certain stated circumstances: s 31(1)(a) to s 31(1)(k).
It can be seen from the above that an incorporated association has certain statutory obligations in relation to the rules as well as a statutory obligation to call meetings, keep accounting records and to keep a register of members as well as a record of office keepers. The obligation also extends to providing access to these documents. The Act also creates an offence where a member of the committee fails to take all reasonable steps to secure compliance with the association's obligations under the Act: s 42. In this case, none of these statutory obligations were met by the members of the first board of the Association. Further, all of the plaintiff's attempts to obtain information from the first defendants in relation to their management of the Association were met with silence or a refusal to comply.
I-Kuan Tao worship groups
I have described the Association as a religious and charitable organisation, the primary purpose of which is to provide a temple and other facilities for the followers of I‑Kuan Tao. I have also noted that I‑Kuan Tao is a religious movement incorporating elements of Confucianism, Taoism and Chinese Buddhism. However, certain oral and documentary evidence revealed that there are a number of I‑Kuan Tao 'groups', which were variously described in evidence as worship groups, sects or branches of I-Kuan Tao. I propose to refer to them as worship groups which appears to me to be the most appropriate description.
Although some witnesses were questioned on their knowledge of the existence of various I-Kuan Tao worship groups, the significance of different worship groups did not become apparent until consideration was given to a document discovered by Tiao but prepared by Chou for the 8 April 1996 board meeting. The document was entirely in Chinese with translations not being provided by the parties until after the trial had concluded. Separate translations were provided because the parties could not agree on a translation of the document. Unfortunately, Chou was never questioned on the document and it has been necessary to interpret it without the assistance of the document's author. However, it became apparent, not only that there existed various I-Kuan Tao worship groups but that their existence could well explain the desire to exclude certain people from involvement in the management of the Association and also to exclude certain people from membership of the Association.
Although not expressly arising from the pleadings, the issue of the particular worship group of I-Kuan Tao with which the Association and, in particular, Tiao was aligned becomes of particular significance in addressing a number of matters which do arise from the pleadings. Membership was one such matter and the conduct and aftermath of the 8 April 1996 board meeting was another.
Eric Archer, an associate of Tiao and Lai, who at one point met with Lai in an attempt to resolve the problems between him and Tiao, also gave evidence about the different worship groups within I-Kuan Tao. Archer explained that I‑Kuan Tao is one religion with 18 branches where each branch has its own individual regulations and rules. He expressed the view that there was no single rule or qualification for membership; it depended on the way in which each branch operated. Archer explained that Lai was in one branch, Tiao and Hui Ping Wang in another branch and he belonged to yet another branch. Archer told Lai during their meeting that the two worship groups were merely different branches of the same religion and they should join together to use the temple.
Two other witnesses were questioned about the existence of worship groups; they were Kwee Fong Chai and Hong Mee Fun Chiang. The names of different worship groups referred to in Chou's notes were put to Chai but he did not recognise any of them. Chiang did not know of the Jia Yi Pu Kuang group, the Ma Do Shen Yuan Shan group or the Tapei Ji Chi group.
Although Lai was questioned at length on the affiliation of the Association with the I‑Kuan Tao Association (IKTA), he made no reference in his evidence to the existence of different worship groups within I‑Kuan Tao.
In his evidence Tiao directly addressed the existence of different worship groups within the I-Kuan Tao religion. According to Tiao, all of the originators were involved in the activities of an I-Kuan Tao temple and belonged to a Sheng Yi worship group. According to Tiao, Sheng Yi is a worship group of I‑Kuan with 'somewhat exclusive beliefs'. Tiao said that Master Wang was not in complete agreement with the Sheng Yi beliefs and was attracted to another group called Pu‑Kuang, which had its main temple in Chia‑Yi City, in Taiwan. There Master Wang met the leader Master Chen‑Lung Li, who introduced him to the grand master, who appointed Master Wang as a master. Tiao does not say exactly when this occurred. If Tiao's evidence is accepted, then Master Wang's appointment as a master was made by the Pu-Kuang worship group under the auspices of Taiwanese IKTA and not by the Sheng-Yi group where appointment as a master is carried out under the auspices of IKTA.
Tiao explained that in 1993 he became involved in the Pu‑Kuang worship group and by that time Master Wang had moved his allegiance to a Pu‑Kuang worship group and had established a temple in his home. Nevertheless, the originators, some of whom remained adherents of the Sheng‑Yi worship group, continued to meet for religious purposes at the temple in Master Wang's house despite the fact that Master Wang had changed his allegiance some time before 1993. It also follows that the baptisms carried out at the temple in Master Wang's house were conducted by a Master who adhered to Pu-Kuang beliefs. Unfortunately, no witness was asked about this fact and hence the significance of it is unknown.
After taking all this information into account, it would seem that, although Lai, Chou and Kuo were adherents of Sheng‑Yi beliefs, which must have been known to Master Wang and Tiao, they worshipped at the temple at Master Wang's house and still were part of the group that came together to form an association, purchase land and build a temple.
I am not prepared to accept that any of the original six members would have come together and contributed substantial amounts of money and time in order to create an organisation that did not meet their needs or in which they could not participate. On that basis, it must have been contemplated that the Association would represent the interests of at least both groups and the temple should have been built on the basis that it would be shared by both Sheng‑Yi and Pu‑Kuang adherents. If that were not to be the case, the position should have been made clear to Lai, Chou and Kuo before their contributions were accepted.
The issue of shared management and use of the Association and temple by the different worship groups was referred to in Chou's document prepared for the 8 April 1996 board meeting. The issues were also raised at the meeting on 8 April 1996 which is dealt with in detail hereunder. Having also considered the evidence in relation to that meeting, I have concluded that both Lai and Tiao were less than forthright in their account of the relationship between the various worship groups and the Association. In my view, as initially conceived, the Association was an association of adherents of the I-Kuan Tao faith rather than adherents of any one particular worship group of that faith. Similarly, the temple constructed by the Association was intended for use by all worshippers of the I-Kuan Tao faith and not simply those aligned with a particular worship group. From the outset there was an affiliation with IKTA, as evidenced by the presence of the IKTA symbol. That would not prevent the use of the temple by a worship group aligned with other organisations such as Taiwanese IKTA, but it would preclude managing the Association as if Taiwanese IKTA was the only affiliated organisation or so as to exclude Sheng-Yi adherents or members of other worship groups from participating in the Association.
Consequently, no decision made or action taken by the Association, or any member of the board of directors, should have had as its aim removing the rights of members of any particular worship group or curtailing the use of the temple by members of any particular worship group.
The evidence of the exclusion of Lai and Chou, both of whom were followers of the Sheng-Yi worship group, and the refusal on 8 April 1995 to reach an agreement on the use of the temple by different worship groups, provide support for the conclusion that Tiao's approach to managing the Association, as was the approach of Master Wang before him, was that his interests and the Association's interests were the same. The evidence in support of this conclusion is set out in these reasons.
Affiliation of the association with other organisations
Lai's evidence was that the Association's religious parent body was the Republic of China IKTA. IKTA was described by Lai as the parent body of hundreds of smaller associations practising and promoting the moral teachings of Tao, both in Taiwan and overseas. Lai also stated that, in order to be properly baptised, it was necessary for a person to go through a baptism ceremony conducted by a Master who is an institutional member of IKTA. Further, Lai's evidence was that, in order to be a Master, a person must be ordained in Taiwan by IKTA following which IKTA would issue a certificate to that effect. Consequently, in Lai's view, as Tiao was not ordained by IKTA he is not a master and is not entitled to carry out baptism ceremonies on behalf of the Association. However, it would also appear that Master Wang was not ordained by IKTA and, on Lai's understanding, would not be entitled to carry out baptisms at his home or at the Temple.
Ma Chiu Chou and Ma Nien Chou were called on behalf of the plaintiff. Both are masters and members of IKTA and were ordained in Taiwan. According to Ma Chiu Chu, as a master he is authorised by IKTA to baptise any person who intends to be a member of an association, such as the Association, that practices the teachings of I-Kuan Tao. Master Chou stated in his evidence that only a Master who has been ordained by IKTA can perform baptism, although a baptism may be conducted at any location so long as it is performed by an ordained master. Once a person is baptised he need not be baptised again to join any association that practices the teachings of I-Kuan Tao. I note that the Master does not limit this proposition only to an IKTA association. Consequently, his evidence supports the proposition that baptism in any one of the worship groups of I-Kuan Tao would suffice for a person to worship in any I-Kuan Tao temple.
Master Chou stated that the first defendants had not been ordained by IKTA. He said that the certificate dated 16 August 2007 stating that Tiao is a master was not issued by IKTA and the Association that had purportedly issued the certificate, Taiwan IKTA, was not known to him. In cross‑examination Master Chou stated that he knew Master Wang and met him when he came to Perth at the time the temple was opened. According to Master Chou, Master Wang did not have a qualification as an I-Kuan Tao master. By that I understood Master Chou to be saying that Master Wang had not been ordained by IKTA. Master Chou also knew Lai. He said Lai was a fellow member of the association, presumably IKTA, and also a friend.
Master Chou agreed that IKTA was a legal and a religious organisation. He also maintained that those people who do not have the qualification of I‑Kuan Tao master are not qualified. To be a member of I‑Kuan Tao, according to Master Chou, one must have accreditation from a Tao master and become a member.
Ma Nien Chou expressed the same views as Master Chou with respect to ordination and baptism in the I-Kuan Tao religion. He described IKTA as a legally approved religious organisation. He indicated that there were over 80 countries in the world in which the I‑Kuan Tao head association had been recognised.
Neither Kuo nor Hui Ping Wang were questioned about the affiliation of the Association with other organisations. However, Tiao was questioned on this and the related question of his accreditation as a master.
Tiao accepted that, prior to August of 2007, he called himself a 'pastor' rather than a 'master' in affidavits filed in the action. The implication suggestion by the plaintiff was that Tiao was aware he was not properly accredited. However, Tiao maintained that the two words were synonymous and produced a document which, according to Tiao, proved he is a master. The certificate is headed The Taiwan I‑Kuan Tao Pu Kuang Tao Association Ming Te Saint Tan. The address of the organisation is in Taiwan. The place and date of 'master appointment' is stated to be the Australian Chinese Confucius Mencius Saint Tao Centre on 22 March 1996.
According to Tiao, the Taiwan I-Kuan Tao Pu Kuang Tsu Association Ming Te Saint Tan, is the name of the central temple in Taiwan. For convenience I will refer to this organisation as 'Taiwanese IKTA'. He said that this group is 'my group', 'my unit'. Tiao also said that the organisation was his immediate superior and that all activities must be reported to it. Tiao maintained that the I‑Kuan Tao organisation to which the two masters belonged is a Republic of China association, which is different to the one named on his certificate. Tiao agreed that Chan Chin Ching, the person who signed the certificate under the title secretary‑general, was a friend of his.
On 26 September 2007 Lai sent a letter of petition to the Civil Administration Bureau of Chiayi County asking whether the organisation named in the certificate, which Tiao relies on as establishing that he is a master, had been legally established at the address given in the certificate. The letter of response from the Chiayi County Government indicated that the registration of the temple at the address 'had just been established through make‑up procedures'. The name of the temple is stated to be Ming Te Saint Tan and the person in charge identified as LIN Jen Long. The date of the response was 2 October 2007. The letter seems to suggest that the establishment of the organisation has only recently taken place and creates difficulties in determining whether Tiao is indeed a master of this organisation and whether the Association is affiliated with this organisation.
Photographs taken at the time of the opening ceremony indicate the presence of the emblem of IKTA affixed on the front of the temple as well as on the speaker's box. Tiao maintained in his evidence that he did not notice an IKTA logo or emblem in the venue. However, the masters, Ma Chiu Chou and Ma Nien Chou, both said that they saw the IKTA emblem in the temple when they attended the opening ceremony. Photographs tendered into evidence show the IKTA emblem on the speaker's box inside the temple. Clearly the IKTA emblem is displayed in the temple. The presence of the IKTA symbol in the temple, and the fact that two masters from IKTA were invited to the opening of the temple, would indicate that at the outset there was an affiliation of the Association with IKTA. The presence of the symbol would also appear to be inconsistent with Tiao's view of the Association's alleged affiliation with Taiwanese IKTA. Further, because of Tiao's view of the affiliation of the Association with Taiwanese IKTA, the presence of the IKTA logo had the potential to mislead those who were contributing financially to the Association. Certainly, they could have had no idea that they might be denied membership because they had not been baptised into the Taiwanese IKTA worship group.
Because of Tiao's role as master of the temple and secretary‑general of the Association, the fact that he had been managing the Association for a lengthy period of time and because Tiao considered himself to be aligned with a different parent body, I find it exceedingly difficult to accept that he has never noticed the IKTA symbol in the temple. In my view, Tiao was well aware of the IKTA emblem and was not being truthful in saying that he had not noticed it. Tiao was ultimately shown a photograph of the inside of the temple displaying the emblem of IKTA. He then agreed that the IKTA emblem was inside the temple. Tiao was shown an IKTA membership card and he said that he did not have this heading 'in our business' so he did not have a card like it. It was put to Tiao that the temple is in the same association as IKTA. Tiao was once again somewhat evasive in his responses. However, I understood Tiao's evidence to be that, simply because the emblem of IKTA was on the temple, it did not follow that the Association which created and is responsible for the temple is aligned with IKTA. However, it is difficult to see why it would be there if the Association was not affiliated with IKTA. Further, the emblem would give the impression that the Association was associated with IKTA.
I found Tiao's evidence on this issue to be most unsatisfactory. I do not accept that he was unaware of the IKTA symbol and I do not accept that the presence of the IKTA symbol had no significance. In my view, Tiao's proposition that the temple's activities must be reported to Taiwanese IKTA could, at the most, apply only to those adherents of Pu‑Kuang and not to the Association generally. Similarly, I found Lai's evidence on this point to be less than forthright. Lai denied the existence of different worship groups and thereby elevated IKTA to the status of the only organisation with which the Association was affiliated and the only organisation that could ordain Masters.
In considering the 8 April 1995 meeting I have drawn conclusions about the basis on which the Association came into being. The document prepared by Chou describes the Association as the first trial Tao branch overseas which is organised by different Tao divisions. My understanding of the document is that the intention was for the Association to be comprised of different worship groups. On that basis, one worship group could not possibly have any greater claim to the Association and its assets than another. If the Association was to have an allegiance to more than one organisation or parent body, appropriate arrangements would have to be made to deal with the various obligations and ensure that no conflict arose.
In the absence of a meeting of members determining a change to the Association's affiliation with a parent organisation or any other organisation, it was not for Tiao to make his own determination of this issue by severing ties with IKTA and commencing or promoting ties with Taiwanese IKTA. In my view, the evidence on this issue supports the conclusion that Tiao saw the Association's interests and allegiances as aligned with his own. Consequently, as Tiao's affiliation was with Taiwanese IKTA, so was that of the Association.
Management of the Association
The object of the incorporation process is to permit associations which are qualified to incorporate to take the benefits of the legislation. However, along with the benefits of incorporation come responsibilities. In the case of the Association, the benefits were embraced without any concern for the responsibilities and without even making an attempt to identify them.
The Act requires every incorporated association to have a management body and the constitution identifies the management body as a board of directors: s 20 of the Act, cl 9.2 of the constitution. On incorporation the Association became a separate legal entity managed by a committee of management, the board of directors. The originators acted as the inaugural board of directors and managed the Association's activities from the outset. The members of the board had collective control over the property of the association and were in charge of all of the Association's actions. It has been said that, in relation to an association, the committee members are in the same position as a director toward a company. It has also been suggested, although the principle is not established by authority, that it is probable that committee members owe in the same measure, the common law and equitable duties which law and equity have imposed on company directors: Companies Act 1981 (Cth) s 229, Gower's Principles of Modern Company Law (4th ed, 1979) ch 24; Force, Principles of Company Law (4th ed, 1986) ch 15; Fletcher KL, The Law Relating to Non‑profit Associations in Australia and New Zealand (1986) 289.
In this case, far from operating as a separate legal entity managed by a board of directors in accordance with the Constitution, statutory obligations and legal and equitable duties, the Association became the vehicle for personal interests and was managed on an ad-hoc basis, often without a quorum of board members, with no records to indicate the decisions made and by whom they were made.
It was apparent from the evidence of the board members that, from the outset, Master Wang had a dominant role, notwithstanding that a board is supposed to manage by consensus or by majority decision. No doubt, his position as the Association's spiritual leader contributed to this situation as did the fact that he was the Association's major financial contributor and often provided additional funds to assist the Association in paying its expenses. Master Wang also held the position of chairman of the board with Lai holding the position of vice-chairman. These titles appear in a handwritten list of the original office bearers, created at the time. The remainder of the six board members were simply referred to as 'standing board directors'. At the time the list was prepared, no one held the position of secretary‑general which Tiao was later to assume. None of these titles were in accordance with the composition of the board of directors set out in cl 8.1 of the constitution.
Whatever the cause of Master Wang's dominant role on the board of directors, the result was that, from incorporation to his death in 2001, Master Wang effectively controlled the Association. By way of example, in his evidence about the purchase of the Association's land, Lai indicated that he would discuss the issue only with Master Wang. Master Wang was the one who instructed Lai to find another piece of land than the one Lai had offered to donate. When Lai was told that Tiao was about to sign a contract to purchase the land, he did not intervene because he understood that Master Wang had agreed to Tiao's request to be appointed purchaser of the property. Lai's evidence was that Master Wang conducted the Association's affairs and no meetings were held to determine the board's decision on any matter. Lai said that when he had some matter of concern he would have a discussion with Master Wang. He maintained that he met regularly with Master Wang over tea to discuss the affairs of the Association.
Further, a note prepared by Chou and given to Tiao regarding the 8 April 1996 board meeting, dealt with later in these reasons, also confirms Master Wang's dominant position on the board and the fact that personal decisions were being made rather than decisions of the board. In the note Chou expressed the need to apologise to Master Wang for suggesting that the Association be run in accordance with the constitution and by decision of the board rather than the decision of individuals.
It was apparent from the evidence of the surviving board members, that not only were decisions made by Master Wang rather than by a majority of the members of the board, the Association was never managed in accordance with the constitution. Although members of the board discussed matters with each other, there were no regular or recorded meetings of the board where agenda items were discussed and resolutions passed by a majority. No records, in particular no financial records, were ever kept or provided to members. Consequently, there exists no record of the income and expenditure of the Association prior to 2005. Neither is there any record of the activities of the board of the Association prior to that date.
Tiao's evidence was that no board meetings or meetings of members were held until 2005. He said that before then the affairs of the Association were conducted in an informal manner. By this I understood him to mean otherwise than in accordance with the requirements of the constitution. Tiao denied that he only held meetings from 2005 onwards because of the dispute over the sale of the land. However, I consider it to be obvious that there must have been a catalyst for a change in the method of management after more than a decade. Scrutiny of the Association's activities resulting from a dispute over the purported actions of the Board is the obvious cause for the sudden change in management procedures. Tiao's explanation was that he had only then become aware of the requirements of the Constitution, although that also occurred as a result of the dispute. In fact, Tiao said that it was not until 31 January, after 'the trouble started with the land', that the Association's constitution was translated into Chinese.
Tiao was not entirely accurate in his statement that no board meetings were held until 2005. There was a board meeting on 8 April 1996, although it was not a formal meeting; no agenda was prepared or minutes taken and no resolutions were passed. The most that could be said was that it was a meeting to discuss Association matters at which all board members, except Kuo, were present.
Lai also said that, following the initial appointments to the board in 1992 up until approximately 2005, no proper board meetings were held. According to Lai, the only meeting was one in 1996 that was aborted when Tiao became angry with Chou. Lai does not elaborate on what he meant by 'proper' but it would necessarily involve all board members being given notice and an opportunity to be heard, the discussion of matters relating to the management of the Association and resolutions being passed by majority.
Hui Ping Wang admitted that no board meetings were held and that the board did not comply with its obligations. He maintained that he and the other foundation members did not appreciate the legal requirements of the constitution as the document was in English and none of the board members were able to read English. Kuo agreed that the absence of board meetings was because the directors did not know that board meetings were required.
It was also the case that the Association had never held an Annual General Meeting, a general meeting or any meeting of members. This was confirmed by all board members who were questioned on the matter. Tiao admitted that the Association not only failed to observe its legal requirements to properly hold annual general meetings, it also failed to keep minutes of meetings and maintain a register of members from 1992 to 2005.
The failure to keep minutes and a register were not the only omissions of the Association. Hui Ping Wang was asked about the Association's failure to have accounts prepared by an accountant. He denied that he knew that the Association should have accounts prepared by an accountant. Hui Ping Wang attempted to distance himself from this omission by stating that he was not in charge of accounts. He ascribed responsibility for the accounts to Lai's daughter‑in‑law, Ms Wang. However, it was clear from her evidence that her role was simply to keep a record of contributions, which she did. Hui Ping Wang also said that he did not know it was important for the Association to keep records. This attempt by Hui Ping Wang to direct responsibility away from himself, when he was a board member, did not reflect well on him.
The failure of the members of the board to comply with the basic requirements of managing an incorporated association was an issue which was constantly re-visited in the course of the evidence. Almost without exception the explanation provided was that the board members were unable to read the constitution and hence were unaware of the obligations arising from holding the position of director. None of the Board members were asked about their knowledge of the Act, despite the fact that various provisions of the Act imposed obligations on board members. The provisions of the Act were never referred to or relied upon by any witness and, as it is also printed in English, it is unlikely that any reference was made to the Act at any stage.
Language difficulties were commonly relied upon as the explanation for the failure by the board to comply with its statutory and constitutional obligations. In my view, it is not a complete answer. It became apparent to me in the course of the hearing that some of the witnesses had a greater understanding of English than they alleged. Further, there were other sources of potential information which could be accessed with the assistance of an interpreter. There was also Mr Tong who, as an accountant, could be expected to have at least a basic level of knowledge of the fundamental requirements of managing an incorporated association and to be in a position to obtain the necessary information upon request. There was no evidence to suggest that the board members had sought to obtain information from Mr Tong or from any other source.
It was also alleged on behalf of the plaintiff that all or some of the members of the board had sufficient knowledge of managing businesses and being directors of companies to have managed the Association in a broadly compliant manner if such had been the intention. The plaintiff's position was that the board members' understanding of the basic requirements of managing an incorporated entity could be inferred from their general business activities. Consequently, a number of the board members were questioned on their business interests.
Further, as a result of allegations that certain directors were unavailable to participate in board or Association activities or simply did not involve themselves in the Association's affairs, where certain board members resided at certain times also became an issue. Finally, because the issue of membership of the Association is a central part of the action, the board members were also questioned about their understanding of their membership status.
Not every board member was questioned on all of these issues, either as a result of oversight or because some matters were not relevant to all members of the board. The following is a summary of the evidence of each witness on the issues about which they were questioned.
Lai's evidence was that he is a businessman who has always had business interests in Taiwan. In 1996 he lived in Riverton and between that year and 2005 he was actively involved in his business interests in Taiwan, spending half of his time in Taiwan and half in Australia. Between 1996 and 2003, in particular, Lai spent a considerable amount of time residing in Taiwan for business reasons. At the time of the trial he was living in Riverton, although on occasions he still conducted business in Taiwan.
Lai can neither speak nor read English, although he speaks and reads in Mandarin. He said that he had never read the Constitution and had never had a copy of it. Lai was adamant that he was a member, indeed a foundation member, of the Association and a member of the board of directors.
Chou can neither speak nor read English. He described himself as a foundation member and director of the Association. Chou was not questioned on his business knowledge or on his experience with companies.
Kuo described himself as a foundation member and also a director of the Association. He does not speak English and gave his evidence through an interpreter. Presumably, he is also unable to read English although no evidence was given on that point. Kuo was not present at the opening of the temple on 17 March 1996. From 1996 to August 2007 he was resident in Taiwan, although he made occasional returns to Perth for short periods of time. Kuo maintained that, even though he was not living in Perth, he remained interested in the Association and kept in close touch by phone with Master Wang, Tiao and Hui Ping Wang. According to Kuo, on most cases they would contact him and discuss religious matters as well as matters concerning the temple. After Master Wang's death, Kuo was regularly contacted by Hui Ping Wang and Tiao about the Association's affairs. Kuo did not keep in touch with Lai and, after 1996, did not see Lai again until Master Wang's funeral in Taiwan in 2001. Kuo was not questioned on his business knowledge or on his experience with companies.
Hui Ping Wang described himself as a foundation member of the Association, a member of the board of directors and a master of the temple. Hui Ping Wang gave evidence through an interpreter and appeared not to speak English. He said that he does not read English and maintained that none of the other foundation members read English either.
In 1992 Hui Ping Wang's private company owned a vegetable growing business. He agreed that the company was required to lodge tax returns and to have its accounts prepared by an accountant. Further, Hui Ping Wang has for three years been the owner of part of a motel. He is also a member of the board of the company which owns the motel. However, when asked if he was a board director he said: 'Yes, I am not quite clear about this.' As I have noted, the question was clearly directed at the proposition that, as Hui Ping Wang was familiar with the responsibilities of a director of a company, he would be aware of the basic responsibilities of a director of an incorporated association. I considered Hui Ping Wang's response to this question to be deliberately evasive.
Tiao also gave evidence through an interpreter and maintained that he only understood very simple words of written and spoken English, such as greetings. Tiao described himself and the other five originators as 'the foundation members who were then the board of directors'. Tiao stated that he has acted as the secretary‑general of the Association since he was made the master of the temple in May 1996 although no evidence was given about the circumstances by which Tiao came to hold that position.
Tiao has been a resident in Australia since 31 July 1989. Before that he lived in Taiwan and operated a business there. When he first came to Australia, Tiao did not work as he had income from Taiwan and investments in Western Australia. However, Tiao denied that he was a businessman and when questioned about how he supported himself he said that he lives on rental income. He said that he used to be a businessman in the past and agreed that he had also been a company director. He agreed that he knew what a company secretary was and that a secretary‑general is something like a company secretary. However, when questions were asked which identified or suggested the similarities in the roles, Tiao's responses were generally evasive and far from compelling. He relied on language difficulties to explain why he did not understand the actual duties of a secretary-general but was again evasive when asked if he made any enquiries about his duties. Tiao did ultimately agree that he had never asked anybody what his duties were as secretary‑general of the Association, notwithstanding that the Association collected about half a million dollars in contributions and its land was now worth $1 million to $2 million. Tiao also agreed that it was the secretary‑general's role to keep the minutes of the meetings and to arrange the meetings. Yet, from 1996 to 2005, he did not carry out either responsibility.
It is also apparent that Tiao formed views about the appropriate way of conducting aspects of the Association's business without being aware of the requirements under the constitution and without making any inquiries about the correct position. For example, Tiao determined that it was unnecessary to contact Lai or Chou, two of the five surviving board members when making decisions concerning the interests of the Association. He did so without making enquiries or taking advice on the constitutional or legal requirements for a valid board meeting.
Another factor of particular concern was that it was apparent to me, although contrary to his assertion, that Tiao does understand English. He maintained that he could only understand simple words in English such as greetings. That was clearly not the case. I observed him closely during his evidence and it was apparent that he not only understood what was being said to him but he would often commence answering a question before it had been translated. In fact, at one point he answered a question without the assistance of the interpreter. Of course, the full extent of his ability to understand spoken English remains unknown. Nevertheless, his attempt to hide the fact that he does have a reasonable understanding of spoken English reflects poorly on his credibility and calls into question his explanations for failing to comply with the Association's constitutional and legal requirements.
Having considered the evidence relating to the prior and co-existing commercial experience of some of the board members, I believe that Lai, Tiao and Hui Ping Wang each had sufficient commercial experience to be aware of the basic requirements of being a member of the board of directors. The keeping of records, especially financial records, the preparation of financial reports and the need to call board meetings and meetings of members are matters of which they would have been aware. They would also have been aware of the need to give notice of meetings to all members, whether board meetings or general meetings. Further, the fact that Tiao and Hui Ping Wang were evasive in answering questions on their commercial experience indicated to me that they were well aware that their plea of ignorance of the management requirements of an incorporated association would be seen in an entirely different light if the true state of their commercial knowledge were known.
It is trite to observe that it was the obligation of each person who accepted membership of the board, in this case the originators, to act in accordance with the legal requirements of the Association and the requirements of the constitution. The originators were well aware that, in order for incorporation to occur, approval was required from a government department pursuant to the Act. It is also apparent from the meeting held in or about August or September 1993 that the board members were aware of the tax and immigration benefits arising from the incorporation of the association. It was said by Lai at the meeting that 'we have a priority to be free of tax and we can emigrate our family'. I consider that any reasonable person would have readily understood that there may be rules with which they would be obliged to comply. The very fact of the constitution's existence would indicate that there was information relevant to the operation of the Association of which they were supposed to be aware.
Therefore, the fact that the constitution was in English was not an adequate explanation for the failure of the directors to inform themselves of their obligations. Indeed, none of the excuses provided were, in my opinion, adequate explanation for the failure to become aware of, and to implement, the requirements under the Act and the constitution for the management of an incorporated association. Further, the experience of at least some of the board members with the obligations of operating companies carrying out various businesses would have been sufficient to alert them to the fact that there would be obligations on them in managing the Association's activities. The fact that some board members may not have been familiar with the Australian system would be a reason to make further inquiries, not a basis for assuming that there were no obstacles to running the Association in the ad hoc manner in which they did.
In my view, the board members should immediately have had the constitution translated into Chinese. They should have taken advice on their statutory obligations, through the use of an interpreter if necessary. At the very least the board members should have asked Mr Tong to advise them of their obligations. If the directors were not prepared to properly inform themselves of their obligations, they should not have accepted the position of board member.
I have concluded that the board members should have been aware that statutory obligations arose on incorporation and that the constitution contained information necessary for the proper management of the Association and also that board members were required to identify that information. These conclusions then raise the question whether the failure to obtain the necessary information, and to manage the Association in accordance with the relevant law, was an oversight, as alleged by Tiao, or was deliberate conduct. The fact that the Association was managed without this information and otherwise than in accordance with the relevant law for a period of, at least, 11 years, militates against the conclusion that it was a mere oversight. The evidence of the way in which the Association was managed, both by Master Wang and later by Tiao, leads me to conclude that the failure to identify and implement the relevant rules and statutory obligations was the result of a deliberate intention by the originators to manage the Association without the constraints provided for in the constitution and in the Act.
I have attributed this intention to all of the originators. However, there is one qualification. The obligation to inform themselves of their responsibilities as directors of the Association applied equally to all originators from the time of incorporation to 8 April 1996. However, on Lai's evidence, he too deferred to the views of Master Wang. During that period, the principle activities of the Association were receiving contributions, of which a record was kept by Ms Wang, and contracting for the construction of the temple, supervising its construction and making payments under the contract. Without minimising the significance of these issues, and without condoning the failure of Lai and Chou to inform themselves of their obligations as directors, prior to the opening of the temple no action adversely affecting the interests of the Association appears to have been taken. It was only after the opening of the temple that the Board was required to deal with the day to day management issues such as the use of the temple and the ability to meet the temple's running costs. No doubt it was for that reason that, as I find later in these reasons, Chou requested a copy of the constitution at the 8 April 1996 board meeting. That occasion should have operated as a reminder that the Association was required to be run in accordance with the constitution and steps should have been taken to have the document translated. Instead, Chou and Lai's attempt to identify the obligations of the Association under the constitution was simply rebuffed. It became apparent that, thereafter, Lai and Chou were simply not in a position to implement change or to ensure compliance with external requirements because Master Wang had the support of Tiao, Hui Ping Wang and, most likely, that of Kuo. Therefore, after 8 April 1996, Lai and Chou are not responsible for any failure to comply with the obligations of a member of the board.
Tiao also attempted to apportion blame to the other board members on the basis that 'from the very beginning they recommend me and to be the secretary‑general in charge of their purchase and the construction of the temple'. My understanding of this explanation is that Tiao believes the other board members were also responsible for any of his acts in breach of the constitution because they appointed him as secretary‑general. That proposition I do not accept, particularly because there is no evidence about the circumstances by which Tiao became secretary-general. There is certainly no evidence that he was elected to that position by the board as required by cl 8.4 of the constitution. Tiao said elsewhere in his evidence that he was made the master of the temple five days after the temple opened on 17 May 1996 and that, since then, he has acted as the secretary of the Association. As this followed the 8 April 1996 meeting after which Lai was generally not made aware of the activities of the board, at best Tiao attained this position as a result of a decision made by him, Master Wang, Hui Ping Wang and Kuo.
Having considered the evidence concerning the way in which the Association was managed, from incorporation until Lai expressed his concern about the sale of part of the land, the conclusion I reached was that, despite the circumstances of the 8 April 1996 meeting, Master Wang controlled the Association. He did so with the assistance of Tiao, Hui Ping Wang and, occasionally, Kuo.
Lai also made it clear that the death of Master Wang made no difference to the way in which the Association was managed. Following Master Wang's death, Tiao continued in his place, assisted by Hui Ping Wang and managed the Association 'in much the same way'. Tiao and Hui Ping Wang contacted Kuo 'when required' but made no attempt to contact Lai or Chou. Further, despite having passed the purchase and construction stage and despite having had drawn to their attention the need to manage the interests of the Association in accordance with the constitution, and not out of personal interest, no attempt was made by Tiao, Hui Ping Wang or Kuo to have the constitution translated, to hold board meetings where decisions were made by majority, or to hold elections so that other members might play a part in managing the Association. Indeed, the fact that the same group of directors purported to manage the Association continuously without any thought of relinquishing the role to other members supports the conclusion that they acted as if the Association was their personal business.
On 24 August, 2009, a hearing was held for the purpose of giving Mr O'Toole and Butcher Paull & Calder the opportunity to be heard on whether the order sought by the plaintiff, ostensibly on behalf of the Association, should be made. Both were represented by counsel and the Association was also represented separately from the plaintiff. For convenience I will use the collective term 'solicitors' when referring to Mr O'Toole and Butcher Paull & Calder.
Various issues were raised at the hearing on behalf of the solicitors. A preliminary point was taken as to whether the plaintiff had the standing to make the application for the order. Another preliminary point was the late stage at which an appearance had been entered by new solicitors for the Association and submissions filed and served on its behalf. It was submitted that the consequence of this should be to disentitle the Association being heard.
As to the first of the preliminary issues, counsel for the plaintiff effectively conceded that there was little to justify the plaintiff's involvement in a hearing dealing specifically with orders sought for repayment of Association funds. In terms of the original action, the plaintiff was a director of the Association who, on my findings, had effectively been excluded by Mr Tiao from participation in the Association's activities and who became concerned when he was made aware that part of the Association's property had been sold, apparently without authorisation. If it were not for the plaintiff, it is highly unlikely that anything would have been done about the way in which the Association was being managed by Mr Tiao. However, by the time of the present hearing, an annual general meeting had been held at which new Board members were elected. Although the plaintiff was one of the newly elected Board members, there was no suggestion that the Association could not take action on its own behalf and, as I have noted, it was represented by counsel at this hearing. There was no longer any basis for the plaintiff to attempt to protect the Association's interests by taking action in his own right but for the benefit of the Association. The conclusion I drew was that the plaintiff did not have standing to seek an order for the return from solicitors of the costs paid from funds of the Association or to be heard on the issue and, as a result of that ruling, counsel for the plaintiff withdrew.
As to the second preliminary issue, the late involvement of the Association in the proceeding, counsel for the Association relied on the complexity of the issues dealt with in the judgment and the significant time necessary to fully understand the judgment. Difficulties were also said to have been encountered because of the fact that almost all of the people involved in the matter do not speak English and required an interpreter. Further, two of the Board members who were to instruct counsel had been away in Taiwan, requiring telephone link‑ups, which increased the language difficulties involved. Emphasis was also placed by counsel on the prejudice to the membership of the Association of being excluded from participation at this hearing, particularly in view of the intense financial, emotional and spiritual impact of the lengthy legal proceedings. Conversely, it was submitted that no prejudice to the solicitors had been identified and no prejudice could arise from the late filing of submissions because the Association's submissions essentially support and reflect the submissions of the plaintiff which had been available for some time.
There was, in my view, considerable substance to the submissions made on behalf of the Association and, consequently, I determined to allow counsel for the Association to appear and be heard in relation to the issue before the court. As the Association, a party to the action, was now represented and making the application for the order, much of the submissions on which the solicitors relied were no longer of relevance.
In terms of substantive issues, counsel for the solicitors relied on the following allegations:
1.that the monies paid to the solicitors were not paid from the funds of the Association;
2.that neither Mr O'Toole nor the firm, Butcher Paull & Calder were parties to the action and hence an order could not be made against them; and
3.that an order only could be made against a solicitor if the solicitor's actions were improper, unreasonable or negligent.
Although these arguments were primarily put before the court by senior counsel for Mr O'Toole, counsel for Butcher Paull & Calder joined in the submissions of senior counsel and raised one further matter, to which I will later refer.
Senior counsel for Mr O'Toole submitted that the proper way for the issue of repayment of costs to be brought before the court was for the Association to bring proceedings for repayment of so much of its funds that were not authorised to be disbursed. The basis upon which the Association could claim a refund or repayment of its funds paid to a lawyer was said to be on the basis of a breach of warranty of authority. It was further stated that, in such proceedings, some of the impediments alleged to apply to the making of an order in these proceedings such as issues of privilege, would not apply and the legal basis for the claim could be pleaded and the relief specified.
In relation to the first issue raised, it was submitted on behalf of the solicitors that there was no evidence before the court that the Association paid any monies to the solicitors. Indeed, senior counsel maintained that the affidavit evidence before the court was that no monies were paid by the Association. According to counsel, as a minimum, before the court should make the contemplated order there must be some evidence that Association funds had been utilized, and the only evidence before the court at the present time was that the monies paid to the solicitors were not paid from Association funds.
The affidavit evidence of Mr Tiao was that, after having first met with Mr O'Toole to obtain legal advice, he opened a new bank account with BankWest in the name of the Association. That account was used to pay legal costs of these proceedings as accounts were rendered. Mr Tiao further deposed to the fact that all monies in the account were deposited by him or Hui Ping Wang or by Cheng Han Pty Ltd, a company of which Mr Tiao is a director. According to Mr Tiao, his expectation was that the monies so advanced would be treated as loans in the accounts of the Association.
The proposition put by senior counsel was that, as Mr Tiao had no authorisation to open an account in the name of the Association and Mr Tiao controlled the funds in the account, the result is that the account is not an Association account, the Association had no right to the funds in the account and, therefore, the accounts rendered by the solicitors were not paid from Association funds.
It was further submitted that it would be necessary for there to be evidence at trial that Association funds were used to pay the solicitors before an order of the type sought could be made. Senior counsel refuted the suggestion that an order could be made for repayment of Association funds and, in the event it transpired that no such funds were in fact involved, the order would simply have no effect. It was submitted that such an approach would amount to the court making an order based on an assumption.
The Association relies on the fact that the substantial sums of money were paid to Mr O'Toole and that they were paid by the Association. The fact that Mr Tiao alleges that he paid the monies into an account of the Association is said not to be a relevant consideration for the following reasons:
(a)Mr Tiao was found to be a person of no credibility;
(b)his word requires corroboration;
(c)there is an express finding in the judgment in the action that Mr Tiao mixed his own funds with the Association's funds; and
(d)there is also an express finding that Mr Tiao treated the Association as his personal fiefdom.
In oral submissions, counsel for the Association emphasised that Mr Tiao's conduct in setting up the BankWest account must be considered against the background that there had been a blending of monies and a closing down of Association accounts. Consequently, it was submitted, the fact that Mr Tiao had opened the account in the name of the Association and placed funds in it would not preclude the conclusion that it was an Association account and that the funds were that of the Association.
It was further submitted that, if Mr Tiao wants to maintain that the monies placed in the account were by way of a loan to the Association, he can make that claim in the context of any action, however instituted, which addresses the correct financial position of the Association as a result of Mr Tiao's management. However, this latter argument tends to reinforce the position of the solicitors that the order proposed should more properly be made in the context of an action to which the solicitors are parties and in which all relevant evidentiary issues could be addressed.
With respect to the four specific issues raised on behalf of the Association, it is correct that Mr Tiao was found to be a person of no credibility, whose evidence required corroboration. Further, the court did, in fact, make the two findings to which the plaintiff refers.
It is because of the entirely inappropriate way in which Mr Tiao managed the Association and its monies that I have considerable difficulty with the proposition put by senior counsel for Mr O'Toole that the account was not an Association account and that the Association had no right to the funds. In the usual circumstances such conclusions may be able to be drawn. It is entirely because of Mr Tiao's considerable credibility issues and his conduct with respect to the Association that these conclusions cannot so easily be drawn.
I would not be prepared to conclude that the funds in the account to which Mr Tiao refers in his affidavit were paid in from his own funds, on Mr Tiao's words alone. More importantly, because of the fact that the Association's accounts had been closed and Association monies mixed with Mr Tiao's monies, I would not be prepared to find that, even if the monies were paid in by Mr Tiao from one of his own bank accounts, the funds were not Association funds.
With respect to the issue of credibility, counsel for Butcher Paull & Calder noted that the adverse finding on Mr Tiao's credibility only came at the end of the trial and it was not for the solicitor to determine his credibility. I accept that, in the usual course of events, not only is it not necessary for the solicitor to determine his client's credibility but entirely inappropriate to decline to accept instructions or defend proceedings based on a personal impression that the client is not entirely truthful: Ridehalgh v Horsefield [1994] 3 All ER 848, 863. However, the issue of Mr Tiao's credibility is not the basis of the order proposed. Because of Mr Tiao's role as a director of an incorporated association, and in circumstances where his right to engage solicitors is called into question by a fellow director, there must exist some resolution or written record of authorisation. Further, because the existence of authorisation is an issue at trial, it would not be enough to take Mr Tiao's word for the existence of such an authorisation as it would be a relevant document required to be produced at trial.
The second issue on which the solicitors rely is the fact that Mr O'Toole was not a party to the action and no claim has been made against him. Counsel for the solicitors submitted that the relief claimed, that is the proposed order, was not sought in either the originating summons or in the amended statement of claim. This submission was made despite the concession that the foundation for the Association's application for the order was the finding that Mr Tiao had no authority to engage a solicitor on behalf of the Association, a finding which led to the making of a declaration that neither Mr O'Toole nor Butcher Paull & Calder were validly engaged as solicitors for the Association.
Senior counsel for the solicitors correctly point out that the jurisdictional basis for the application for the proposed order against the solicitors has not been identified. It was not identified by counsel for the plaintiff when first sought and was not identified by the court in the reasons for decision delivered on 22 May 2009. Counsel for the solicitors submitted that the foundation for the order sought, which is identified in the preceding paragraph, suggests that the order is sought as a consequential order following the declaration and as part of the relief sought in the action. Alternatively, it was submitted, the order may be based on O 66 r 5(1)(e) of the Rules of the Supreme Court.
As I have indicated, it was indeed O 66 that I had in mind when foreshadowing the making of an order against the solicitors, rather than simply making the order as a consequence of the declaration. However, in my view, the repayment of the monies would be a logical consequence of the finding that Mr Tiao had no authority to engage solicitors on behalf of the Association, in circumstances where this issue was central to the trial and where Mr O'Toole was well and truly put on notice that his authority to act on behalf of the Association was doubted. However, whether the order can or should be made in those circumstances would also need to be determined.
It was submitted by senior counsel for Mr O'Toole that, because the plaintiff failed to join Mr O'Toole as a party to the action, he is not bound by the result: Amon v Raphael Tuck & Sons Ltd [1956] 1 QB 357, 380. It was further submitted that the court has no jurisdiction over persons other than those properly before it as parties or persons treated by statutory authority as if they were parties. Accordingly, it was submitted, unless a person is properly joined as a party to the proceedings or properly bound to the outcome, he or she is not bound by the judgment or order of the court: Templeton v Leviathan Pty Ltd (1921) 30 CLR 34, 70. Accordingly, it was argued, as a matter or jurisdiction, the order sought by the plaintiff should not be made as relief in the action following the declaration.
On behalf of the Association it was argued that there are exceptions to the general principle. However, the circumstances which applied in the authorities on which counsel for the Association relies are in no way analogous to the circumstances in this case: see for example, Harrison v Goodland (1944) 69 CLR 509, which allows for injunctions to be granted against servants or agents of a party but who are not themselves parties to the action; Carnie v Esanda Finance Corporation Ltd (1995) 182 CLR 398, [6] which deals with representative actions.
However, as I have indicated, it was Mr O'Toole's role as solicitor which was the basis of the proposed order. The role of a solicitor as an officer of the court puts him or her in an entirely different situation from any other non‑party against whom an order is sought to be made: Myers v Elman [1940] AC 282, 303. Counsel for the Association referred to a number of authorities where costs orders have been made against solicitors for commencing proceedings without authority. In Hoskins v Van Den-Braak (1998) 43 NSWLR 290 the court referred to the decision in Fricker v Van Grutten [1896] 2 Ch 649, 658 ‑ 659 where the solicitor who had acted without authority was ordered to indemnify the plaintiff against all costs and to pay the costs of the defendant. It was further submitted that it is commonplace to make orders that a solicitor who commences proceedings without authority must pay the defendant's costs of challenging the supposed retainer: AW & LM Forrest Pty Ltd v Beamish (1998) 146 FLR 450, 458 ‑ 460; Harry S Bagg's Liquidation Warehouse Pty Ltd v Whittaker (1982) 44 NSWLR 421, 431. In Myers v Elman (319) the following statement was made by Lord Wright:
The underlying principle is that the Court has a right and a duty to supervise the conduct of its solicitors and visit with penalties any conduct of a solicitor which is of such a nature as to tend to defeat justice in the very cause in which he is engaged professionally, as was said by Ablinger CB in Stephens v Hill (1842) 10 M & W 28. The matter complained of need not be criminal. It need not involve speculation or dishonesty. A mere mistake or error of judgment is not generally sufficient, but a gross neglect or inaccuracy in a matter which it is a solicitor's duty to ascertain with accuracy may suffice. Thus, a solicitor may be held bound in certain events to satisfy himself that he has a retainer to act, or as to the accuracy of an affidavit which his client swears. It is impossible to enumerate the various contingencies which may call into operation the exercise of this jurisdiction. It need not involve a personal obliquity. The term 'professional misconduct' has often been used to describe the ground which involves a failure on the part of a solicitor to fulfil his duty to the court and to realise his duty too. The summary procedure may often be invoked to save the expenses of an action. Thus it may in proper cases take the place of an action for negligence or an action for breach of warranty of authority brought by the person named as defendant in the writ. The jurisdiction is not merely punitive but compensatory. The order is for payment of costs thrown away or lost because of the conduct complained of. It is frequently, as in this case, exercised in order to compensate the opposite party to the action.
Not only does this passage support the proposition that the court has the power to make an order against a solicitor who has failed to satisfy himself that he has a retainer to act but that the summary procedure involved in the making of an order in such circumstances may properly be invoked to save the expense of an action such as an action for negligence or for breach of warranty of authority. The latter approach was suggested by senior counsel for Mr O'Toole to be the proper way for the issue of repayment of costs to be brought before the court. On the basis of the decision in Myers v Elman, it is not the only way.
It was accepted on behalf of the solicitors that the court has jurisdiction over members of the legal profession, including a jurisdiction to tax accounts, make costs orders and exercise supervision, without the practitioner being made a party. However, it was submitted that it was not appropriate in this case to exercise that power.
It was further submitted that the order sought goes beyond the orders made in the authorities cited on behalf of the Association which concern indemnification against costs and payment of other litigant's costs. Irrespective of whether the order sought goes beyond the specific orders made in the authorities, I do not accept that it goes beyond the scope of the principle identified in them.
The relevant part of O 66 r 5(1) provides:
(1)Where in any proceedings costs are incurred by a party –
(a)as a result of any improper, unreasonable, or negligent act or omission; or
(b)...
the court may order any practitioner whom it considers to be responsible (whether personally or through a servant or agent) ‑
(c)...
(d)…
(e)to refund any relevant costs or fees which may have been paid already.
It can be seen that the jurisdiction to award costs arises where costs are incurred by a party as a result of any improper, unreasonable or negligent act or omission. The court can order the practitioner, inter alia, to refund any costs or fees which have been paid already. Assistance as to the meaning of the terms 'improper', 'unreasonable' and 'negligent' can be found in the judgment of Sir Thomas Bingham MR in Ridehalgh v Horsefield (861 ‑ 862):
'Improper' means what it has been understood to mean in this context for at least half a century. The adjective covers, but is not confined to, conduct which would ordinarily be held to justify disbarment, striking off, suspension from practice or other serious professional penalty… But it is not in our judgment limited to that. Conduct which would be regarded as improper according to the consensus of professional (including judicial) opinion can fairly be stigmatised as such whether or not it violates the letter of a professional code.
'Unreasonable' also means what it has been understood to mean in this context for at least half a century. The expression aptly describes conduct which is vexatious, designed to harass the other side rather than advance the resolution of the case, and it makes no difference that the conduct is the product of excessive zeal and not improper motive. But conduct cannot be described as unreasonable simply because it leads in the events to an unsuccessful result or because other more cautious legal representatives would have acted differently. The acid test is whether the conduct permits of a reasonable explanation. If so, the course adopted may be regarded as optimistic and as reflecting on a practitioner's judgment, but it is not unreasonable.
The term 'negligent' was the most controversial of the three… But for whatever importance it may have, we are clear that 'negligent' should be understood in an untechnical way to denote failure to act with the competence reasonably to be expected of ordinary members of the profession.
In adopting an untechnical approach to the meaning of negligence in this context, we would however wish firmly to discountenance any suggestion that an applicant for a wasted costs order under this head need prove anything less than he would have to prove in an action for negligence.
Sir Thomas Bingham MR then referred to the following quote by Lord Diplock in Saif Ali v Sydney Mitchell & Co [1980] AC 198, 218:
Advice, acts or omissions in the course of their professional work which no member of the profession who was reasonably well-informed and competent would have given or done or omitted to do… [an error of judgment] such as no reasonably well informed and competent member of that profession could have made.
The Master of the Rolls also noted that the Court of Appeal was invited to give the three adjectives ('improper', 'unreasonable' and 'negligent') specific, self‑contained meanings, so as to avoid overlap between the three, but declined to do so. It was held in Ridehalgh v Horsefield (862) that conduct which is unreasonable may also be improper, and conduct which is negligent will very frequently be (if it is not by definition) unreasonable. The Court of Appeal did not consider that any sharp differentiation between the expressions would be useful, necessary or intended.
It was submitted on behalf of Mr O'Toole that there was no evidence that Mr O'Toole acted unreasonably, improperly or negligently. In particular, it was submitted, there was no evidence from Mr O'Toole as to the circumstances in which he was retained and those circumstances would have a significant bearing on the appropriateness of an order being made against Mr O'Toole personally. It was further said that the finding that Mr O'Toole was on notice with respect to the issue of authorisation, and that it was not a situation where it would have been reasonable to accept the word of either of the first defendants that authorisation existed, does not amount to a finding that his conduct meets the criteria set out in O 66 r 5(1)(a).
Counsel for Butcher Paull & Calder joined in the submission that there was no evidence to support the making of the proposed order and, being counsel at trial, emphasised that, for whatever reason, counsel for the plaintiff chose not to address the issue in evidence. Therefore, it was submitted, any such order would be based on an untested assumption. However, the basis of the proposed order was a tentative finding that there was in fact no authorisation and nothing on which Mr O'Toole could have relied to satisfy himself that he was authorised to act on behalf of the Association
The remainder of the written submissions made on behalf of Mr O'Toole would be of considerable substance if it were the plaintiff who was pressing for the order. However, that is no longer the case. The proposition contained in those submissions that the plaintiff seeks to extend the jurisdiction to allow one party to litigation to seek an order that the solicitor on the record for an opposite party disgorge to that opposite party fees received by the solicitor, is not entirely accurate. Here, a defendant party purporting to act on behalf of another defendant party in engaging solicitors is found to have no authority to engage solicitors, nor indeed to act on behalf of that other defendant. In my view, that is an entirely different matter to the situation posited by senior counsel for the solicitors.
The final submission made by counsel for Butcher Paull & Calder was that one of the resolutions passed at a meeting of members on 26 February 2005 was an omnibus ratification of all past actions of Mr Tiao and others. Therefore, it was said, there was evidence of authorisation because engagement of solicitors on behalf of the Association fell within the conduct ratified at the meeting on 26 February 2005 and any request for authorisation could have been met with a copy of the minutes of that meeting. Counsel further submitted that the court would be required to determine that Mr O'Toole was not aware or was not made aware of the 26 February 2005 resolution before the court could make him disgorge the costs and there was no evidence on this issue.
According to counsel, the fact that Mr Tiao was later found not to be a credible witness, that the meeting of 26 February 2005 was declared invalid, and the actual wording of the resolution was not in fact a ratification, has no impact on the proposition that the ratification resolution of 26 February 2005 provided an appropriate basis for acting on behalf of the Association on the instructions of Mr Tiao.
Counsel for the Association submitted that the solicitors have remained silent on the critical issue of the formal appointment to represent the Association when a response is expected. I am not persuaded that, in the present circumstances, there is any obligation on the solicitors to provide evidence on the circumstances of their appointment. The Association has not sought to institute separate proceedings in which it would be expected that the solicitors would give evidence of the matters raised in their defence. Further, although it was then Mr Lai who was the plaintiff in the action against the first defendants and the Association, no attempt was made at trial to question Mr Tiao about the issue of his authorisation to engage council on behalf of the Association. Neither can I see any reason why Mr O'Toole or Butcher Paull & Calder should, on a costs application, provide the evidence that the applicant might need in order to obtain the order. There is a sufficient evidentiary basis for the order sought or there is not. There can be no expectation that the solicitors should fill any evidentiary deficiency.
Some of the submissions of counsel for the Association were addressed to the proposition that Mr O'Toole should have arranged for the Association to have separate representation. In my view, this proposition is no more than a consequence of a conclusion that Mr O'Toole should have been aware that there was no authorisation for Mr Tiao to engage him on behalf of the Association and does not further advance the issue of whether an award of costs should be made against Mr O'Toole.
Another submission made by counsel for the Association was that, in order to prepare for trial, Mr O'Toole would have had to go through all of the information later adduced in evidence and on going through all of that information it should have become quite apparent, as it did to the Court, that there existed a real problem as to the propriety of him being engaged by Mr Tiao to act on behalf of the Association. I have already referred to Ridehalgh v Horsefield (863) where the English Court of Appeal made reference to the established principle that a legal representative is not to be held to have acted improperly, unreasonably or negligently simply because he acts for a party who pursues a claim or a defence which is plainly doomed to fail. In my view, even if Mr O'Toole formed an adverse view on the strength of the defence case in the course of preparing for trial, that would not provide a basis for the costs order sought.
Counsel for the Association further submitted that there were other matters which should have put the solicitors on notice that Mr Tiao's authorisation was questionable. The fact that the Level Holdings contract was signed but not under seal was said to be one such matter which should have resulted in the solicitors concluding that it was necessary for a general meeting to be held to obtain affirmation of Mr Tiao's authorisation. The difficulty with this proposition was that the dispute as to membership, which was also to be resolved at trial, was a clear impediment to obtaining any definitive solution to the issue of authorisation.
There is, in fact, no dispute that Mr O'Toole was put on notice. The issue before this court is what he was required to do as a result of being put on notice. Although he clearly had to make some inquiry, what he does not have to do is make his own determination of the credibility of his client or of the veracity of his client's claim. With respect to the solicitors’ proposition that any inquiries would have revealed the resolution at the 26 February 2005 meeting which purported to authorise all of Mr Tiao's past acts on behalf of the Association, counsel for the Association submitted that being made aware of the resolution of 26 February 2005 was not a sufficient answer to the making of the costs order sought. It was said that Mr O'Toole would then have had to look at the validity of the meeting, including whether the appropriate people were given notice of meeting. Counsel further submitted that, when provided with the resolution, Mr O'Toole should have considered it and questioned why the members would want their money to be spent in that way and whether the resolution was in the interests of the Association. It was also said that many aspects of the resolution should have forewarned Mr O'Toole but he merely accepted it at face value.
I do not accept that Mr O'Toole was obliged to make any inquiries in relation to the validity of the resolution or the meeting or whether it was in the interests of the Association. Those issues were raised in the pleadings and were for the court to resolve on the evidence. Further, as I have already mentioned, a solicitor is not required to judge the strength of the case and to decline to act if it is unlikely to succeed. The fact that Mr O'Toole may have accepted the information from, and the point of view of, Mr Tiao is not, of itself, a reason to make him repay the monies paid to him for his legal services.
For the reason to which I am about to refer, it is not necessary to decide the various legal issues raised in opposition to the order for reimbursement of costs which is sought by the Association. The complete answer, in my view, is a factual one.
I accept that the Court should not make the order sought against the solicitors unless, proceeding with extreme care, I am satisfied there is nothing the practitioner could say if unconstrained to resist the order and that in all the circumstances it is fair to make it: Medcalf v Mardell [2003] 1 AC 120, 134, 140, 151.
It is correct to state that there was no Board or members resolution produced which specifically justified the engagement by Mr Tiao of solicitors on behalf of the Association. In order to fully understand the situation which applied to the Association at the relevant time it is necessary to read the judgment delivered on 12 February 2009. Nevertheless, there are a number of matters which can be briefly mentioned. Mr Tiao, a director of the Association, with the assistance of Hui Ping Wang, another director, was running the Association without holding meetings of directors, general meetings or annual general meetings. One of the primary issues at trial was the actual membership of the Association. When Mr Tiao was operating the Association he formed the view that, under the constitution which had at that time only recently been translated, those people who had been considered the members of the Association were not, in fact, members. Those people were excluded from membership and not advised of any meetings when such meetings were ultimately held. Mr Tiao then commenced to admit certain people to membership. They were the only people who were invited to the meetings which were held when his management of the Association was challenged by the plaintiff. Another issue at trial was the validity of these meetings and the resolutions purported to be passed at them.
A meeting did take place on 26 February 2005 at which a resolution was passed which, according to the English translation produced in evidence, purported to ratify and confirm all acts, actions, deeds, transactions and omissions of whatever nature of each and every person that had acted or purported to act for or on behalf of the Association. The effect of such a resolution would be to retrospectively ratify Mr Tiao's actions, which would include the action of engaging legal representation for the Association. However, an independent translation of the minutes of that meeting, obtained at the conclusion of the trial, revealed that the terms of the actual resolution passed was to ratify and confirm all past resolutions and projects and hence could not have ratified Mr Tiao's actions in engaging solicitors. The conclusion reached, as expressed in the judgment delivered on 12 February 2009, was that Mr O'Toole and then subsequently Butcher Paull & Calder were not validly engaged as solicitors for the Association
An order to disgorge costs paid to the solicitor from the funds of the entity for whom the solicitor purported to act but had no authorisation to do so, may well be justified in terms of exercising an appropriate supervisory function against an officer of the court. In my view, where it is established that a solicitor, after being put on notice, failed to make inquiries confirming authorisation or, having made inquiries, became aware that no authorisation existed, it is appropriate to make such an order. In this case, the preliminary view about making a costs order against the solicitors was based on a conclusion that, on the evidence, the solicitor did not and could not have made any proper inquiry because, as was evident from the trial, no such authorisation existed, it not being a situation where simply the word of the person instructing would be sufficient. It must also be kept in mind that, in this case, all the available evidence of authorisation would be in the hands of the person said to be authorised to engage solicitors on behalf of the Association.
As I have noted, it was apparent from the independent translation of the minutes of the 26 February 2005 meeting that no resolution passed at that meeting could provide any authorisation for Mr Tiao to engage solicitors on behalf of the Association, nor to use Association funds to meet the costs of representation. However, that translation was not provided until after the trial and before judgment was delivered. On the translation available before and at the time of trial, one resolution from that meeting purported to ratify all previous actions of Mr Tiao and others. Therefore, on its face, it constituted a ratification of Mr Tiao's conduct in engaging solicitors on behalf of the Association. It was not for Mr O'Toole to make an assessment of the evidentiary value of the document, the validity of the meeting or any other aspect of the meeting and the resolution. All these issues were for the Court to determine and were determined. In the context of identifying whether Mr Tiao was entitled to retain solicitors, it was entirely irrelevant that the 26 February 2005 meeting was found to be invalid and that the terms of the resolution were not as appeared in the English translation on which the first defendants relied and did not, in fact, authorise Mr Tiao's actions.
It is relevant that, as a result of the existence of the resolution from the 26 February 2005 meeting, it cannot be said, as was first thought, that, if Mr O'Toole had made the inquiry expected of a prudent solicitor, he would not have found any authorisation for Mr Tiao to have engaged him as counsel for the Association.
In my view, the factual matter raised by Mr McGowan is a complete answer to the concern I expressed in my preliminary observations. It was only where any inquiry could not have identified any authorisation that, in my view, the basis for a costs order would exist.
For these reasons, I am not prepared to make the costs order against the solicitors which is sought by the Association.
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