Lin Zhen v. Wang Kee Construction Co Ltd and Another
Read the full judgment text of HCA 2269/2007 on BabelCite. This High Court CFI judgment was delivered on 8 April 2020.
1. The plaintiff (“ P ”) ordinarily resided in Mainland China, and was (a) a merchant carrying on business/investment in Hong Kong and Mainland China, and (b) the husband of the cousin of Lui Kwing (“ Lui ”). Lui was (i) employed by the 1 st defendant (“ D1 ”) as a foreman for a construction project in Tung Chung in 1998 but left D1’s employ after the completion of such project, and (ii) P’s agent responsible for dealing with the Main Contract / Works referred to in paragraph 3 below being the s
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HCA 2269/2007 [2020] HKCFI 571 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 2269 OF 2007 ________________________
________________________ Before : Hon Marlene Ng J in Court Dates of Hearing : 6-8 March 2018 Date of Handing Down Judgment : 8 April 2020 ________________ JUDGMENT ________________ I. INTRODUCTION 1.The plaintiff (“P”) ordinarily resided in Mainland China, and was (a) a merchant carrying on business/investment in Hong Kong and Mainland China, and (b) the husband of the cousin of Lui Kwing (“Lui”). Lui was (i) employed by the 1st defendant (“D1”) as a foreman for a construction project in Tung Chung in 1998 but left D1’s employ after the completion of such project, and (ii) P’s agent responsible for dealing with the Main Contract / Works referred to in paragraph 3 below being the sole business venture between P and D1. 2.D1 was (a) a Hong Kong company that carried on construction work business and (b) a Group B contractor (on probation) on the List of Approved Contractors (under the roads and drainage category) maintained formerly by the Works Bureau and later by the Development Bureau (“Group B Contractor”). Only Group B Contractors were qualified to tender for and carry out roads and drainage works of the Hong Kong government (“Employer”) of value up to $50,000,000. The 2nd defendant (“D2”) was a director and shareholder of D1. D1 and D2 are collectively referred to below as “Ds”. 3.By contract no HK16/2003 dated 15 December 2003 (“Main Contract”), the Employer employed D1 as the main contractor to carry out underground drainage construction works known as “Central Reclamation Phase III – Hinterland Drainage Improvement Works” (“Works”) for the contract sum of $28,376,154.20 (“Contract Sum”). When P commenced the present action on 26 October 2007, the Works were still in progress. Ds claimed the Works were due to be completed in May 2009,[1] but were actually completed in October 2008. 4.The Main Contract was subject to the “General Conditions of Contract for Civil Engineering Works 1999 Edition”, clause 3 of which prohibited D1 from assignment of the Main Contract. So without any assignment of the Main Contract, P and D1 by a Chinese agreement titled “承接香港拓展署合約編號: HK16/03中環腹地渠務工程共同合作協議書” dated 15 December 2003 (“Agt”) agreed to inter alia the express terms set out in Schedule 1 to this Judgment (“Schedule 1”) briefly summarised as follows:
5.For convenience, I adopt the definitions in Schedule 1 and also in Schedules 2-5 referred to in paragraphs 11 and 15(a)-(c) below. 6.Ds claimed (but P denied) the Agt established a partnership between P and D1 (“Partnership”) for the sole partnership venture to perform the Main Contract and/or to carry out the Works (“Partnership Venture”), and the following were either presumed from the law of partnership and/or implied by the operation of law (“Implied Terms”) in respect of the Agt and the 1st and 2nd Supplemental Agreements referred to in paragraphs 11 and 15(a) below (“1st SAgt” and “2nd SAgt”) (collectively, “Agreements”), ie each partner (a) was entitled to rely on the mutual trust and confidence of the other, (b) owed to each other a duty of good faith, (c) shall use his/its utmost good faith to bring the Main Contract / Works to completion with a view to generate profits for common sharing, and (d) shall not act unreasonably to jeopardise the successful completion of the Main Contract / Works. 7.By a power of attorney dated 16 December 2003 (“PoA”), P granted the following powers to his agent Lui:
8.It was common ground that pursuant to the Agt and the PoA (a) D1 employed Lui as general foreman of the Works, and (b) D1’s sole-name account with Nanyang Commercial Bank Limited (“NCB”) was designated as the joint account for the business venture under the Agt (“Joint Account”):
Ds claimed (but P did not admit) all receipts/payments relating to the Partnership Venture were made through the Joint Account, including progress payments received from the Employer under the Main Contract, and payments made to sub-contractors/suppliers and for other expenditures in respect of the Works. 9.There was no dispute that between 16 December 2003 and 14 February 2004 P through Lui paid a total sum of $2,000,000 (“Initial Capital”) into the Joint Account pursuant to Agt C3 and Agt C7.[3] But P and Ds averred differently as to the nature of the Initial Capital:
10.There was no dispute that (a) on 8 April 2004 $500,000 was paid from the Joint Account as partial return of the Initial Capital to P, (b) progress of the Works was slow, (c) there was insufficient monies to fund the Works as construction payments from the Employer were not received as scheduled,[5] and (d) as at 7 May 2004 the Joint Account had a credit balance of only $162,362.74. 11.On 8 May 2004, P and D1 entered into a supplemental agreement (“1st SAgt”) to amend/supplement the Agt on the express terms set out in Schedule 2 to this Judgment (“Schedule 2”) briefly summarised inter alia that P shall (if necessary) re-inject the returned portion of the Initial Capital to meet urgent expenditures of the Works (1st SAgt C2). 12.There was no dispute that on 11 May 2004 P deposited $400,000 (“Further Capital”) into the Joint Account. P and Ds averred differently as to the nature of the Further Capital:
13.There was also no dispute that a total sum of $2,000,000 in respect of the Capital was returned to P leaving $400,000 in the Joint Account:
14.P and D1 by their pleadings disagreed over the background that led to the 2nd SAgt referred to in paragraph 15(a) below save and except that the Joint Account ran out of monies and D1 asked P for funds to carry out the Works:
15.As at 14 July 2006, the credit balance of the Joint Account was $778.13. On 19 July 2006, after negotiations between P and D1:
16.It was common ground that on 22 July 2016 P deposited the Sum ($500,000) into the Joint Account. P and Ds averred differently as to the nature of the Sum:
17.There was also no dispute that between 22 July 2006 and 31 August 2007 various interest payments totalling $92,600.80 were made to P from the Joint Account by way of cheques signed by both P and D2 (on behalf of D1):
18.But P and Ds by their pleadings disagreed over the contractual due date for the monthly payment of interest under C&G C2(4):
19.By a letter dated 22 August 2007 (“22/8/07 Letter”), D2 as director on behalf of D1 wrote to Lui (copied to P) about “終止[Lui]之所有職務” (ie termination of all Lui’s job duties) as follows:
By a notice dated 22 August 2007 (“22/8/07 Notice”) to “地盤各員工” (ie all construction site staff) of the Main Contract with copy to “head office”, D1 gave notice that “[D1]特此通知[Lui]已離職本地盤, 所有有關[Lui]之職務, 暫交由[D2]處理, 有進一步之安排, 屆時將另行通知”.[8] 20.By a letter dated 23 August 2007 to D1 (“23/8/07 Letter”), P’s solicitors referred to (a) 2nd SAgt C13 by which D1 irrevocably undertook to authorise/appoint D2 and Lui to deal with all matters incidental and relating to the Main Contract and (b) D1’s breach of the Agt in unilaterally dismissing Lui’s employment on 22 August 2007 with immediate effect, and demanded D1 to immediately withdraw such dismissal, failing which P would treat it as D1’s repudiation of the Agt and would commence legal action against D1 for inter alia crystallisation of the floating charge under the C&G without further notice. 21.On 25 August 2007, D2 on behalf of D1 replied to P’s solicitors as follows (“25/8/07 Letter”):
22.On 29 August 2007, D2 on behalf of D1 sent letter to “[P’s]代言人” (ie P’s spokesperson) under the caption of “簽支票” (ie signing cheques) (“29/8/07 Letter”) as follows:
23.On 24 August 2007, P’s solicitors on behalf of Lui wrote to request D2 not to make duplicates of the photograph taken of him when the 22/8/07 Letter was handed to him, and to return the relevant memory card to him (see paragraph 28(f) below). On 31 August 2007, D2 on behalf of D1 replied as follows (“31/8/07 1st Letter”):
On the same day, D2 on behalf of D1 wrote to “[P]的代言人” (ie P’s spokesperson) (“31/8/07 2nd Letter”) under the caption of “簽支票” (ie signing cheques) as follows: “SP2沙井急需購6”水泵一個, 請於1-9-07簽支票。$7,000-”.[12] But P claimed he had not received the 31/8/07 2nd Letter (see paragraph 47(a) below). 24.On 1 September 2007, P as “[D1’s Main Contract / Works]股東” (ie moiety owner or shareholder) issued notice to “地盤各員工” (ie all site employees) as follows (“1/9/07 Notice”):
25.On 3 September 2007, Lui as “[D1’s Main Contract]股東[P]的全權代表人” (ie plenipotentiary agent of P as moiety owner or shareholder of D1’s Main Contract) wrote on D1’s letterhead to “[D1’s Main Contract]股東[D2]” (ie D2 as moiety owner or shareholder of D1’s Main Contract)[14] “有關地盤雜支負責問題” (ie regarding the question of responsibility for site sundry expenses) (“3/9/07 Letter”) as follows:
26.On 5 September 2007, D2 on behalf of D1 sent letter to “[P’s] 的代言人” (ie P’s spokesperson) under the caption of “簽發支票事宜” (ie the matter of signing and issuing cheques) (“5/9/07 Letter”) as follows:
But P claimed he/Lui did not receive the 5/9/07 Letter (see paragraph 47(a) below). 27.On 6 September 2007, P’s solicitors wrote to D1 (“6/9/07 1st Letter”) noting D1’s refusal to withdraw the 22/8/07 Letter against P’s representative Lui (who at all material times was a responsible person with positive attitude and a contribution to D1), which act amounted to breach of 2nd SAgt C13, and saying that (a) “even though [Lui] is dismissed, he reports to work and he still carries out the daily operation construction works including but not limited to signing cheques for payment salaries to staff”, but (b) “upon [Lui] [having] completed and assigned his duties and work to [D1’s] staff, [Lui] now ceases reporting to work to [D1] any further” even though such cessation was not acceptance of the wrongful dismissal by D1, and (c) P reserved all his rights to claim against D1 for such wrongful dismissal and breach of the 2nd SAgt. 28.On the same day, P’s solicitors replied to the 31/8/07 1st Letter (“6/9/07 2nd Letter”) by denying all allegations therein, and enclosing for D1’s attention a letter dated 5 September 2007 from “[D1’s Main Contract]股東[P’s]全權代理人: [Lui]” (ie plenipotentiary agent Lui of D1’s Main Contract moiety owner or shareholder P) that set out how D2 handed the 22/8/07 Letter to Lui on 22 August 2007 and the photograph-taking in relation thereto:
29.On 8 September 2007, D2 on behalf of D1 wrote to “[P]的代言人” (ie P’s spokesperson) under the caption of “簽發支票事宜” (ie matter of signing and issuing cheques) (“8/9/07 Letter”) as follows:
30.On 11 September 2007, D2 on behalf of D1 wrote to P and “[P’s]代言人” (ie P’s spokesperson) under the caption of “關於負責地盤雜支現金支出事宣” (ie regarding matter of responsibility for cash payments for sundry expenses) (“11/9/07 1st Letter”) as follows:
31.On the same day, D2 on behalf of D1 wrote to P and “[P’s]代言人” (ie P’s spokesperson) under the caption of “共同投入資金事宜” (ie matter of joint injection of capital) (“11/9/07 2nd Letter”) as follows:
32.On 13 September 2007, P as “[D1’s (Main Contract)]股東” (ie moiety owner or shareholder of D1’s Main Contract) wrote to “[D1’s (Main Contract)]股東[D2]” (ie D2 of the moiety owner or shareholder of D1’s Main Contract) (“13/9/07 Letter”) as follows:
33.By a letter dated 20 September 2007 to P (“20/9/07 Letter”), D2 on behalf of D1 claimed as follows:
34.On 24 September 2007, P’s solicitors replied to D1 (“24/9/07 1st Letter”) to deny the allegations in the 11/9/07 1st/2nd and 20/9/07 Letters, and stated they were instructed that:
On such basis, it was said D1 was in breach of the 2nd SAgt and the C&G. P’s solicitors further noted that D1 by the 20/9/07 Letter gave notice to terminate the Agreements, so P had no alternative but to accept D1’s repudiation by such unilateral termination of the Agreements and to demand D1 to repay the sum of $900,000 with interest and to pay loss/damages P suffered within 7 days, failing which P would commence legal action against D1 without further notice. 35.By a 2nd letter of the same day to D1 (“24/9/07 2nd Letter”), P’s solicitors referred to the Main Contract and also the C&G (under which D2 was the guarantor) which provided that in consideration of the loan of $900,000 “made by [P] in favour of [D1], [D1] agreed, inter alia, to have the rights and interests of the [Main Contract] charged in favour of [P] for, inter alia, repayment of the Loan”, and claimed that since D1 failed/neglected to “pay for the said interest in the sum of HK$6,842.50 of which [D1’s] wrongful act amounts to the breach of the [C&G]”, notice of repayment was thereby served pursuant to C&G C7 requiring D1 to repay the loan of $900,000 with interest within 7 days, failing which P shall exercise his right under C&G C7 “including but not limited to receiving the “Main Contract”, and taking all necessary legal actions to such effects”. 36.On the same day, P’s solicitors wrote to D2 (“24/9/07 3rd Letter”) enclosing their letter of even date to D1 and referring to the 20/9/07 Letter that unilaterally terminated the Agreements so P had no alternative but to accept D1’s repudiation thereof, and claiming that unless D2 repaid the sum of $900,000 with interest and also loss/damages P suffered within 7 days thereof pursuant to the Guarantee, P shall commence legal action against D2 without further notice. 37.As alluded to in paragraph 3 above, Ds claimed the Works were eventually completed in October 2008, and the Partnership between P and D1 in respect of the Main Contract / Works incurred a total loss of about $3,800,000. II. P’s CASE 38.P claimed (a) the 22/8/07 Letter was a purported letter of termination in breach of Agt C9, 2nd SAgt C11 and 2nd SAgt C13 whereby D1 without P’s consent unilaterally terminated Lui’s employment and all job duties with immediate effect, and (b) the 22/8/07 Notice was a purported notice signed by D2 on behalf of D1 that declared Lui’s employment had ceased and all his job duties were passed to D2. 39.P claimed that on 18 September 2007 Lui acting for and on behalf of P through a Mr Ho Wai Shing (quantity surveyor, “Ho”) as his agent requested D2 to sign a cheque of the Joint Account that P had already signed and was dated 18 September 2007 in the sum of $6,842.50 (“Cheque”) for interest payment for September 2007, and D2’s refusal to sign the Cheque amounted to D1’s failure to pay interest for September 2007 in breach of C&G C2(4). P further averred that despite repeated requests/demands D1 still failed to pay such interest sum. 40.P claimed that in/about September 2007, D1 in breach of the Agt and 2nd SAgt and without P’s/Lui’s consent unilaterally altered the mandate of the Joint Account to remove P as joint co-signatory and to enable withdrawals by cash/cheque upon D2’s sole signature on behalf of D1. 41.P further claimed that by the 20/9/07 Letter D1 wrongfully repudiated the Agreements and the C&G, and that (a) in breach of C&G C2(4) and the Guarantee Ds failed to repay the loan of $900,000 to him, and (b) by the 24/9/07 1st/2nd Letters P accepted D1’s wrongful repudiation and served a repayment notice on D1 for repayment of such loan within 7 days. 42.So P claimed against D1 for (a) repayment of the loan of $900,000, (b) the sum of $2,837,614.42 being liquidated damages pursuant to Agt C3, (c) 50% of the profits from the Main Contract and all profits and interest of and arising from the additional works pursuant to 2nd SAgt C12, (d) further or alternatively to (c) above, the whole sum of the Main Contract and all interests of and arising from the additional works pursuant to the 2nd SAgt C14, and (e) interest and costs. P claimed against D2 for (a) repayment of the loan of $900,000 pursuant to the C&G and the Guarantee, and (b) outstanding interest for such loan in the sum of $12,544 pursuant to the Guarantee. P further claimed against both Ds for interest and for P’s costs in the present action on indemnity basis pursuant to the Guarantee. III. Ds’ CASE AND P’s RESPONSE 43.Ds claimed that by the 22/8/07 Letter D1 forthwith terminated Lui’s employment as general foreman of the Works on grounds of inter alia (i) his failure to perform his duties and/or to discharge his responsibilities and/or (ii) his dilatory performance and/or serious and repeated misconduct since about July 2007:
44.In relation to termination of Lui’s employment and job duties:
45.In relation to alleged interest payment by the Cheque:
46.As regards the alleged loan of $900,000:
47.As regards settlement of expenditures for the Works:
48.Ds claimed P’s failure/refusal to (a) issue the Signed Blank Cheques for making withdrawals from the Joint Account to effect payments to fund the Works and/or (b) to inject capital into the Joint Account in fact (i) prejudiced the Partnership Venture by adversely disrupting progress of the Works and/or (ii) evinced an unequivocal/ complete breakdown of relationship and/or a loss of trust/confidence between P and D1 such that D1 had no alternative but to instruct NCB on 19 September 2007 to remove P as an authorised co-signatory of the Joint Account leaving D2 as the only person authorised to sign on behalf of D1 to make withdrawals from such account, and to issue the 20/9/07 Letter to P to terminate the Agreements and the C&G. 49.Ds claimed that although D1 received the 24/9/07 1st and 2nd Letters and D2 received the 24/9/07 3rd Letter, P was not entitled to demand them to pay the total sum of $900,000 because:
50.Thus, Ds claimed P was not entitled to the following:
51.Ds raised a counterclaim against P as follows:
52.D1 therefore counterclaimed against P for the following reliefs:
53.D2 counterclaimed against P for the following reliefs:
IV. PROCEEDINGS 54.By the order of Burrell J dated 30 January 2008 (“Burrell Order”), Ds via counsel gave undertaking to the court (a) to utilise the monies in the Joint Account solely for reasonable/necessary costs arising out of the Main Contract between D1 and the Employer, and all payments made by the Employer to D1 in connection with the Main Contract shall be deposited in the Joint Account, and (b) to prepare/provide to P every month until completion of the Works (commencing with a statement for January 2008) a financial statement particularising all transactions in the Joint Account and annexing copy supporting invoices save and except for an allowance of $5,000/month under the heading of “petty cash” (“Monthly Statements”). 55.P was legally represented all along, and he was represented by counsel at the 1st pre-trial review (“PTR”) heard on 28 November 2017. On 5 March 2018 (ie the day before trial) P filed Notice to Act in Person. The letter dated 5 March 2018 by P’s former solicitors to the court confirmed they had sent the trial bundles, Ds’ written opening submissions and Ds’ list of authorities to P/Lui, and they had notified P/Lui of the dates/time of the trial hearing. 56.At the trial, P claimed (a) he did not know much about the business venture with D1 in respect of the Main Contract / Works as Lui handled the matter on his behalf, (b) he did not know anything about the case, and (c) he came to know about the trial only 2 days before. I note the present action was commenced in 2007, and P was legally represented until shortly before the trial. It lied ill in P’s mouth to say he did not know anything about the case when he must have been legally advised and Lui was all along his agent[23] and factual witness. In any event, it was the obligation of P as claimant to find out about and to familiarise himself with his own case. But taking note that P was self-represented at trial, this court allowed Lui to sit next to P at trial to assist P as a McKenzie friend. 57.There were 2 factual witnesses, Lui and D2. By my order made at the 2nd PTR on 5 January 2018 (“PTR Order”), I ordered that the following parts of Lui’s witness statement dated 27 April 2016 be struck out and that Lui as factual witness for P shall not adopt or rely on those parts at the trial: (a) from “例如在2007年8月,” until the end in paragraph 22 thereof, (b) part of the heading above paragraph 23 thereof being “發現第一及第二被告人馬虎後不久”, and (c) “此事發生後不久,” in paragraph 23 thereof. Lui gave evidence and adopted his redacted witness statement (“Redacted Statement”). D2 gave evidence and adopted his witness statement dated 26 April 2016 (“Statement”). 58.Pursuant to the PTR Order, I also directed Ds to prepare and serve on P a schedule with information/dates extracted from the Monthly Statements for the period from 20 January 2008 to 19 February 2013 that Ds would regard as pertinent to the issues at trial, and to serve on P such schedule with copies of the Monthly Statements (which documents were to be made available at trial in a folder separate from the trial bundle with independent pagination). 59.On 22 January 2018, Ds’ solicitors wrote to advise the court that Ds considered the Monthly Statements were not germane to the issues at trial and to propose for the directions in the above paragraph be dispensed with. At the directions hearing on 31 January 2018, I made an order that without prejudice to any directions the court might make in the course of the trial for either or both parties to prepare the schedule referred to in the above paragraph and upon confirmation by P’s solicitors that P had obtained copies of the Monthly Statements in the course of discovery/inspection in the present action, the directions in the above paragraph be set aside. V. ISSUES 60.Ms Ng, counsel for Ds, helpfully set out the following main issues for the trial:
VI. PARTIES 61.D1 was incorporated in 1995 and was a contractor engaged in roads and drainage works of the Employer.[24] I accept D2 (a) was a director since D1’s incorporation, (b) had more than 30 years’ experience in supervising/managing construction works including road and drainage works, and (c) as D1’s director was responsible for overall supervision, control and management of all D1’s construction works (including the Works).[25] On balance I do not accept Lui’s claim that he made more efforts than D1/D2 in carrying out the Works. In my view, my finding was borne out by the events that led to the termination of Lui’s employment as general foreman of the Works. VII. TENDER FOR MAIN CONTRACT / WORKS 62.In/about July 2003, CEDD by notice published in the Government Gazette invited Group B Contractors to submit tenders for the Works.[26] At that time, D1 as a Group B Contractor (on probation) was eligible to and did in/about August 2003 submit its tender (which D2 prepared with help by D1’s staff, “Tender”) for the Works in the sum of $28,224,304.20 (later corrected to $28,376,154.20 to remove arithmetical errors) (“Tender Sum”). VIII. BUSINESS VENTURE BETWEEN P AND D1 63.Lui’s evidence Lui claimed D2 contacted him in/about November 2003 and told him D1 had placed the Tender for the Works, but D1 lacked funds so Ds “希望與[Lui]合作, 投資借貸及／或形式提供資金” and then share the profits from the Works with Lui. But Lui did not have funds himself, so he asked P (who had indicated interest in doing construction business in Hong Kong) whether he was interested. P lived in Mainland China and was unfamiliar with the business environment in Hong Kong, so he authorised Lui to negotiate with D2 on his behalf. Lui proceeded to do so, and told D2 he wished to (a) monitor use of D1’s funds to prevent misuse of income from the Works, and (b) participate in decision-making on expenditures and other matters of the Works to prevent unreasonable expenses/acts that might damage P’s investment without his knowledge. Lui claimed that (i) pursuant to his arrangement agreement was reached between P and D1 in December 2003, (ii) D2 drafted the Agt, and (iii) the Agt was signed by P and D1 (as witnessed by Lui) on 15 December 2003. 64.D2’s evidence D2 gave evidence that in/about September 2003 Lui came to see him at D1’s site office in Kwai Chung (“KC Office”) where D1 as sub-contractor was carrying out certain road works. At such meeting, Lui told D2 he had a wealthy relative in Mainland China (whom D2 later came to know as P) who was interested in making investments (eg in construction projects) in Hong Kong, so Lui enquired whether there was any chance for his wealthy relative to do business with D1. D2 told Lui D1 had just submitted the Tender and would be pleased if his wealthy relative would invest in the Works and/or future construction projects to be undertaken by D1. After such meeting, Lui telephoned D2 several times to inquire about the outcome of the Tender, and in one such telephone conversation in early December 2003 D2 told Lui the Employer should soon announce the successful tenderer. 65.D2 went on to say that in/about late November 2003 Lui and P came to see D2 at D1’s office in Shatin, and Lui introduced P to D2 who met P for the first time. At such meeting, Lui/P inspected the Tender and the drawings for the Works, and briefly discussed the plan for P and D1 to do business together in respect of the Works. D2 said Lui, P and D2 all agreed that D1 would manage, supervise and carry out the Works and P would provide the necessary finance, and that both parties would share the profits/losses of the Works. 66.D2 said Lui subsequently met him several times at the KC Office to further discuss details of the intended business venture between P and D1 in respect of the Works, including inter alia the amount of P’s financial contribution. D2 told Lui that according to his experience about 10% of the Tender Sum would be required to pay expenditures of the Works during the initial stage[27] before receipt of any or any substantial progress payments from the Employer and to cater for potential exigencies as the Works progressed,[28] but if the Works progressed smoothly as planned, the monthly progress payments from the Employer should be sufficient to defray expenditures of the Works. 67.By a letter dated 3 December 2003 from the Director of CEDD to D1, the Employer confirmed acceptance of the Tender and advised that signing of the Main Contract was scheduled for 15 December 2003. Thus, the Tender Sum of $28,376,154.20 became the contract sum for the Works (“Contract Sum”). D2 said he telephoned to inform Lui the Tender had been accepted, and Lui told him P would provide $2,000,000 for the Works and asked him to prepare a draft agreement for P to sign. D2 drafted an agreement which he gave Lui at the KC Office for him to pass to P. 68.D2 said shortly before the Main Contract was signed on 15 December 2003, Lui telephoned to tell him P had no problem with the draft agreement and proposed to sign it on 15 December 2003 to which D2 agreed. D2 told Lui they should meet at D1’s office in Mongkok, Kowloon (“MK Office”). D2 gave evidence that at/about 10:00am on 15 December 2003 P/Lui went to the MK Office, and to D2’s surprise P/Lui gave him a re-typed agreement that was more or less in line with the draft agreement D2 previously gave Lui save for the following new provisions:
69.D2 queried about (a) above, and P explained there was no benefit in locking up $2,000,000 in the Works when the monthly progress payments from the Employer would be sufficient to pay expenditures of the Works. But D2 told P the amount of each monthly progress payment would depend upon the amount of work done each month, which in turn would depend upon the progress of the Works, so there was always risk of unforeseeable problems that might hamper the progress of the Works and reduce the amount of the monthly progress payment which was yet to be received,[29] so D2 suggested the Initial Capital of $2,000,000 should not be returned. But P remained adamant so D1 was put in a difficult/ embarrassing position because if D2 disagreed and P called off the deal (which was likely given his resolute stance), D1 would only have 2 days[30] to raise the necessary funding for the Main Contract. Faced with such difficulty, D2 considered he had inserted higher rates in the Tender for items of work to be done during the initial stage of the Works such that the initial monthly progress payments (then yet to be received by D1) should be more than necessary for those items of works,[31] so D1 might use some surplus from such front-loaded monthly progress payments to return the first $1,000,000 to P. Further, D2 did not mind returning the remaining $1,000,000 to P by instalments in 6 months’ time if there were profits from the Works. So D2 told P that in principle D1 would agree to (a) above, but suggested the return of the first $1,000,000 should be dealt with flexibly because whether there would be any surplus from the monthly progress payments in the first 3 months could not be guaranteed. P agreed, and even assured D2 he would re-inject the returned monies when needed. 70.D2 had no problem with P’s proposals in (b)-(c) above. D2 said Lui (who claimed to be unemployed at that time) was previously D1’s employee, and D1 would need a general foreman of the Works in any event. Lui was placed under D1’s payroll from the commencement of the Works (on 17 December 2003) until termination of his employment in August 2007. 71.D2 gave evidence that following the above negotiations the draft agreement was slightly adjusted to reflect the “flexible way” of dealing with return of the first $1,000,000 (see paragraph 69 above), and D1’s staff engrossed the Agt, which was then signed by P and D2 on behalf of D1 as witnessed by Lui. 72.Findings On balance, I prefer and accept D2’s evidence in paragraphs 64-71 above. First, P did not offer any credible reason why D2 (who was initially unaware of P’s existence) would approach Lui to seek funding for the Works. Lui was employed by D1 as a foreman in a construction project in Tung Chung back in 1998, and left D1’s employment after the project was completed. He was also unemployed at the time when the parties discussed about the business venture in respect of the Main Contract / Works. In my view, there was no commercial reason for D2 to surmise that Lui was a man of means or had connections to other persons of means who would likely be interested to invest in the Works. On balance, I find it more likely that (as D2 said) Lui would telephone D2 from time to time to enquire whether there was work for him, and on this occasion Lui (who knew his wealthy relative P was interested in investing in Hong Kong and had the means to do) approached D2 (ie the director of his former employer who was a Group B Contractor carrying out construction works) to see if there was any opportunity for P to invest in any of D1’s construction works. In my view, this finding undermined Lui’s overall credibility and P’s/Lui’s account as to how the Agt came about, and I reject Lui’s evidence in paragraph 63 above insofar as it contradicted D2’s evidence. 73.Secondly, I prefer D2’s evidence that the Main Contract / Works were the sole Partnership Venture of the Partnership between P and D1 by virtue of the Agreements. 74.P in his opening submissions conceded that in 2003 he learned from Lui that D2 wished for a “partner” to invest in D1’s construction works in Hong Kong, and it was on such basis that he and D2 (on behalf of D1) had discussions/negotiations and signed the Agt. This was reinforced by P’s closing submissions as follows:
In my view, P plainly knew and acknowledged the business relationship between P and D1 was the Partnership by virtue of the Agreements, and the Main Contract / Works were the sole Partnership Venture of the Partnership. 75.This was also made clear in Lui’s evidence. Under cross- examination, Lui admitted that pursuant to the Agt P “投入資本$2,000,000” whilst D1 used its Group B Contractor licence to tender for the Main Contract and carried out the Works without having to inject any capital (ie “所講嘅安排喇, 即係[P]出資, 咁[D1] ...... 即係都出牌、投標呀咁, 等等喇”), which explained why the Agt expressly provided each of P and D1 shall have one moiety of the Partnership (ie “雙方就各佔一半個股份”) and shall jointly manage the capital injected by P as well as the monies of the Works (ie “嗰個金錢嗰個大家嘅管理”). So Lui agreed “其實[the Agt]引申出嚟嘅就係大家有一個合夥嘅關係”. 76.As a matter of law, Hunter J in Chan Sau-kut & anor v Gray & Iron Construction & Engineering Co (a firm)[32] explained that “...... the law looks to the substance and not the form. It decides for itself what the effect of the contract is, and it does not give conclusive or decisive significance to the description or the label which the parties have chosen to put upon their relationship” (page 87), and held that on its true construction the joint adventure agreement in that case created a partnership with equal sharing of profits and losses even though the agreement expressly stated it “shall not constitute a partnership agreement between the parties hereto” (page 89). Thus, it is necessary to look at the substance rather than the form/label of the relationship between the parties to decide whether a business venture amounts to a partnership, and the test is whether there exists a “business in common” or “community of interest in the adventure”, and one of the paradigm feature that evidences the existence of a partnership is the sharing of business profits (see sections 3(1) and 4(c) of the PO). 77.Further, the fact that a party advances money by way of a loan and receives a share of the business profits does not necessarily preclude the court on appropriate facts/circumstances from finding a partnership relationship notwithstanding section 4(c)(iv) of the PO which provides as follows:
Hunter J in Chan Sau-kut & anor at page 88 cited Pooley v Driver[33] in which Sir George Jessel MP explained the effect of that provision in the English Act in the following terms:
78.The factual scenario of Chan Sau-kut & anor was quite similar to the circumstances in the present case that led P and D1 to enter into the Agt. In that case, the defendant signed a construction contract for carrying out certain drainage works but did not have sufficient capital to carry out the works, so it negotiated with the plaintiffs who eventually invested money in the business adventure. The parties entered into a written agreement, and the recitals provided that “...... A and B wish to cooperate in constructing drainage and service ducts in Shatin New Town stage II particulars of which are set out in the sub-contract dated 19th November 1981” (page 88). The following clauses of the agreement are of interest (page 89):
In short, there were express provisions for the plaintiffs and the defendant to share profits equally, for the plaintiffs to receive interest for their investment and for the plaintiffs to recall the invested sums. But the venture was under-capitalised and the monies ran out. The plaintiffs sued to recover the monies invested in the project, but it was held that the parties were in a partnership relationship, so the plaintiffs and the defendant had to bear all profits and losses equally. 79.The situation of P and D1 and the terms of the Agt were quite similar to that of the parties and the joint venture agreement in Chan Sau-kut & anor, which in my view had the characteristics/hallmarks of a partnership:
In my view, P’s and D1’s entitlements/obligations under Agt C3, C5 and C7 (similar to those in Chan Sau-kut & anor) and their status as joint co-signatories of the Joint Account clearly reflected business in common and community of interest. Bearing in mind the guidance that fell from Hunter J as aforesaid, I am persuaded by Ds’ contention and P’s/Lui’s concession that the Partnership was the sole business venture between P and D1 (ie the Main Contract / Works being the Partnership Venture). 80.Thirdly, I prefer Ds’ case (borne out by both Lui’s and D2’s testimony) that the Initial Capital was P’s capital investment in the Partnership and not any loan to the Partnership or to D1. P in his opening submissions claimed he could not remember the details of the Agt due to long lapse of time, but he was sure it provided for his “投資” (capital investment) at $2,000,000 and that he would receive 50% of the profits from the Main Contract / Works. When Lui was cross-examined on what he meant by “投資借貸及／或形式提供資金” for the Works (see paragraph 63 above), Lui agreed (a) “呢個係一個投資嚟嘅”, (b) “投資嘅款額” had to be returned to P pursuant to the Agt, and (c) the Initial Capital was capital investment and not loan, ie “呢$2,000,000唔係借貸 ...... 係投資 ......” and “...... $2,000,000係投資 ...... 注資入去做工程” with the first $1,000,000 to be returned within 3 months from the commencement of the Works (Agt C8). Lui frankly testified that the Initial Capital “其實就係呢個工程嘅資本嚟嘅”. I also note that in Chan Sau-kut & anor the fact that the capital investment had to be returned to the relevant partner with interest did not deter Hunter J from finding upon overall assessment of the facts/circumstances of that case that it was a partnership and not a lender/borrower relationship (see paragraph 78 above). It is also important to note that even through Agt C8 provides that $2,000,000 injected by P “是本工程雙方共同向[P]借出作為本工程的前期開辦費”, ie it was a loan by P to the Partnership comprising P and D1, both Lui and P conceded that the Initial Capital was in fact and in truth P’s capital investment and not any loan to the Partnership. This clearly showed it was the substance of the payment made in the relevant factual context that was important, and mere labels in the contract were not necessarily definitive. 81.P in his opening submissions alleged he did not read the contractual documents as he thought D2 was a responsible person, but it later transpired he was not a responsible person. It was unclear from such vague assertion whether or not P purportedly relied on any vitiating factor (eg misrepresentation, mistake, etc), but P’s pleadings / Lui’s evidence did not refer to any. It was common ground P did sign/execute the Agreements, the C&G and the Guarantee, and indeed P’s claim against Ds in the present action was premised on the vitality of these contracts. IX. FINDINGS: JOINT ACCOUNT 82.There was no dispute that on 16 December 2003 P, Lui and D2 went to NCB in Shatin to open a joint account. I find on balance that D2 gave instructions to NCB to have D1’s existing sole name account operated jointly by D1 and P. So although such account still remained in D1’s sole name, it became the Joint Account for the Partnership under the Agt. The existing authorised signatory being D2 on behalf of D1 was changed to authorised joint co-signatories being P and D2 on behalf of D1. 83.I further accept NCB needed about a week to process the aforesaid instructions, so in the meantime D1 was still able to and did on 17 December 2003 withdraw monies from the Joint Account by 2 cheques respectively for the sums of $75,000 and $20,000 (signed by D2 on behalf of D1 only and not by P) to pay (a) the cost of taking over the existing site office (left by a previous contractor) for the Engineer of the Works (“Engineer”) and (b) other preliminary expenditures of the Works. 84.There was no dispute the Joint Account was used for payments made and/or received in respect of the Main Contract / Works. Thus, I accept the Joint Account was used for withdrawal of monies therein to pay for expenditures of the Works and for receipt of (a) monthly progress payments from the Employer, (b) monies from sale of used steel materials etc, and (c) other receipts in relation to the Works. I also find the Joint Account was for receipt of P’s capital investment in the Partnership. X. INITIAL CAPITAL 85.As alluded to in paragraph 9 and footnote 3 above, P paid the Initial Capital into the Joint Account by various instalments between 16 December 2003 and 14 February 2004, which meant both P and D2 on behalf of D1 had to sign cheques to withdraw the Initial Capital or any part thereof from the Joint Account for expeditures of the Works. XI. LUI AS P’s AGENT 86.There was no dispute and the PoA dated 16 December 2003 clearly showed that pursuant to the Agt P appointed Lui as his agent to act for him in respect of the Main Contract / Works, which I have found to be the sole Partnership Venture for the Partnership. XII. PAYMENTS FROM JOINT ACCOUNT 87.There was no dispute that P and Ds adopted the practice set out in paragraph 8(a)-(c) above for issuing cheques of the Joint Account. Indeed, P in cross-examining D2 claimed “...... 咁其實關於[Joint Account], 就係當時[P]簽咗名之後就係委託[P’s]嘅代理人[Lui], [Lui]就幫[P]填寫呢個支票嘅, 咁其實初頭嗰陣時, [D2]都同意咁嘅做法嘅” to which D2 agreed. D2 in the Statement elaborated on how this arrangement came about, and on balance I accept his account set out in paragraphs 88-90 and 92-93 below. 88.D2 said (and I accept) that shortly after 17 December 2003, D1 at the site office for the Works (“Site Office”) told Lui there were expenditures of the Works to be paid, and asked Lui to tell P to sign cheques to pay the same from the Joint Account. Lui asked D2 for the Joint Account’s chequebooks (“Chequebooks”), and D2 passed 3 Chequebooks to him to arrange for P (who did not reside in Hong Kong) to sign some cheques in advance. Lui later returned the 3 Chequebooks to D2 with all 150 cheques therein signed by P (ie the Signed Blank Cheques), and until about 15 January 2004 D2 on behalf of D1 kept the Chequebooks at the Site Office. 89.Up till 15 January 2004, D2 on behalf of D1 co-signed a few Signed Blank Cheques to pay expenditures of the Works. P had no complaints except for payments to the Construction Industry Training Authority and the Occupational Safety and Health Council for short-term training courses[34] to be attended by staff of C & A (HK) Consulting Limited (formerly known as Chiu & Associates Consulting Engineers Ltd, “C&A”[35]). C&A’s staff attended such courses in late January or early February 2004. 90.Lui stated (and I accept) that in January 2004 he discovered D2 (presumably on behalf of D1) issued a cheque from the Joint Account in the sum of $90,000 odd to pay the fees for 7-8 C&A’s staff to attend training courses. At a meeting at the Site Office in early January 2004, Lui asked D2 why such course fees for persons who were not D1’s employees were defrayed from the Joint Account, and D2 explained that (a) the attendees of the courses in footnote 34(a)-(b) above were C&A site engineers assigned for the Works whose job duties required working in confined spaces and overseeing or being in charge of detection of underground power cables / gas pipes, which duties they could not perform as and when the Works progressed without relevant qualifications, (b) the attendees of the courses in footnote 34(c) above were C&A’s staff who would become safety and health supervisors to enable D1 to fulfil the requirement of employing requisite number of safety supervisors for the Works under the relevant safety regulations, and (c) D1 was eligible to apply for reimbursement of (and it would be able to recover) part of the course fees from the SME Training Fund (and D1 eventually obtained partial reimbursement in the sum of $2,779). I find on balance that after such meeting D2 did not hear further complaint about the course fees from Lui. 91.On balance I do not agree with Lui’s assertion that C&A’s staff who received safety training had nothing to do with the Works and did not work at the site for the Works at all. D2 gave a credible and reasonable account as to why training courses were required for C&A’s staff who were assigned for the Works, and I prefer his evidence. I also find that Lui well knew D2’s explanation, and that he no longer pursued the matter after hearing D2’s explanation. 92.D2 said particulars of payments for expenditures of the Works were written in a mixture of Chinese and English, so Lui (who did not understand the English language) complained he could not understand what the payments were for and he asked D2 for Chinese translation, but D2 declined as D1 could not afford the effort for such exercise. I find on balance that (a) it was for this reason that Lui asked D2 to pass the Signed Blank Cheques (together with D1’s company chop) to him, so he himself could fill out details for payments to be made, and (b) on/about 15 January 2004 D2 complied and throughout the Partnership Venture Lui kept the Chequebooks, Signed Blank Cheques and D1’s company chop together with the cheque counterfoils (“Counterfoils”). Lui agreed that P (who was ordinarily resident in Mainland China) would sign some cheques of the Joint Account in advance (ie Lui would bring the Chequebooks to P in Mainland China for his signature) and give the Signed Blank Cheques to Lui for safe-keeping. But on balance, I do not accept Lui’s evidence that he took up responsibility for safe-keeping the Chequebooks and D1’s company chop as from 7 January 2004 to prevent D1 from making like payment as the training course fees for C&A’s staff. 93.D2 explained that a practice developed that before making any payment for expenditures of the Works (other than payments for sundry expenses[36] discussed in the paragraph below), Ho would prepare and pass the necessary information and supporting documents[37] to Lui for his review/approval. If Lui was satisfied that a proposed payment was in order, he would insert the relevant amount on a Signed Blank Cheque, affix D1’s company chop thereto and take copy of the necessary information and supporting documents for record before forwarding the Signed Blank Cheques together with the supporting information and documents to D2 for his further review/signature (and Lui agreed in evidence there was such practice). D2 further explained that if Lui was not so satisfied, Lui would raise queries and withhold payment until his queries were satisfactorily addressed. 94.D2 explained that for sundry expenses, Lui and D2 would take turns (although when it was Lui’s turn he would sometimes ask Ho or Pang to take up such duty for him) to be responsible for paying such expenses. The one on duty would withdraw cash sum from the Joint Account at the beginning of each month to defray sundry expenses, and at the end of the month he would provide all supporting invoices/receipts to the other for verification. Lui also agreed this was the practice, and added that if he/D2 had to pay sundry expenses from their own pockets, monies would be withdrawn from the Joint Account for reimbursement. 95.D2 claimed the above arrangements were in place until early 2007 when P out of unfounded mistrust of D2 proposed for Pang to take over such duties, which proposal D2 disagreed (see paragraphs 25 and 30 above and paragraph 182 below), but I will return to discuss this below. 96.D2 said (and I accept) in addition to keeping the Counterfoils, Lui had access to (a) the monthly statements of the Joint Account, and (b) the financial statements, progress reports, interim payment applications, engineer certificates (“ECs”) and other documents in respect of the Works, which gave Lui/P a full picture of the financial condition and the progress of the Works. 97.D2 further gave evidence (and I accept) that in early August 2004 Lui at the Site Office told D2 (but Lui did not explain why) he wished to keep the original Main Contract documents. But D2 did not see any problem with this, so he passed such documents to Lui on 10 August 2004 as recorded on the same day in a written acknowledgement of receipt prepared by Lui. On the following day, Lui at the Site Office suggested to D2 that such original documents should be kept in a safe deposit box, and upon D2’s query explained that he feared Ds would use such original documents as security to effect borrowings. D2 was surprised by such suggestion even though Lui did not sound serious, but D2 agreed as he did not see any problem with depositing such original documents in a safe deposit box. So the original Main Contract was later deposited in a safe deposit box as recorded in a document dated 11 August 2004 prepared by Lui that was jointly signed by Lui (on behalf of P) and D2 (on behalf of D1). XIII. LUI AS GENERAL FOREMAN OF WORKS 98.D2 said (and on balance I accept) that under the Agt (a) D1 was solely in charge of supervising, controlling and managing the Works,[38] and all sub-contracts and supply/hiring/purchase/employment contracts for the Works were entered into in D1’s sole name (as the Main Contract was in the name of D1 as contractor). On balance, I reject Liu’s evidence that he was responsible for buying materials (except for his responsibility of sundry expenses) and paying workers’ wages (except for signing cheques of the Joint Account):
99.There was no dispute that pursuant to the Agt D1 employed Lui as “工程總管” (general foreman) of the Works. I find and accept the scope of Lui’s job duties included assigning work to workers and sub-contractors, supervising/monitoring their progress, checking/ verifying workers’ attendance records, and reporting to D2 from time to time (see also footnote 64 below). Lui added that his scope of job duties also included accompanying the supervisor to patrol/inspect work areas. 100.Lui’s employment as general foreman of the Works came to an end in August 2007. I will further discuss the termination of his employment as such in Part XXIV below. Suffice to state here that I find it was a result of Lui’s misconduct, but Lui remained as P’s agent to act on P’s behalf as to the Partnership Venture / Partnership. XIV. RETURN OF FIRST $1,000,000 OF INITIAL CAPITAL 101.D2 explained (and on balance I accept) it was a condition under the Main Contract that D1 shall not carry out any work on the roads until temporary traffic arrangement schemes/measures were approved by the Traffic Management Liaison Group (“TMLG”), which approval was given later than the scheduled/programmed dates due to unexpectedly prolonged consultation between TMLG and members of the Central District Board Council. As a result, progress of the Works was delayed, and not much work was done since commencement of the Works on 17 December 2003 other from some site preliminary works (eg erection of site facilities etc). Thus, even though D1 front-loaded costing for items of work to be carried out during the initial stage of the Works (as explained in paragraph 69 above), actual monthly progress payments for works done up to 16 March 2004 as certified by the Engineer were not as satisfactory as anticipated:
102.Lui in the Redacted Statement agreed that in/about March 2004 D2 told him progress of the Works was slow and progress payments were not received on schedule, so D1 did not have sufficient funds to proceed with the Works. But when he gave evidence at trial, Lui said in early April 2004 there was enough money for buying materials and paying wages with some profit, so $500,000 was returned to P from the Joint Account. I find on balance that in March/April 2004 Lui knew there was insufficient funds for proper progress of the Works. I note the credit balance of the Joint Account on 7 April 2004 (ie the day before $500,000 was returned to P from the Joint Account) was $988,823.13, but the fact there were some monies in the Joint Account did not mean there were sufficient funds to properly finance progress of the Works, especially in light of weak initial monthly progress payments from the Employer (see paragraph 101 above). 103.But despite unsatisfactory initial monthly progress payments, 50% of the first $1,000,000 of the Initial Capital (ie $500,000) was returned to P on 8 April 2004 from the Joint Account by way of 2 completed Signed Blank Cheques in the respective sums of $100,000 and $400,000 (ie similar mode of payment as the payment of expenditures of the Works from the Joint Account explained in paragraph 93 above[39]). But as seen in paragraph 13 above and paragraph 112 below, due to poor cash flow in respect of the Works, it was not until 21 January 2005 (ie almost a year after commencement of the Works or some 9 months after returning $500,000 to P) that P next received partial return of $300,000 in respect of the Capital under the Agt / 1st SAgt. XV. 1ST SAGT 104.I accept that progress of the Works did not improve in May 2004, so D1 believed that forthcoming monthly progress payments would not be enough to pay expenditures of the Works. The bank statement showed the credit balance of the Joint Account as at 7 May 2004 was only $162,362.74. It later transpired the monthly progress payment under EC No 4 paid on 11 May 2004 was only $177,518.88. 105.P’s case According to Lui’s Redacted Statement, D2 requested Lui to ask P to lend D1 the monies returned to him and to have D1 repay such re-granted loan when it would be able to do so. Lui claimed (a) he/P considered D2’s proposal acceptable as D1 was carrying out the Works (which works had already commenced) under the Main Contract from the Employer, so they agreed to P’s request, and (b) upon re-grant of the loan in respect of the returned monies to D1 with allowance for D1 to postpone repayment, it was agreed that D1 would give up its entitlement to 3% of the Contract Sum being reimbursement of expenses for the Tender and preparatory works before commencement of the Works under Agt C2. 106.But on balance I do not accept P’s case that Ds asked for and/or P re-granted a loan to D1. Rather, I find on balance that Ds asked P to re-inject the returned portion of the Initial Capital (being P’s capital investment in the Partnership) as further capital investment in the Partnership. Indeed, P in his opening submissions acknowledged D2 told him his “investment” of $2,000,000 was not enough, and Lui in his testimony agreed “之後就因為唔夠錢, 所以就要[P]再幫忙投入資金” (my emphasis) which eventually resulted in the 1st SAgt. In my view, P/Lui well knew the re-injection of the returned portion of the Initial Capital was capital investment and not loan. In the circumstances and on balance, I prefer D’s account of events leading up to the 1st SAgt in paragraphs 107-108 below and not P’s case in paragraph 105 above. 107.D’s case D2 said (and I accept) in late April or early May 2004 (ie about a month after return of $500,000 of the Initial Capital to P), he at the Site Office requested Lui to telephone and ask P to re-inject the returned $500,000 of the Initial Capital back into the Partnership as the Works were in need of funds. But Lui asked D2 to personally speak to P, so D2 telephoned to tell P (then at Haifeng, Mainland China) about the severe financial difficulty with the Works, and to ask P to come to Hong Kong for discussion. P told D2 he was busy and asked D2 to go and meet him at Haifeng to which D2 agreed, so the following day D2 went with Lui to Haifeng to meet P at a restaurant. At such meeting, D2 briefly outlined for P the progress of the Works and the delay encountered, and told P the financial situation had become very critical. D2 explained that (a) funds were urgently required for the Works which otherwise would have to stop and result in huge financial loss, but (b) the financial difficulty should be temporary and cash flow should become better when there was improvement in progress of the Works. 108.D2 said even though P was unhappy, he was still willing to re-inject the returned $500,000 on condition that D1 would give up its entitlement to 3% of the Contract Sum as reimbursement for expenses in preparing the Tender and carrying out other preparatory works prior to commencement of the Works (Agt C2), which D1 had not received up till then. D2 protested as P had previously agreed to re-inject returned monies of the Initial Capital when needed (see paragraph 69 above), especially when the poor progress of the Works was not due to D1’s fault, but P insisted on the proposed condition. D2 left for Hong Kong the following day whilst Lui stayed behind in Haifeng. D2 said Lui returned later that day and went to the Site Office to hand to him a copy of the 1st SAgt entitled “補充協議書” and dated 8 May 2004 (which Lui said was drafted by him and which P had already signed). D2 on behalf of D1 signed the 1st SAgt in order to have P re-inject the returned monies of the Initial Capital into the Partnership as further capital investment. In my view, D1 was constrained to accept the condition imposed by P that D1 forego its entitlement to 3% of the Contract Sum because the Works were short of funds and progress of such works depended upon P’s financial support. 109.1st SAgt In my view, the 1st SAgt reinforced my finding that the business venture between P and D1 was a partnership. The Agt was referred to in the recitals/clauses of the 1st SAgt, which confirmed the existence and continuation of the Partnership. 1st SAgt C2 referred to P’s injection of the Initial Capital under Agt C3 and P’s agreement to re-inject the returned monies of the Initial Capital to meet urgent expenditures of the Works. In my view, the monies so re-injected by P would have the same nature as the Initial Capital, ie P’s capital investment in the Partnership and not P’s loan to the Partnership or D1. XVI. FURTHER CAPITAL 110.Following the 1st SAgt, P deposited $400,000 (ie the Further Capital) into the Joint Account on 11 May 2004. On balance I accept when D2 asked Lui why P did not re-inject the entire returned sum of $500,000, Lui merely replied that P would do so if needed. P in his closing submissions submitted he had no obligation under 1st SAgt C2 to re-inject the entire $500,000 returned to him. But Lui gave evidence that “如需要乙方可將回收的工程開辦費用給於再投入應急費用” in 1st SAgt C2 referred to re-injection of the $500,000 of the Initial Capital that was returned to P. I find on balance it was common understanding between P/Lui and D1/D2 during discussions/negotiations for the 1st SAgt (and it was proper construction and meaning of 1st SAgt C2) that P would re-inject the entire sum of $500,000 that had been returned to him as both parties well knew the then dire financial situation of the Works / Partnership Venture and hence the need for re-injection of funds. 111.As to the nature of the Further Capital, I reiterate paragraph 109 above. At one stage in his opening submissions, P agreed he “投資” (ie invested) $400,000 by deposit into the Joint Account, but he later claimed it was his loan to D1 and not his capital investment in the Partnership. Lui in the Redacted Statement also claimed the Further Capital was loan and not capital on the basis that (a) it was clearly stated during negotiations that the Further Capital (and later the Sum) were loans and only future injections of funds would be “capital” (see 2nd SAgt C8), and (b) if the Further Capital (and later the Sum) were “capital” Ds would not have had to inter alia provide security/guarantee or pay interest to P on monthly basis under the 2nd Agt, the C&G and the Guarantee. I will return to discuss the 2nd Agt, the C&G and the Guarantee below, but Lui’s such assertions were wholly undermined by his own testimony under cross-examination that “[P]就喺04年5月11號投入咗$400,000. ...... 呢個$400,000, 其實就係 ...... 融資嚟嘅”, and that “都係[P]投入喺呢一個嘅合夥裡面嘅......資本嚟嘅”, which in my view was clear admission the Further Capital was capital investment re-injected into the Partnership. I agree with Ms Ng the Further Capital (being part of the returned portion of the Initial Capital) was of the same nature as the Initial Capital, ie capital investment in the Partnership earmarked for use in respect of the Works being the sole Partnership Venture. XVII. REPAYMENT OF CAPITAL UNDER AGT AND 1ST SAGT 112.I find on balance that despite gradual improvement progress of the Works was still not entirely satisfactory as it took time for the utility companies to arrange necessary diversions of concealed underground utility services and/or for the Engineer to re-design the Works. So the remaining balance of the first $1,000,000 of the Initial Capital was not returned to P until a partial sum of $300,000 was returned to P on 21 January 2005 (ie some 8 months after P re-injected $400,000 into the Partnership under the 1st SAgt). It took various instalments up until 21 February 2006 for the return of a total sum of $2,000,000 out of the entire Capital (ie $2,400,000) to P (see the table in paragraph 13 above and the table below), which left only $400,000 of the Initial Capital outstanding and not yet returned to P:[40]
113.P in his closing submissions claimed he had priority under the Agt for the return of the remaining $1,000,000 of the Initial Capital out of profits of the Works in half a year from commencement of the Works. But I do not accept Lui’s evidence that the sums returned to P from 20 May 2005 to 21 February 2006 were from profits of the Works. I prefer D2’s evidence there was unlikely to be any profits during such period to support any return of the remaining $1,000,000 of the Initial Capital to P. During that period, the Works were delayed (even though such delay was not caused by D1) as explained in paragraph 112 above and paragraph 114 below, which had adverse impact on the amount of the monthly progress payments received by P. As alluded to in paragraph 102 above, the fact there were monies in the Joint Account (which meant there were gross receipts and balance of the Capital that had not been spent (if at all) to pay incurred/anticipated expenditures of the Works) did not mean there were necessarily profits. In my view, P (through Lui) was fully aware of the weak cash flow of the Works and also knew there were unlikely to be any profits from 20 May 2005 to 21 February 2006, but P/Lui nevertheless withdrew a total sum of $600,000[41] (a significant portion of the remaining $1,000,000 of the Initial Capital) from the Joint Account for return to P.[42] On balance I find and accept P through Lui told D2 he needed to financially support his son’s overseas studies, so D2 did not oppose the aforesaid return of a total sum of $2,000,000 in respect of the Capital (including $600,000 of the remaining $1,000,000 of the Initial Capital) to P so long there was some cash flow for (in contra-distinction to profits from) the Works. XVIII. 2ND SAGT, C&G AND GUARANTEE 114.I find and accept that as the Works progressed many concealed underground services gradually revealed their existence, and their presence required (a) diversions by utility companies and/or (b) re-routing/re-designing new drains, manholes, culverts etc by the Engineer before D1 could carry out the Works, which led to suspension/disruption/delay of the Works. 115.D2 said (and I accept) that after $2,000,000 of the Capital had been returned to P by 21 February 2006 (see paragraph 112 above), the Works again fell into financial crisis with instances of overdrawing from the Joint Account in May 2006. There was only paltry credit balance in the Joint Acount just before receipt of each monthly progress payment under the relevant EC:
116.Lui also admitted that in/about April 2006 D2 again told him there were insufficient funds (ie “當其時亦都係因為嗰個工程嗰個資金亦都開始緊絀喇, 所以就需要錢”), and requested him to ask P to inject more funds as working capital. D2 said (and on balance I accept) that he repeatedly asked Lui to telephone/tell P to re-inject the returned monies, and that although P agreed he did not actually do so. 117.P’s case Lui by his Redacted Statement claimed he/P were concerned as this was the 2nd request for funds, so P was willing to only lend $500,000. As D1’s financial situation was unsatisfactory, Lui told D2 that D1 would have to give a floating charge over its rights in the Works under the Main Contract to P to support the return of the remaining $400,000 of the Capital and the repayment of the intended loan of $500,000 (totaling $900,000) to P, and D2 would have to give a personal guarantee to secure such return/repayment. Lui claimed D2 agreed to such request, but D2 told Lui that if D1 needed funds in future, P would inject capital and not to grant loan. Lui replied he understood, but told D2 that if D1 needed funds in future, then both P and D1 would have to invest equally so P would not have bear D1’s expenditures all the time. Lui also required that his consent be obtained before anything further was to be done in relation to the Works, and D1 was to pay interest to P at monthly rests, which was agreed to be at the prime rate of Bank of China plus 1%pa. Lui said he then instructed lawyers to draft the 2nd SAgt, the C&G and the Guarantee, which P and D1/D2 signed on 19 July 2006. 118.But Lui gave a different account of how the 2nd SAgt, the C&G and the Guarantee came about under cross-examination. He testified that during negotiations between P/Lui and Ds, P required Ds “你要出一半, 我又要出一半”, but D2 said “我冇錢” whereupon P responded that “冇錢就同我商量, 我擺落去就要 ...... 借畀你, ...... 要收利息嘅” which became the basis for the agreements signed on 19 July 2006. When this court sought to clarify the above testimony with Lui as to whether “...... 你頭先嘅證供個意思即係話, [P]本來嘅意願就想呢一個[D1]嗰面同埋[P]各自畀一半咁樣, ...... 但係因為[D1]嗰面話冇錢畀, ...... 咁所以呢$500,000全部都係[P]出咗, ...... 呢個係[P]嘅要求先喇 ......, 但最終[D1]嗰面都同意咗 .......”, Lui agreed and added that “...... 係呀, 就 ...... 已經同[D2]講明係借畀--借畀[D1]嘅, 已經同佢講明, 大家簽咗合約嘅, 係借畀[D1]嘅, 不過係擺喺呢個工程用嘅” and “攞出嚟係擺落呢個工程嘅, 就即係擺落[D1]同[P]大家合夥去做呢個工程, ...... 希望係賺到利潤喇，然後大家去評分嘅” (my emphasis). Lui said this was why eventually the Sum of $500,000 was not given to D1 as the alleged borrower but deposited in the Joint Account, which in turn meant it could only be withdrawn by P signing on the Signed Blank Cheques filled out by Lui with D1’s company chop affixed by him and D2 “最後把關” signing on behalf of D1. P said D2 agreed, so “就佢兩個人[P and D2]簽[the 2nd Agt, the C&G and the Guarantee]嘅, 簽完畀佢[D1]董事局嗰度批准嘅”. 119.Liu in re-examination by P explained further that “...... 嗰$500,000係簽咗合約係我[Lui]借畀你[P], 因為當時你[P]嗌我[Lui]再擺$500,000落去, ...... 佢[Ds]寫信畀你[P], 你[P]記唔記得呀? 你[P]特登走落嚟㗎, 走落嚟, ...... 你[P]就同佢[Ds]話「咁呀, 咁如果你要我擺$500,000去, 你咪要擺$250,000、我擺$250,000囉。」...... 佢[D2]話「我冇錢」, 冇錢, 我[Lui]擺落去就 ...... 係㗎喇, 就要收利息喇, ...... 即係借貸喇, 咁我[Lui]一樣收利息喇, 你[P]就去簽到一份合約, 佢[Ds]話「得, 得, 得」咁, 就 ...... 當時都寫埋 ...... 落去度”. P in his closing submisisons also contended that “[P]作為債權人, 共借給[D1]90萬元整[ie the Further Capital and the Sum], ...... 以上是由[P]向[D2]借出的, 然後[D1]再將資金使用, 而非[P]作為直接注資作為本工程使用。所以借款合約並沒有以合夥生意作為一個主體向[P]借款”. 120.On balance, I reject Lui’s account of how the 2nd SAgt, the C&G and the Guarantee came about. For proper understanding of the relevant analysis/discussions, one must keep in mind the 2 (or possibly 3) distinct contractual relationships even though they all involved the Works / Main Contract:
121.Once the above distinct contractual relationships were understood, my rejection of Lui’s account of how the 2nd SAgt, the C&G and the Guarantee came about insofar as it contradicted D2’s account set out in paragraphs 122-130 below is readily understood:
122.Ds’ case By a letter dated 22 April 2006 to P with copy to Lui (“22/4/06 Letter”), D1 requested P to urgently deposit $400,000 into the Joint Account by 30 April 2006 as there were insufficient monies to pay expenditures of the Work (some of which were overdue) shown in an enclosed statement of income and expenditure for the Works:
This showed D1’s request to P was made under 1st SAgt C2 for re-injection the portion of the Capital returned to P, and the re-injected sum was to be for urgent expenditures of the Works being the Partnership Venture. 123.D2 explained (and on balance I accept) that in/about end of April 2006, whilst D1 waited for P to deposit $400,000 into the Joint Account, Lui at the Site Office asked D2 for a copy of D1’s audited accounts. Such audited accounts had nothing to do with the Partnership Venture, but to avoid unnecessary argument D2 gave Lui a copy of D1’s then latest audited accounts for the year ended 31 March 2005 (“Audited Accounts”). About a day or so later, Lui came to the Site Office to tell D2 he had grave concern over the “suspicious” debt of $973,217.61 (“Debt”) in the Audit Accounts and claimed he was not aware the Debt had been incurred for the Works. D2 told him only part of the Debt was related to the Works, but that part had been paid in 2005 (ie after the date of the Audited Accounts). Lui remained sceptical despite such explanation. Lui gave evidence under cross-examination that “......佢檯面擺住六、七張啲銀行追款啲--啲--我問過佢㗎，啲信喺度，跟住我嗌嗰啲會計師行都喺度，會查查佢爭人九十七萬幾，但係佢急住要錢用，嗰陣時，急住要錢用，......” By a letter dated 2 May 2006, P wrote to Ds to express his suspicion that the Audited Accounts did not reflect D1’s true accounts, and required D1 to provide him the 2004/2005 management accounts for the Works. D2 did not see any ground for the alleged suspicion, but nevertheless provided such management accounts to Lui. 124.In my view, there was nothing in P’s/Lui’s alleged suspicions. First, D1 had been upfront and provided accounts as Lui/P required. Secondly, D2 had credibly answered Lui’s queries. Thirdly, clause 3 of the recitals of the Draft Agt referred to in the paragraph below (prepared by P’s lawyers and given by P to D1) stated P had read the Audited Accounts which revealed the Debt, and clause 2(2) of the Draft Agt provided that “[D1]就此[Main Contract]所獲的利潤或權益將首先用作償還該核數師報告披露[D1’s]負債HK$973,271.61及其衍生的利息”. The 2nd SAgt drafted by P’s lawyers and eventually signed by P and D1 also provided that the Debt and interest thereon were to be reimbursed from D1’s share of the profits/interest from the Main Contract, and P would not be responsible for the Debt (2nd SAgt C5). The Debt being D1’s own indebtedness shown in the Audited Accounts would be settled out of its own (and not P’s) profits and interests from the Partnership. D1 did not suggest P would have any liability in respect of the Debt, and any concern P had in this respect was unfounded. In any event, P and D1 had resolved any “suspicion” over the Debt by making clear it was not P’s responsibility. Fourthly, the Debt was not an issue at trial as P did not plead any claim and/or adduce any evidence from Lui or otherwise about the Debt. 125.I find and accept that in/about mid- or late May 2006 Lui at the Site Office gave D2 a draft agreement (“Draft Agt”) for his consideration. In such draft agreement, P proposed that as a condition for his granting a loan, (a) D1 shall appoint Lui and his wife Lui Yuet Ming (呂月明, “Lui Wife”) as D1’s permanent directors, and they would resign from such position 14 days after the Employer settled all payments for the Works, and (b) upon their appointment as permanent directors of D1 all of D1’s existing directors except D2 shall immediately resign from their position:
126.In my view, it was not surprising D2 was very upset by the proposed condition that would effectively confer upon Lui/P complete control of D1. So by a letter dated 30 May 2006 to P, D2 on behalf of D1 referred to the Agt and pointed out that $1,600,000 of the Initial Capital had been returned to him, and further stated that “[D1]為了希望[P]履行責任提供資金, 在迫不得以的情況簽署了[1st SAgt], 內容如下: (i) [D1]不得取[Contract Sum]中3%。(ii) [P]需再投入資金作工程之費用。但是[P]依然沒有根據協議, 投入資金。而最近[P]的代表[Lui]要求[D1]簽署一份不平等的合約來換取[P]的資金。因此[D1]認為[P]已完全破壞了雙方合作的原意及嚴重違反上述所訂立之協議。鑑於[P]多次違反雙方訂立的合作協議, 令到工程資金不足, 嚴重影響工程運作, 現[D1]顧及雙方友好, 給予[P]最後通知, 請[P]於信寫起7天內投入港幣四十萬元作工程之費用, 否則雙方所訂之合作協議會自動失效”.[43] 127.By a letter dated 1 June 2006, P replied to deny he was in breach of any agreement, and pointed out inter alia that (a) D2 on behalf of D1 agreed to waive its entitlement to 3% of the Contract Sum, (b) P had re-injected the Further Capital on 11 May 2004 so there was no breach of the Agt on his part, (c) 1st SAgt C2 gave P absolute discretion whether or not to re-inject the portion of the Capital that had been returned to him, so D1’s request and/or P’s refusal was not any breach of the Agt / 1st SAgt, (d) P did not force D1 to enter into the 1st SAgt, and D1’s board of directors had carefully considered and authorised D2 to execute the 1st SAgt, and (e) P considered the severe capital shortage was due to C&A’s excessive monthly consultation fee of $94,000 under D1’s agreement with C&A of 17 December 2003 (ie made 2 days after the P and D1 signed the Agt) (see footnote 35 above), but P was not consulted beforehand on C&A’s appointment. So in the letter P stated that “本著雙方的合作關係, 現建議如下:”
128.On balance, I accept D2’s explanation that C&A’s monthly fee of $94,000 was not excessive in view of the scope of works mentioned the written agreement for provision of management services dated 17 December 2003 between D1 and C&A (see also footnote 35 above).[45] I further accept D2’s evidence that when on one occasion Lui told him C&A’s consulting fees were high, D2 invited Lui to find a replacement with lower rates, but neither Lui nor P ever proposed any concrete alternative.[46] In any event, P did not adduce any evidence to support his/Lui’s bare assertion that C&A’s fees were high/excessive. 129.On balance I accept that in/about late June or early July 2006 D2 met Lui/P at P’s office in Haifeng to discuss the Draft Agt, and D2 told P he could not accept the condition of appointing Lui and Lui Wife as D1’s permanent directors. As there was not much progress in negotiations, D2 returned to Hong Kong that evening and Lui returned to Hong Kong the following day. D2 continued to discuss/negotiate with Lui, but D2 made clear to Lui that appointing him and Lui Wife as D1’s permanent directors would be out of the question. Eventually, P no longer insisted upon such condition, and D2 did not raise other objection so as not to antagonise P. By that time, the Works were in urgent need of funds. But I find on balance that P and D1 knew the Sum was not for D1 personally but for their Partnership to fund and carry out the Works being the sole Partnership Venture (see also paragraphs 120-121 above). 130.So on 19 July 2016, D2 went to the offices of P’s solicitors where he saw P, Lui and others, and there he signed the 2nd SAgt, the C&G and the Guarantee whereupon Lui gave a Signed Blank Cheque (with P’s signature and D1’s company chop affixed) payable to P’s solicitors for $42,000 for D2 to sign.[47] XIX. SUM 131.On 22 July 2006, P deposited $500,000 (ie the Sum) into the Joint Account. To date, the Further Capital and the Sum were not yet returned to P. As discussed below and I find on balance Lui/P knew there were hardly any profits or surplus from the monthly progress payments of the Works to permit such repayment. 132.P in his opening submissions claimed the Further Capital and the Sum were loans in contra-distinction to the Initial Capital which he acknowledged was capital investment, and he pointed to 2nd SAgt C7 which provided that the Sum being “額外借貸” (additional loan) together with $400,000 being the portion of the Initial Capital that had not been returned to P (ie “[P]借給[Main Contract]首期付款未收回的金額”) were secured by a floating charge. But in my view, even though the Initial Capital was described as “loan” in Agt C8, Lui conceded in evidence (and I have found) it was in fact P’s capital investment in the Partnership, so the label of “loan” (particularly when such label was given ex post facto in 2nd SAgt C7, 2nd SAgt C9 and C&G C2(1)) adopted in the Agreements was not definitive (see paragraph 80 above). Ultimately, it was the true nature (as a matter of substance rather than a matter of label) of the Initial Capital and the Sum that P deposited in the Joint Account when viewed against the entire factual context that mattered. I note with interest there was no mention of “loan” in the 1st SAgt, and the Further Capital was conceded by Lui (and I have found) to be capital and not loan. I also note it was not P’s pleaded case and/or Lui’s evidence that the nature of the Initial Capital under the Agt was altered by reason of the 2nd SAgt and the C&G. 133.In my view, the fact that by the 2nd SAgt the 2 partners P and D1 agreed (as part of the bargain for P’s contribution of the Sum) to augment the obligation to return the remaining $400,000 of the Initial Capital to P (which could not be returned to P at that time because of the poor state of the Partnership’s finances) by payment of interest and other security (eg floating charge and/or guarantee) would not change its true nature as capital investment in the Partnership. I also note that notwithstanding the provision for payment of interest in clause 6 of the joint venture agreement in Chan Sau-kut & anor (see paragraph 78 above), it was held at page 90 that the invested sum of $400,000 in that case was capital and not loan:
Further, as seen in paragraph 17 above, both P and D1 knew (and in actual fact) the interest would be paid from the Partnership’s funds in the Joint Account. In the circumstances, it was quite clear that $400,000 (ie the portion of the Initial Capital not yet been returned to P) was capital and not loan, which clearly demonstrated that the labels adopted in the 2nd SAgt, the C&G and the Guarantee as to the sum of $900,000 must be viewed with caution. 134.Turning to the Sum, Ms Ng argued the Sum deposited in the Joint Account was in nature P’s capital investment in the Partnership (similar to the Initial/Further Capital under the Agt and 1st SAgt) despite the use of the word “loan” in Agt C8 and the word “lent” in 2nd SAgt C7 and the charge of interest under C&G C2(4) because (a) (as Lui conceded) the Further Capital was deposited in the Joint Account for the purpose of the Partnership to defray expenditures of the Works, (b) clauses 1-2 of the recitals in the 2nd SAgt referred to the Agt and 1st SAgt that concerned P’s capital investments in the Partnership (ie the Initial/Further Capital), and (c) clause 3 of the recitals of the 2nd SAgt referred to a request for P to “further inject money” into the Main Contract to defray construction costs.[48] 135.On the other hand, P in his closing submissions contended that “[D1]亦按[C&G C2(4)]每月支付[P]12個月利息。以上[$900,000, ie the portion of the Initial Capital not yet returned to P ($400,000) and the Sum ($500,000)]是由[P]向[D1]借出的, 然後[D1]再將資金使用, 而非[P]作為直接注資作為本工程使用。所以借款合約並沒有以合夥生意作為一個主體向[P]借款。如果這90萬元不是[D1]向[P]借的, 而是向另外一個借款人借的, 同時由[D2]擔保, [D1]或[D2]是不可以說債務是股本, 在本例中, 只是恰好[P]是合夥人同時也是債權人, 這並不沖突和影響[P’s]權益”. 136.In my view, notwithstanding Ms Ng’s skilful arguments, I am convinced the Sum was a loan and not capital investment by P. Ms Ng contended that since (a) P tied the portion of the Initial Capital not yet returned to P ($400,000) together with the Sum and collectively described them as “loan” and (b) Lui conceded the former was capital and not loan, it followed that the Sum (being “additional to” the Capital) would have been capital investment in and not loan to the Partnership. But whilst I accept Lui readily acknowledged the Initial/Further Capital to be P’s capital investment, even on Ds’ account of the events up to and including the signing of the 2nd SAgt, the C&G and Guarantee, P had concerns over contributing further funds (ie the Sum) for the Main Contract / Works. P labelled the sum of $900,000 as loan in the 2nd SAgt.[49] Although I have found it to be a poor (and unsuccessful) attempt to twist the true/admitted nature of the Initial Capital (of which $400,000 had not been returned to P), I note that according to Lui P borrowed $500,000 from him on interest-bearing basis and asked him to deposit such borrowed sum of $500,000 into the Joint Account to enable P to meet his own obligation to contribute the Sum vis-à-vis the Partnership. This background context lent weight to the view that the Sum P contributed to the Partnership and earmarked for the Works[50] was a loan, and it also explained why on this occasion (in contra-distinction to the occasions for making the Agt and the 1st SAgt) security by way of a floating charge over D1’s interests in the Main Contract / Works,[51] guarantee by D2[52] and payment of interest[53] were required, and it was even foreshadowed that future monetary contribution (if funds for the Works would again run short) for the Works under the Main Contract would have to be injected by P and D1 in equal shares.[54] These matters reflected P’s wariness in relation to further finance for the Partnership Venture, and I find on balance that even though P agreed to contribute the Sum (which he borrowed from Lui) for such purpose, there was a change in the nature of such contribution from capital to loan investment with warning that in future P would no longer be solely responsible for financially supporting the Partnership Venture and would require equal financial contribution by both partners P and D1. I think the Sum reflected a change to P’s approach. 137.Indeed, Lui testified under cross-examination he knew of the partnership relationship between P and D1 over the Main Contract / the Works, but he was firm that even though the Sum in 2nd SAgt C7 was “作工程費之用” (with interest payable thereon and with security by way of the charge and the guarantee), it was not P’s capital investment in the Partnership. In the Redacted Statement, Lui pointed out that if the Sum were capital investment, Ds would not have to provide security by way of floating charge and guarantee and/or pay interest on monthly rest to P. Whilst such security and interest would not be necessarily definitive, I believe that P was concerned the Works needed further funding from him and he had to borrow for such purpose, so the Sum was provided on the basis it was loan rather than capital to be secured by the charge and the guarantee, and P through solicitors seized the opportunity to capture the remaining $400,000 of the Initial Capital that had not been returned to him as yet within the securities. 138.In fact, D2 himself also admitted the Sum was loan and not capital. D2 testified under cross-examination that D1 and P as partners signed the 2nd SAgt, and also “承認呢間公司問[P]借咗$500,000喇 ......”, clarifying that “呢間公司” referred to the Partnership that carried out the Works being the sole Partnership Venture, which meant the Partnership borrowed $500,000 from P and D2 “就係作為本借款嘅擔保人”. I will return below to the issue of who was the borrower of the Sum, but it was clear that D2 in evidence agreed the Sum was loan and not capital. 139.I have explained in paragraphs 120-121 above and reiterate here that P/Lui well knew the Sum was a loan to the Partnership and not to D1 notwithstanding the terms of the 2nd SAgt, the C&G and the Guarantee. D2 testified (and on balance I accept) that “呢啲錢[ie the Sum]係[P]再次落去我哋聯營合作生意嗰度, 聯營戶口嗰度嘅錢嚟”, and “[P]再攞番啲資本落呢個我哋聯名戶口, 講咗要支付[P]嘅利息 ...... [P]要求再次攞番錢, 要收利息, 借畀我哋聯合嗰個聯營--聯合合作嗰單工程嗰度要支付利息嘅”. This was also borne out by express terms in the 2nd SAgt and the C&G:
140.As Ms Ng submitted, if the Sum were a personal loan to D1 rather than to the Partnership, then repayment of the Sum to P should be made by D1 personally and not from the Partnership monies being the surplus/profits from the monthly progress payments of the Works that were to be deposited in the Joint Account in which P and D1 as equal partners had equal interest (as confirmed in 2nd SAgt C12). It made no commercial or common sense for P to receive repayment of his own loan to D1 from monies in which he himself had interest. Moreover, P should have sought/received interest from D1 and not from the Partnership (ie the partnership monies in the Joint Account). If P and D1 jointly as partners withdrew monies from the Joint Account to pay interest on the capital/loan from P (which was what actually happened – see paragraph 17 above), it would mean P was paying interest to himself from its own 50% moiety interest in the partnership monies, which did not make sense at all. In my view, these matters amounted to strong evidence that to P’s/Lui’s[55] knowledge the borrower was the Partnership and not D1 notwithstanding other terms in the 2nd SAgt, the C&G and the Guarantee. 141.Further, the tenor of the 2nd SAgt and the C&G was long on matters of the Partnership with reference to the Joint Account in 2nd SAgt C10, written consent by both partners for matters of the Main Contract in 2nd SAgt C11, and involvement of Lui and D2 on behalf of the respective partners in respect of matters of the Main Contract in 2nd SAgt C13. Indeed, P in his closing submissions referred to these clauses and emphasised P and D1 were equal partners in the Partnership, “因此, 本合夥生意中, 如遇到經營管理決策有不同的意見, [D1]沒權逾越合約, 逾越法律, 向[P]做出沒有依據的工作上的指令” and “相反的, [P]也是沒有任何權利制造爭端, 利用爭端, 單方面去解僱[D2]請的員工, 去逐出[D2], 作為本工程合夥人, 而自已繼續將工程據為已有, 繼續經營”, so “任何經營管理爭端, 是需要通過協調, 協商, 或者用其他合法的方式解決爭端, 而不是粗暴的單方面解僱[P]任命的職員, 更改銀行戶口, 利用職務便利, 違反合約, 違反[PO], 單方做出終止合同, 奪取[P’s]50%的權益, 這樣稱做法與強取豪奪無異”. Whilst I will deal with the allegations of breach of the partnership relationship below, I note here that there would have been no point in underlining the partnership co-operation betewen P and D1 if the portion of the Initial Capital not yet returned to P ($400,000) and the Sum ($500,000) were just personal loan from P to D1, “然後[D1]再將資金使用, 而非[P]作為直接注資作為本工程使用”. I also see no commercial reason for D1 to borrow the Sum from P and then invest the borrowed Sum in the Partnership when P and D1 were equal partners as P alleged. 142.For all of the above reasons, I find on balance that the true nature of the Sum was P’s loan to the Partnership. XX. LEGAL EFFECT OF LOAN OF SUM TO PARTNERSHIP 143.In Green v Hertzog & ors,[56] after the partnership business had been wound up, one of the partners bought an action to recover from two of the former partners and the personal representative of a third deceased partner the total or alternatively ¾ of the sums she advanced to the partnership, which she claimed as money lent by her to the partners or the partnership. The English Court of Appeal held that the action to recover money lent was misconceived as no action could lie against the partners individually since the liabilities of the partners were joint, and money lent to a partnership of which the person advancing the money was a partner could only be recovered in proceedings for taking accounts in accordance with the English equivalent of section 46 of the PO. Lord Goddard CJ said at page 1312 as follows:
The aforesaid principle was applied by Hunter J in Chan Sau-kut & anor where he said at page 87 as follows:
Further, DHCJ Lam (as he then was) explained the rationale for taking a partnership account in Leung Wing Yiu v Siu King Yuen & ors,[57] and went on to say as follows at pages 28-29:
144.Based on the aforesaid legal principles and given my finding that the Initial Capital (including $400,000 thereof that had not been returned to P) was P’s capital investment in the Partnership and the Sum was a loan by P to the Partnership, P’s action against D1 for recovery of the sum of $900,000 was misconceived. The result would be the same even if the Initial Capital (including $400,000 thereof that had not been returned to P) were a loan to the Partnership. There must be taking of partnership accounts before it can be ascertained whether P will have any recovery from the Partnership. 145.As for the taking of partnership accounts, section 46 of the PO provides for an order of priority of payment out on dissolution as follows:
Distinction is drawn between a partner’s advance (section 46(b)(ii) of the PO) and a partner’s capital (section 46(b)(iii) of the PO), and the former has priority for payment over the latter from the assets of the partnership firm. 146.Given that the Sum was an advance to the Partnership by P and $400,000 out of the Initial Capital was capital P injected in the Partnership, it is only a matter of priority of payment to P (if any) after taking accounts. XXI. LEGAL EFFECT ON C&G AND GUARANTEE 147.In light of the above findings that the remaining balance of the Initial Capital ($400,000) was P’s capital investment in the Partnership and the Sum ($500,000) was P’s loan to the Partnership, there was no debt due and payable to P as at the commencement and/or at the trial of the present action before the taking of the Partnership’s accounts because (as explained in paragraphs 145-146 above) the Sum ($500,000) would be repaid out of the Partnership assets (if any) after settling debts and liabilities of the Partnership to third parties, and the remaining $400,000 of the Initial Capital not yet returned to P would be repaid out of the Partnership assets (if any) after settling the debts and liabilities of the Partnership to third parties and rateably paying P’s advances and D1’s advances (if any) to the Partnership. That being the case, there was as yet no debt owed by the Partnership that was due and payable to P (and D1 did not personally owe P any debt), so the charge under the C&G was not crystallised and/or enforceable, and D2’s liability as guarantor under the C&G and the Guarantee had not become effective. In any event, liability under the charge in the C&G was only to the extent of D1’s liability to the Partnership as determined by taking accounts of the Partnership, and liability under the Guarantee was only to the extent of D1’s liability to the Partnership as determined by taking accounts of the Partnership that remained upaid. In my view, there was no presently viable claim against D1 and D2, and P’s present action against D1 and D2 fell to be dismissed. XXII. ALLEGED BREACH OF AGREEMENTS 148.Without prejudice to such findings/conclusion, I note with interest that in 2nd SAgt C9 the so-called loan of $900,000, which I have found to be partly P’s capital investment in the Partnership ($400,000) and P’s loan to the Partnership ($500,000), was to be returned to P from the profits/surplus of the monthly progress payments, but if there was no such profits/surplus, it was to be repaid upon completion of all works and additional works of the Main Contract (but excluding the maintenance period). But as seen below, the Partnership Venture continued to be financially constrained, and there were no profits/surplus from the monthly progress payments of the Works. P in his pleadings admitted the additional works were scheduled to be completed in August 2008 (see footnote 1 above), and D2 gave evidence (which I accept) that the Works were actually completed in October 2008 (see Part XXXII below). This meant that even if D1 were obliged to repay $900,000 to P (which I disagree), such sum was not yet due for repayment at the time when the writ of summons in the present action was issued on 26 October 2007. 149.But P claimed (and D1 denied) that notwithstanding the matters in the above paragraph, D1 was in breach of the Agreements as follows which therefore entitled P to accept D1’s repudiation and to sue D1 for repayment of $900,000, liquidated damages (Agt C3), profits (2nd SAgt C12) and/or Contract Sum (2nd SAgt C14) (see paragraph 42 above):
150.On the other hand, D1 claimed it was P who was in breach of his obligations as partner of the Partnership and also the Implied Terms in failing to facilitate issuance of cheques of the Joint Account to pay expenditures of the Works and/or to contribute his share to fund the Works. 151.Without prejudice to the aforesaid findings/conclusion in respect of P’s claim against Ds (see paragraphs 147-148 above), I shall proceed to consider the aforesaid disputes. 152.But before I do so, I shall say a few words on the duty of good faith that each partner owed to other partner(s) in a partnership. In Kao Lee & Yip v Koo Hoi Yan & ors,[58] it was held that a partnership is a classic fiduciary relationship, and the standard for the duty of good faith required of partners is high:
I agree with Ms Ng that P and D1 as partners of the Partnership were bound to act with utmost good faith to bring the Main Contract / Works to completion with a view to generate profits for common sharing and not to act unreasonably to jeopardise the successful completion of the Main Contract / Works. XXIII. INTEREST PAYMENT 153.There was no dispute that (a) interest was payable on the sum of $900,000,[59] (b) the interest rate was the prime rate of Bank of China plus 1%pa, and (c) the amounts of monthly interest payments pursuant to C&G C2(4) were as set out in paragraph 17 above. The only dispute was when each monthly interest payment became due and payable under the provision “按月第1個工作日收利息”, ie interest in advance on the 1st day of the very month of the interest period (eg 1st January for interest period from 1to 31 January) as P contended, or interest in arear on the 1st day of the month following the interest period (eg 1 February for the interest period from 1 to 31 January) as Ds contended. 154.Lui in the Redacted Statement claimed that at almost the same time each month he would calculate the amount of interest and fill out the interest amount on a Signed Blank Cheque which Lui (on day-shift) would give to D2 (on night-shift) via Ho (whose working hours overlapped with those of Lui and D2) for D2’s signature thereon on behalf of D1, and Lui would then affix D1’s company chop on such cheque and deposit it in P’s bank account. D2 also agreed that from time to time Lui (or via Ho) would pass Signed Blank Cheques with relevant amounts of interest stated thereon and with D1’s company chop affixed thereto for D2 to sign (which D2 did) on D1’s behalf. The slight difference in their evidence as to when D1’s company chop was affixed was immaterial. 155.As seen in paragraph 17 above, the total amount of monthly interest payments to P from the Joint Account was $92,600.80. Despite Lui’s claim that $900,000 referred to in the 2nd SAgt and the C&G was a personal loan to D1, all along monthly interest payments were paid to P not by D1 and/or D2 but by the Partnership from the partnership monies in the Joint Account. This strongly showed (as I have found) the Initial Capital and the Sum were not loans to D1. 156.Lui’s Redacted Statement claimed the monthly interest to be collected on the first day of each month was interest in advance for that month, but if there were insufficient monies in the Joint Account, he would collect interest after the 1st day of the month. Lui said under cross-examination that “...... 合約就點講囉, 就話我哋利息, 呢個月嘅利息就係呢個月第一個工作日收嘅, 有份合約係咁寫嘅。...... 即係譬如呢個月啲--啲利息就 -- 1號就--我就要收呢個月嘅 ......” and “...... 因為佢啲合約就係咁寫, 係譬如7月份啲利息, 我喺7月份第一個工作日, 我就要收, ...... 因為係 ...... 嗰個月嘅第一個工作日之嘛, ...... 即係呢個月第一個工作日, 我就認為係1號, ......我啲理解係咁”. 157.2nd SAgt C9 provided the sum of $900,000 would be returned from surplus/profits of the monthly progress payments of the Works (if any). When this court asked Lui whether the calculation of the monthly interest (which he said was payable in advance on the 1st day of the month) would be affected by any partial repayment (that would reduce the outstanding sum) during that month, Lui insisted he would not overcharge interest. But when the court pressed with an illustrative example, ie “...... 用一個簡單嘅例子喇, 欠款係100鈫, 到月中喇我還咗40鈫, 咁係咪到過咗15號喇, 還咗款喇, 由16號開始, 利息就以60鈫嘅欠款嚟計呀 ......”, Lui insisted “即係嗰個月不理會有冇還款, 都係一樣咁樣計利息, 都係用100鈫嚟計嘅”. 158.In my view, there is no merit to Lui’s/P’s contention. “Interest is the return or compensation for the use or retention by one person of a sum of money belonging to or owed to another person. Interest accrues from day to day even if payable only at intervals, and is, therefore, apportionable in respect of time between persons entitled in succession to the principal” (my emphasis).[60] “If the principal debt is ...... discharged by payment, or if the amount due is tendered, interest ceases to run from that date, but outstanding arrears may still be claimed if they could not have been recovered in the claim”.[61] This showed that interest is payable when accrued, and if any part of the principal is repaid, the interest on the repaid portion of the principal ceases to run. In such circumstances, interest is plainly payable in arrear on the 1st day of the month following the interest period. In my view, this is what “按月第1個工作日收利息” in C&G C2(4) (which contained no express reference as to whether interest payment was on the 1st day in advance or in arrear) meant, so (as illustration) interest for the period from 1 to 31 January would be payable on 1 February. No credible explanation was given as to why interest would be payable on any returned monies for the rest of the month after partial return to P within the month. 159.There was no dispute that on/about 18 September 2007 Lui via Ho requested D2 on behalf of D1 to sign the Cheque to pay P the monthly interest for 1-30 September 2007 in the sum of $6,842.50,[62] and that D2 declined to co-sign the Cheque. However, by reason of the above discussions (despite Lui’s disagreement), monthly interest payable for the interest period of 1-30 September 2007 was not due and/or payable on 18 September 2007 but on 1 October 2007. In my view, P’s/Lui’s demand for such interest on 18 September 2007 was premature. 160.The above legal and contractual position generally coincided with what actually happened. In fact, for the interest periods from July 2006 to August 2007, monthly interest payments were made in arrear (ie on or after the 1st day of the following month) except for the interest periods of June and August 2007. D2 believed (and on balance I accept) he probably signed the Signed Blank Cheques to effect payment of the June and August 2007 monthly interest respectively on 21 June and 17 August 2007, ie before the due dates on 1 July and 1 September 2007, due to administrative slips that he was not aware of at the time upon presentation of the Signed Blank Cheques by Lui via Ho. There was no dispute that D1 declined to sign the Cheque dated 18 September 2007, but since the due date for payment of monthly interest for September 2007 fell on 1 October 2007, D1’s refusal to pay interest for September 2007 in the sum of $6,842.50 upon demand by P on 18 September 2007 was not any breach of the Agreements, which were terminated on 20 September 2007 by D1 by way of the 20/9/07 Letter (see paragraph 193 below). 161.I note P commenced the present action on 26 October 2007, so no further interest was paid, and such interest would be accounted for by taking accounts upon dissolution of the Partnership. XXIV. TERMINATION OF LUI AS GENERAL FOREMAN 162.P in his opening submission noted D2 was dissatisfied with Lui’s performance. On balance, I accept D2’s account of the events that led to dismissal of Lui as the general foreman of the Works in paragraphs 163-169 below. 163.D2 explained that under the Main Contract D1 was permitted to carry out the Works only between 9:00pm and 6:00am to avoid/ minimise disruption to traffic in Central, Hong Kong. To speed up progress of the Works, D1 applied to the Engineer for permission to enlarge the working hours to any time except rush hours between 6:00pm and 9:00pm, which the Engineer eventually granted in/about May 2004 when he was satisfied with the temporary traffic arrangement schemes proposed by D1. It was then arranged for D2 to work the day-shift as person-in-charge between 8:00am and 6:00pm with lunch break from 12:00 noon to 1:00pm, and for Lui to work the night-shift as person-in-charge from 9:00pm to 6:00am with tea break from 1:00am to 1:30am. As the Works progressed, major construction works were carried out during the night-shift, but D2 claimed (and on balance I accept) Lui was unable to cope with the same. So about 3-4 months later, D2 began to work the night-shift while Lui worked the day-shift. 164.D2 said (and on balance I find) he and Lui shared the same duties when they worked on shifts, but D2 was responsible for overall supervision, control and management of the Works, so sometimes D2 would stay behind after end of the night-shift until about 11:00am to attend to matters in relation to the Works[63] before he went home for a brief rest to prepare himself for the next night-shift, or D2 would go home right after the end of the night-shift and return to the site at about 3:00pm to deal with such matters. 165.D2 recalled (and on balance I accept) that since working the day-shift Lui’s performance as general foreman of the Works turned unsatisfactory, eg he was late for work, he adopted a lax working attitude, he was remiss in carrying out his duties, etc. Worse still, his arrogance and display of superiority upset colleagues/workers that led to quarrel/argument incidents. Although Lui would behave for a while upon D2’s verbal complaint/reminder, he would soon lapse back into misbehaviour such that D2 had to repeat such complaint/reminder, and to tell P to put a rein on his arrogance. 166.D2 further recalled (and on balance I accept) that in/about late 2004 Lui quarrelled with the Engineer Michael Lau (“Lau”) at the site, and in the heat of the moment Lui tore up his T-shirt, so when D2 returned to the site that evening for the night-shift, Lau reported the incident to D2 and said he would report to the police for assault by Lui, which Lau agreed to withhold only when D2 promised to look into the matter. Later that evening, D2 at the Site Office asked Lui about his confrontation with Lau, but Lui disdainfully told D2 to leave it to him and he would handle the matter himself. D2 immediately telephoned P in Haifeng to express his deep concern about the seriousness of the incident, but when D2 asked P to talk to Lui about his overbearing attitude, P refused and told D2 to sort out the matter with Lui directly. D2 said Lui was quite different from the Lui he knew when previously employed as D1’s foreman at the construction project in Tung Chung in 1998. D2 said back then Lui was not arrogant and did not have poor working attitude. 167.I accept D2’s evidence that despite repeated complaints/ reminders, Lui’s unsatisfactory performance, poor working attitude and sheer arrogance did not improve, and in fact worsened after the 2nd SAgt. But Ds still kept Lui on as general foreman for the time because the Works were behind schedule and Ds could not afford to waste time to find a replacement and to have the newcomer spend time to familiarise himself with the Works before taking up Lui’s job duties. But D2 said (and on balance I find) that from/about late July or early August 2007 Lui repeatedly committed serious misconduct as follows, so D1 had no alternative but to terminate his employment as general foreman of the Works on 22 August 2007 by the 22/8/07 Letter:
In short, D2 claimed (and on balance I accept) Lui completely failed and/or refused to perform and/or discharge his job duties as general foreman of the Works. 168.I also accept and find that time and again D2 spoke to Lui about his poor performance and gave him verbal warnings, and whilst Lui initially took heed of such warnings, later on he just ignored them. In/about mid-August 2007, D2 telephoned P in Mainland China to discuss the seriousness of Lui’s misconduct, but P did not seem to care about the particulars D2 gave and even dismissed them as bickering between Lui and D2. D2 was frustrated and asked P to come to Hong Kong to see for himself. At first P refused but later yielded to D2’s insistent demand. But D2 did not see P in the following 3 days, so he telephoned P again whereupon P said he was still waiting for travelling documents and was not sure when he would be able to come to Hong Kong. D2 told P that Lui’s misconduct had to be resolved immediately as progress of the Works were in full swing, and if P did not deal with the matter seriously he had no alternative but to fire Lui. On hearing that P just hung up, and D2 did not see him afterwards. 169.D2 recalled (and on balance I accept) that about a day or so before terminating Lui’s employment as general foreman of the Works, D2 met Lui at the Site Office and told Lui if he continued his misconduct he would be dismissed, but Lui replied with words to the effect of “so be it”. As P did not care and there was no improvement on the part of Lui, D1 decided to dismiss Lui as general foreman of the Works. On 22 August 2007 D1 by the 22/8/07 Letter terminated Lui’s employment as general foreman of the Works, and on the same day D1 posted the 22/8/07 Notice at the Site Office to inform the Engineer, the sub-contractors, the suppliers, the workers, etc that Lui’s employment as general foreman of the Works had been terminated and his duties would be temporarily taken up by D2 with immediate effect. Upon cross-exmaination, D2 confirmed such termination cover “任何” job duties of Lui as general foreman of the Works (for which Lui was appointed pursuant to Agt C9). D2 said (and I accept) Lui’s misconduct and/or dilatory performance meant the Works during the day-shift did not have proper supervision, which disrupted progress of the Work, and terminating Lui’s employment as general foreman of the Works would ensure the Main Contract / Works (being the only Partnership Venture), which had already suffered serious delay, would be duly and successfully completed. After D1 terminated Lui’s employment, D2 forthwith assigned the ganger Chan Kam Chuen to take up Lui’s job duties even though it would increase workload and stress on the existing supervisory staff in respect of the Works. 170.P claimed D2’s allegations were “designed to purportedly justify the wrongful determination”. Lui in the Redacted Statement claimed he worked the day-shift as general foreman of the Works from 8:00am to 6:00pm (lunch time from 11:45am to 1:00pm) while D2 worked the night-shift from 9:00pm to 6:00am, so they were respectively responsible for the Works during the day and the night. Lui admitted to have played mahjong with staff once or twice a week between 6:30pm and 9:00pm and not during working hours as it would disrupt works and delay earning income from the Works to be shared by P and D1, and he agreed to have drunk tea and made private telephone calls during lunch time but not during working hours. Lui claimed that apart from these matters he did not receive any complaint about his work performance even up to 22 August 2007, and he fulfilled his duties and conscientiously/faithfully performed his work[64] to ensure the Works progressed smoothly and D1 would not squander the funds. Lui said D1 suddenly issued the 22/8/07 Letter asserting for the 1st time that his work performance was unsatisfactory, but such allegations (especially in relation to the allegation that he played mahjong and dealt with his own private matters during working hours) were untrue. Lui claimed D1’s unilateral issuance of the 22/8/07 Letter/Notice was in breach of Agt C9 and 2nd SAgt C13. 171.On balance, I prefer D2’s evidence. He gave evidence in a measured and coherent manner, and his account was inherently convincing and credible. P’s case and Lui’s evidence have been shown to be unreliable in various respects, and I have no confidence in the veracity of Lui’s evidence on this matter. Further, D1 as the contractor under the Main Contractor vis-à-vis the Employer must have been anxious to get on with the Works which had been delayed, so if Lui had been performing well as general foreman of the Works, there was no reason for D1 to terminate his employment as such and have a mere ganger to take up Lui’s duties with more pressure on D2 to oversee the day-shift works. 172.In any event, as Ms Ng submitted, there was no provision in the Agreements to the effect that Lui’s employment as general foreman for the Works was not terminable even when there was misconduct on his part. Any such implication would be unreasonable and against commercial sense. In my view, an employer (D1) can summarily dismiss an employee who “misconducts himself, such conduct inconsistent with the due and faithful discharge of his duties” (see section 9(1)(a)(ii) of the Employment Ordinance Cap 57). Such conduct may be a single incident or the cumulative effect of a series of incidents on the part of the employee, and what must be looked for was whether what was done by the employee was something which was expressly or impliedly a repudiation of the fundamental term of the contract of employment such as to justify instant dismissal.[65] Looking at the findings as to Lui’s misconduct and poor performance holistically, I consider there was sufficient basis for summary dismissal. 173.I bear in mind that Lui was appointed as foreman of the Works pursuant to Agt C9, but D1 as partner of the Partnership also had authority to terminate Lui’s employment as general foreman of the Works. “Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership, the acts of every partner who does any act for carrying on, in the usual way, business of the kind carried on by the firm of which he is a member bind the firm and his partners ......”[66] In my view, terminating the employment of an employee for cause must be an act for carrying on in the usual way the business of the Partnership and within the powers of D1 as partner, especially when Agt C4 gave the daily operation administration and management of the Works to D1. 174.In the circumstances, I find on balance that D1 was justified in terminating Lui’s employment as general foreman of the Works. This was succinctly set out in D2’s evidence which I accept: “因為[Lui]當時係嗰個工作態度太過散漫, 而又遲到、態度非常之驕傲、霸道, ...... 根據[D2]好多次嘅去口頭上嘅勸戒, [D2]同埋亦都透過打電話叫[P]嚟去督促[Lui], 而[P]亦都置之不理, 係唔理, 所以 ......當時嗰個進度受到好大延誤, 而係喺咁嘅情形, 如果係一個冇盡佢自己責任去做個職務嘅人, 喺一個公司嚟講係非常之合理, 係毫無選擇,就所以解僱咗[Lui]”. 175.By the 23/8/07 Letter, P’s solicitors claimed D1 was in breach of 2nd SAgt C13 and demanded D1 to immediately withdraw the 22/8/07 Letter otherwise P would treat D1’s dismissal of Lui as repudiation of the 2nd SAgt and would commence legal action against D1 including inter alia “crystallisation of the floating charge”. But in light of my findings above, there was no merit to such complaints as there was no breach/repudiation on the part of D1 to support any “crystallisation of the floating charge”. D1 by the 25/8/07 Letter replied to P that D1’s termination of Lui’s employment did not contravene 2nd SAgt C13, and D1 would not withdraw the 22/8/07 Letter. In my view, D1’s stance could not be faulted. 176.D2 fairly pointed out Lui complained that D1 without Lui’s consent took photographic record of D2 handing the 22/8/07 Letter to him (see the 6/9/07 2nd Letter enclosing Lui’s letter dated 5 September 2008 to D1 in paragraph 28 above). But D2 claimed Lui’s prior consent was obtained before photograph record was taken (see D1’s 31/8/07 1st Letter in paragraph 23 above). In my view, such dispute is irrelevant to the issues between P and Ds at trial, and there was no claim in P’s pleadings and/or in Lui’s evidence in relation to any default in relation to such photograph-taking. XXV. LUI REMAINED AS P’s AGENT 177.Lui claimed D1 also terminated his role as P’s agent in respect of the Main Contract / Works (ie the Partnership Venture). He gave evidence that the 22/8/07 Letter/Notice (which was faxed to P) “冇話到 ... 冇寫明喎 ...佢話「任何」, 就冇寫明”, so the termination was not limited to his employment as general foreman of the Works but extended to his capacity as P’s agent. Lui said under cross-examination that “...... 我啲理解就--我返去都 ...... 畀警察拉得，佢嗌警察拉我都得㗎，我就唔敢行入去㗎 ......”, and “「我而家1月終止你嗰個工程, 即係工程總管嗰個職務, 同埋其他一直你負責啲嘢。」 ...... 佢拉我都得㗎, 我返去寫字樓, ...... 佢嗌人拉我都得㗎”, so Lui considered the 22/8/07 Letter also terminated his capacity as P’s agent as well, ie “...... 即係冇喇, 全部都冇喇, 你應該寫明我終止管工啲職務, ......” and claimed “代理人身分都被終止喇”. I note with interest that Lui’s testimony did not support P’s averment that Ds prohibited Lui from entering the site of the Works. Lui at best testified that upon termination of his employment as general foreman, D1 “could have” reported to the police to have him arrested if he returned to the site, but in fact Lui in his letter dated 5 September 2007 admitted he did return to the Site Office albeit accompanied by his wife (see paragraph 28(e) above). 178.But it was pointed out to Lui that even his Redacted Statement acknowledged D1’s 8/9/07 Letter urged him as P’s spokeperson (代言人) to issue/sign Signed Blank Cheques to pay for expenditures of the Works, and Lui agreed D1 “透過我去要求[P]簽一張公司支票」吖嘛”, even though he said “嗰8,000鈫同埋 ...... 8,874鈫係冇單畀我呀, ......我唔知買--佢買乜嘢又畀--攞嚟做乜嘢, 因為佢啲檯面擺六、七張銀行堆數啲信喺度呀”. When it was put to Lui under cross-examination that “因為你係代理人吖嘛, 所以你咪要去追啲單嚟睇下囉, 如果根據你嘅說法, 啱唔啱呀”, Lui agreed and even explained that later “...... 我返去寫支票㗎”, and that when there was need to pay workers’ wages, P put up the 1/9/07 Notice at the site. In fact, the 1/9/07 Notice was notice to the site workers that notwithstanding termination of Lui’s employment as general foreman Lui remained his agent with full authority to deal with all matters regarding P’s 50% moiety interest in the Works. This clearly contradicated P’s/Lui’s stance. 179.When Ms Ng again pressed Lui under cross-examination that even after the 22/8/07 Notice he still continued to issue cheques of the Joint Account, still kept D1’s company chop, and (according to him) still chased for supporting documents, he agreed “即係做番 ...... 代理人嘅身分要做嘅嘢囉”, and notwithstanding the 22/8/07 Notice, “根據呢個就我理解就唔--即係我而家印喺你個手、支票喺你個手, ...... 即係嗌你開番張票, 咁唔得喎, 我啲理解都係可以接受, 佢嗌我開張票, 我就返去開支票”. 180.In my view, all these matters point to the reality that Lui remained as P’s agent in relation to matters of the Partnership, and on balance I accept D2’s evidence that the termination of Lui’s employment as general foreman of the Works had nothing to do with (let alone amount to any breach of) 2nd SAgt C13, which provided that D1 and P agreed to irrevocably authorise D2 and Lui as their respective agents to deal with all matters in respect of the Works including employing consultants, accountants and solicitors, and Lui remained as P’s agent for the Partnership Venture. 181.On balance, I do not accept Lui’s allegation in the Redacted Statement that Ds did not allow him as P’s agent to inspect accounts and other records in respect of the Works. I prefer D2’s evidence that Lui (as before) would attend the Site Office and had unrestricted access to all information and documents relating to the Works.[67] He still kept the Signed Blank Cheques, the Counterfoils and D1’s company chop, and remained responsible for issuing cheques for payments (ie “[D2]從所有支票簿, 由頭到尾都係[Lui]保管同埋個圖章都, [D2]從來都冇話唔畀佢[P]簽名”). As D2 said in re-exmaination, “[P]佢透過佢嘅代言人[Lui], ...... 因為所有嘅支票嘅支出, 都係[Lui]寫嘅, [Counterfoils]亦都係[Lui]所保管嘅, 同埋每一個月頭嘅銀行聯營戶口嘅月結單, 亦都—[Lui]都係收到, ...... 喺財政上, 佢係一目了然嘅, 喺工程上, 個進度款, 嗰個收入嗰度, 每一期由地盤工程師所批畀合夥公司嗰個收入, 亦都喺月結單嗰度可以睇到好清楚, 亦都係喺嗰個批糧嗰個糧單嗰度, [Lui]都可以好清楚睇得到, 喺工程嘅進度上面, [Lui]更加係會清楚, 當時[Lui]作為一個總管, 應該係好清晰地盤嗰個進度係點樣嘅情形, 所以佢係一目了然嘅”.[68] On balance, I find Lui was provided with bank statements and information of the Joint Account and the Works, and P’s “知情權、管理權以及決策權” was unaffected. 182.Indeed, Lui as P’s agent sent the 3/9/07 Letter to Ds that he was instructed to relay P’s view that Pang should take up duty for payment of sundry expenses for the time being pending firm arrangement to be made as neither he nor D2 should take up such duty, and even asked for reimbursement of sundry expenses of $1,358.74 that Lui had paid for the Works (which D2 said he later found out were for his personal expenses such as tea, blanket and folding bed, etc). Then by the 6/9/07 2nd Letter P’s solicitors inter alia admitted that even though Lui was dismissed by D1 he was still P’s agent for the Partnership Venture, “he reports to work and he still carries the daily operation construction works including but not limited to signing cheques for payment salaries to staff”. D1 by the 11/9/07 1st Letter to Lui as P’s spokesperson (代言人) declined P’s proposal to have Pang (who had no knowledge of materials in the construction trade) handle the payment of sundry expenses, and counter-proposed for D2 to continue with such duty and P/Lui to check and verify the sundry payments every 15 days. In my view, P/Lui (and Ds too) clearly still regarded Lui as P’s agent, and D1 in making the aforesaid proposal had no reason to hide the accounts and other records of the Works. 183.P by the 13/9/07 Letter which he signed as “shareholder” or moiety owner of the Works accused D1 of committing breaches of the Agt and 2nd SAgt and gave D1 an ultimatum that if he should receive no response within 2 days (including the day of the letter), he would immediately take legal action to claim the penalty amount under the Agreement. D2 said the 13/9/07 Letter was followed by the 20/9/07 Letter to P concerning “[Lui] ...... 呢單工程嚴重係造成嗰個 ...... 不恰當嘅行為，係--係--所以解僱，[P]違反咗個協議嚟解僱咗[Lui]嘅，同埋第二個就係我哋係要......[P]再次嘅投入25,000元嚟做呢個資本，但係一直冇收到嗰個回應”, “所以係--因為工程招致到嚴重嘅延誤同埋損失，所以當時就認為佢已經構成咗一個嚴重嘅拒絕咗履行個職責嘅職務，去終止佢”. 184.In my view, Lui remained as P’s agent for the Partnership Venture despite termination of his employment as general foreman of the Works by the 22/8/07 Letter. As it was P who appointed Lui as his agent, it was only P and not D1 and/or D2 who could have terminated such agency as between P and Lui. In any event, Lui’s continued role as P’s agent after 22 August 2007 was evidenced by (a) the fact he still retained the Signed Blank Cheques, the Counterfoils, the Chequebooks and D1’s company chop, (b) D1 continued requests to Lui to facilitate issuing cheques of the Joint Account to settle expenditures of the Works, and (c) the 1/9/07 Letter by P and the 6/9/07 2nd Letter by P’s solicitors that reiterated Lui was still P’s agent and still functioned as P’s agent by, say, signing cheques for payment of workers’ wages. There was no breach of the Agreements on the part of Ds. XXVI. FAILURE TO MAKE FURTHER CAPITAL CONTRIBUTION 185.D2 gave evidence under cross-examination that in/about September 2007 (i) he repeatedly urged Lui to issue cheques of the Joint Account for the purposes in (a)-(c) below to pay expenditures of the Works and/or to reimburse D2 for his payment of such expenduitures, and (ii) he requested P to inject $25,000 into the Partnership as further capital pursuant to 2nd SAgt C8 that provided “我哋如果以後再需要款項嘅時候至話同[P]一齊去再次嘅去投入呢啲資本”, but P refused to sign cheques of the Joint Account for (i) above and failed to contribute $25,000 for (ii) above despite written requests as follows:
186.As at 14 September 2007, the credit balance of the Joint Account stood at $33,099.84. So D1 was justified in issuing the 11/9/07 2nd letter in paragraph 185(d) above as the Partnership plainly needed further capital for the Works. But under cross-examination, Lui testified he had no impression that Ds asked P for further injection of capital, and when shown the 11/9/07 2nd Letter he claimed D1’s demand was problematic. And yet, P in his pleadings acknowledged the 11/9/07 2nd Letter was received on 13 September 2007 (see paragraph 47(b) above), and he did issue a personal cheque dated 13 September 2007 in the sum of $25,000 drawn on his own account and made payable to Union King (“P’s Cheque”), and Lui by an undated covering letter forwarded P’s Cheque to Union King in partial settlement of Union King’s invoice for June 2007 (“Lui Letter”). P/Lui did not explain why this letter to Union King was undated. In fact, letters issued by P/Lui were invariably dated, and this was the odd one out. Interestingly there was an internal chop by D1 on such letter with date “16 Nov 2007” and notation that it was sighted by 3 of D1’s staff. I also note from Union King’s subsequent invoice dated 30 September 2007 in the sum of $48,437 that (a) fees for works under the current invoice were $9,405 and (b) outstanding balance under the last invoice was $39,032 (being $118,089 less payments of $25,000 and $54,057 respectively on 24 and 27 September 2007) (“UK Invoice”). Then on 24 September 2007 P’s solicitors sent the 24/9/07 1st Letter to D1 to say that “without agreement as alleged by [D1] but acting as per your request” Lui sent P’s Cheque to Union King by registered past for partial settlement of Union King’s invoice for June 2007. 187.I find on balance (a) the sum of $25,000 received by Union King on 24 September 2007 was probably P’s Cheque that Lui directly sent to Union King, but (b) P/Lui did not tell Ds who only became aware of this by way of the 24/9/07 1st Letter (and later by the UK Invoice), but D1 only got hold of the Lui Letter (presumably from Union King as Lui did not say it was copied to D1) in mid-November 2007. Indeed, I further find D1 only received confirmation of receipt of $25,000 by Union King in October 2007 as evident from D1’s stamp with date of 12 October 2007 on the UK Invoice. This was supported by D2’s evidence under cross-examination (which on balance I accept) that “我 ...... 唔知呢張支票[P’s Cheque]嘅係咩嘢意思” and “...... 呢張支票係佢事後唔知過咗幾耐嗰個時間, 唔記得咗係--好明顯係冇人唔知嘅, 係, 唔係存入呢張支票[into the Joint Account]係畀呢個[Union King], 而基本上所有嘅工程係要經[Partnership]--經過寫字樓去開單嚟, 然之後寫字樓先至將啲--到期將啲票發落嚟畀--係先至去支付嘅, 我唔明佢呢個意思, 所以後來冇支出嘅, 喺我哋聯營個資本嗰度係冇係履行嗰個合約去做呢件事”. 188.In my view, what likely happened was that (a) D1 by the 11/9/07 2nd Letter requested P to contribute $25,000 as capital into the Partnership for the Works, (b) P received the 11/9/07 2nd Letter on 13 September 2007 but ignored such request, (c) on 20 September 2007 D1 sent the 20/9/07 Letter to P complaining against inter alia P’s non-compliance with the request for contribution of $25,000 as capital for the Partnership and accepting P’s repudiation of the Agreements, (d) to salvage his position P then issued P’s Cheque (dating it 13 September 2007) to Union King under cover of the undated Lui Letter in a poor attempt to suggest he had purportedly complied with D1’s request for contribution of capital as by that time it was too late for P to make a belated deposit of such sum into the Joint Account after the 20/9/07 Letter, which in my view explained why Union King cleared P’s Cheque on 24 September 2007 and not earlier, but (e) P through his solicitors tried to bolster his position ex post facto by the 24/9/07 1st Letter. 189.D2 testified (and I accept) 2nd SAgt C8 expressly provided that any further injection of funds for the Partnership Venture (ie the Main Contract / Works) would have to be made by P and D1 in equal shares, so each of them had to inject $25,000 into the Partnership as capital by “...... 將錢係投入去我哋嘅聯名戶口入面嘅, 所有嘅收入, 任何係資金都要入落個戶口, 而我哋當時係要求佢簽支票同埋投入資本, 亦都同樣要投入資料喺入面嘅” as required by 2nd Agt C10. I agree with D2 that P should have injected $25,000 into the Joint Account and should not have sent it to Union King. It was for the Partnership and not P to decide how to allocate its capital funds. Certainly, ex post facto payment of such sum to Union King after D1 accepted repudiation of the Agreements would not assist P. At best, P’s payment of $25,000 to Union King by P’s Cheque (ie payment on behalf of the Partnership for the Partnership Venture) would be taken into account during taking accounts upon dissolution of the Partnership. 190.Next, P did not deny he/Lui did not sign cheques of the Joint Account referred to in paragraph 185(a)-(c) above, but P (who was not in Hong Kong at the material time) claimed his refusal was justified and that he did not see the urgency of such requests for payment:
191.As Ms Ng submitted, the Works being the sole Partnership Venture could not be carried out without P’s cooperation in signing cheques to pay/settle expenditures of the Works and/or to contribute capital when needed, which would have detrimental effect on progress of the Works leading to possible complaint/claim against D1 as the contractor under the Main Contract. In my view, P was being difficult and suspicious when there was no justifiable reason, and he/Lui must have known such unjustified mistrust would jeopardise proper operation of the Joint Account and performance of the Main Contract / Works with risk that delay (or even abandonment) of the Works might cause the Employer to terminate the Main Contract thereby frustratrating the Partnership Venture and causing loss/damage to the Partnership. XXVII. REMOVE P AS CO-SIGNATORY OF JOINT ACCOUNT 192.D2 said P well knew that if there was no money to carry out and complete the Works, the Partnership’s sole Partnership Venture would suffer heavy loss (see paragraph 181 and footnote 68 above). In face of P’s failure to sign cheques of the Joint Account to pay sundry expenses / expenditures of the Works and to contribute $25,000 as capital for the Partnership, which D2 said “[P]嘅表現咗[P] ...... 根本上係冇誠意嚟繼續去合作呢單工程, 所以[D1]喺咁嘅情形之下, ...... 寫信通知咗[P], 就取消咗[P]嘅協議”. I find on balance that P was in breach of good faith and trust/confidence between P and D1, and evinced an intention that he no longer wished to continue with the Partnership Venture. As D2 said (and I accept), D1 had to accept P’s repudiation and to terminate the Agreements “係因為[P]完全冇做到合伙人要嘅--應該做嘅”, and there was a risk that the Partnership Venture (ie the Works) “冇錢去營運, 佢個結果將會係被政府--會停工, 而遭致到政府收番工程, 而香港政府就係咁, 收番個工程嗰個損失計, 都係我哋個開支, 所有計--支出嗰啲係無可估計, [P]好清楚明白呢個道理, 但係[P]亦都當時係完全冇誠意去搞好呢單工程, 所有就[D1]發咗通知畀[P], 終止咗呢個協議, 由 ...... [D2]代表[D1]去處理嗰啲合夥嘅呢個工程”. 193.By the 20/9/07 Letter, D1 informed P that all the Agreements were terminated with immediate effect. But D1 (who was still the contractor under the Main Contract and obliged to continue with and complete the Works thereunder vis-à-vis the Employer) had to mitigate loss. So in mitigation of loss, D2 at the same time “代表[D1]亦都去取消咗, 通知[NCB]去取消[Joint Account]嗰個權益, ......使到[D2]獨一去簽署呢啲--嗰啲[Joint Account]嘅支票去支付呢啲咁嘅我哋合夥入面嘅工程嘅使費” so that the Works could continue. I find there was no breach on the part of D1. XXVIII. CONTEMPLATED LEGAL ACTION 194.By the 24/9/07 1st/2nd Letters to D1, P’s solicitors asserted inter alia that D1 failed/neglected to pay interest of $6,842.50 in wrongful breach of the C&G, and demanded repayment of $900,000 plus interest, loss and damages within 7 days. By the 24/9/07 3rd Letter to D2, P’s solicitors demanded D2 to repay $900,000 plus interest, loss and damages with 7 days. About a month later on 26 October 2007, P commenced the present action against Ds. 195.However, in light of the above findings, there was no breach on the part of D1 in not paying interest of $6,842.50 upon premature demand, and there was no basis for P to directly demand from D1 payment of $900,000 with interest. XXIX. CONTINUATION OF THE WORKS 196.D2 explained that to keep the Works going, D1 arranged for a loan from Eastern Civil Limited (which since 9 September 2011 became known as Wang Kee Civil Limited, “Eastern Civil”) and an overdraft from Bank of Communications (“BoComm”). Eastern Civil and D1 had common shareholders. D2 said although there was no written record, D2 intended that interest would be charged on the loan granted to D1 at an interest rate of 5%pa. Further, by an agreement dated 23 July 2008, BoComm granted an overdraft facility to D1 at an interest rate being the higher of overnight HIBOR and 2% pa over BoComm’s HKD best lending rate as secured by a first legal mortgage on D2’s own residential property. From time to time, D1 borrowed monies from Eastern Civil and BoComm, which monies were deposited into the Joint Account to pay for expenditures of the Works and withdrawn from the Joint Account to repay loans when it was feasible to do so (see table in paragraph 119 of D2’s Statement[69]). All entries were documented by entries in the banks statements of NCB and BoComm, which showed that whilst D1 repaid the entire sum of $5,399,185.70 due to BoComm under the overdraft facility,[70] D1 still owed Eastern Civil $1,260,000[71] plus interest at the rate of 5%pa. 197.Lui testified no one knew what Ds did with the payments received from the Employer, “邊個知道呀？[Lui]都冇人喺度囉，[Lui]畀[D1]炒咗, [Ho]畀[D1]炒咗喇，印--印都冇用、支票都冇用囉，......改咗戶口喇，[Lui]有咩嘢用吖咁？......” But by the Burrell Order, P was provided the Monthly Statements ever since such order was granted, so P was kept informed of the financial position of the Partnership. P’s solicitors had copies of the Monthly Statements, and it was open for P to challenge any item of expenditure of the Works, but there was no evidence that he had done so. XXX. CASH FLOW OF JOINT ACCOUNT SINCE 2ND SAGT 198.By the table in paragraph 121 of D2’s Statement, D2 set out the balance of the Joint Account on dates just before receiving the monthly progress payments of the Works under the ECs from the date of the 2nd SAgt (ie 19 July 2006) up to the last monthly progress payment under EC no 77 (9 May 2011). Each item was documented by supporting documents in section C of the trial bundle. On balance, I accept such table reflected the cash flow of the Works / Joint Account from 19 July 2006 to 9 May 2011, which showed there was hardly any surplus from the monthly progress payments after deducting expenditures of the Works for any return of the remaining $400,000 of the Initial Capital and the Sum of $500,000 to P under the Agt and/or 2nd SAgt. XXXI. PENALTY OR GENUINE PRE-ESTIMATE OF LOSS 199.In my view, by reason of the above discussions and findings, D1 was not in breach of the Agreements, so P’s claims against D1 and D2 also fell to be dismissed on such basis. There is therefore no need for me to deal with Ds’ alternative argument that P was not entitled to rely on Agt C3 to claim against D1 for the sum of $2,837,615.42 as liquidated damages for breach of contract on the basis that such provision was in any event an unenforceable penalty clause. But for completeness, I will briefly deal with this. 200.Ms Ng submitted (and I agree) that in general if the agreed compensation is a genuine pre-estimate for compensating the other contractual party for loss incurred by a breach, such term of contract is valid, but if the agreed compensation is in fact a penalty for compelling a party to fulfill its contractual obligations, such term of contract shall be void and unenforceable. This issue turns on construction of the contract. In Dunlop Pneumatic Typre Company, Limited v New Garage and Motor Company, Limited,[72] the House of Lords explained the relevant legal principles as follows:
201.Here in Agt C3, the sum of $2,837,615.42 constituted a single lump sum payment for all sorts of breach by any party, including failure to pay a small amount of monthly interest on time. P’s case was that D1 failed to pay the monthly interest for September 2007 in the sum of $6,842.50, and the damage that would follow from such breach (even if it were upheld as a breach by D1 which I disagree) would be trivial as compared to the lump sum of $2,837,615.42 allegedly payable by D1 upon such breach. Any damage following from such breach (if any) would not have amounted to $2,837,615.42. I find Agt C3 to be an extravagant and unconscionable penalty rather than genuine pre-estimation of loss by way of liquidated damages, and is unenforceable as such. 202.For all of the above reasons, P’s claim against Ds must be dismissed. P in his closing submissions suggested that D1 should pay compensation to Lui for wrongfully dismissing him from his employment. But Lui is not a party to the present action, and there is no such claim in P’s pleaidngs. XXXII. COMPLETION AND MAINTENANCE COMPLETION OF WORKS 203.D2 in the Statement explained that by the Certificates of Completion nos 1-2 both dated 12 November 2008 and the Maintenance Certificate dated 27 October 2010, the Engineer certified D1 had completed the Works by 16 October 2008 and its obligations during the Maintenance Period by 27 October 2010:
204.D2 explained that after the Maintenance Certificate was issued on 27 October 2010, D1 begun to take down the site office and other site facilities, dismantle and remove plant/machineries, clear and cart away all the debris, and reinstate the disturbed areas, which took 3 months odd to complete before the site was handed over to the Engineer. Preparation and negotiation for settlement of the final account for the Works were done after the Certified Complete Date, but (as seen below) as a result of disputes over valuation of the variation works, the additional works and the other claims in relation to the Works between D1 and the Employer, it was not until 29 January 2015 that D1 and the Employer reached an agreement to settle the final account for the Works under the Main Contract. 205.As a result of the aforesaid disputes between D1 and the Employer which could not be resolved by agreement, D1 referred such disputes to arbitration (“Arbitration”) under the terms of the Main Contract by serving on the Employer a Notice of Arbitration dated 23 August 2011. By an Application for Appointment of an Arbitrator of the same date, D1 requested the Hong Kong International Arbitration Centre to appoint Mr Yeung Ming Tai (“Yeung”) to be the arbitrator, and Yeung’s appointment as arbitrator was eventually confirmed by agreement on 28 November 2011. Throughout the Arbitration D1 was represented by K H Lam & Co and the Employer was initially represented by the Secretary of Justice and later by Mayer Brown JSM. 206.The Arbitration proceeded as follows:
207.On 18 February 2015, D1 received from the Employer the Settlement Sum. On 2 April 2015, D1 paid Yeung $58,6000 being one moiety of his fees. As regards the Favourable Cost Orders, the Employer had not yet provided D1 with the amount of such costs. In any event, taking into account the total progress payments (“Total Progress Payment”) received during the course of the Works before the Arbitration as shown on the EC no 77 dated 21 April 2011, the Employer paid a total of $65,214,073.26 (“Final Contact Sum”) for the Works under the Main Contract as follows:
208.Based on the above information and expenditures known to D2, he worked out a preliminary account of the Partnership Venture as on the date of the Statement as follows:
209.D2 claimed that on the basis of the above account, P should bear half of the loss in the sum of $1,910,395.24. As D2 said under cross-examination, “而喺嗰個工程入面, 到咗最後, 呢個--正如呢張財政報告所講嘅[Monthly Statement], 都透過[P]嘅律師係畀咗你哋嘅, [P]係好清楚嘅, 而一路亦都冇提出任何嘅所謂嘅質疑, 呢度一百九十幾萬, 係每一個人應該付出計, $1,900,000唔係毀約, 係喺工程上蝕咗嘅, 有賺嘅、有蝕嘅生意所計......”. XXXIII. DISSOLUTION OF PARTNERSHIP 210.There is no need for me to make any findings as to whether the Partnership Venture / Partnership suffered any loss and/or whether such loss was ($3,820,790.48) because the proper course would be to take accounts upon the dissolution of the Partnership to determine whether there was such loss and the extent thereof. But suffice for me to note there was no countervailing evidence adduced by P as to any error of or disagreement with the above breakdown notwithstanding P’s prior access to information/documents concerning the Partnership Venture via Lui and the provision of the Monthly Statements since the Burrell Order. 211.Further, P in his closing submissions agreed that the PO was applicable to the Partnership. He did not argue the Partnership should not be dissolved. In my view, now that the Partnership Venture was spent, given the dispute between P and D1 over partnership matters, the likely loss suffered by the Partnership and P’s aforesaid breaches, it is just and equitable that the Partnership be dissolved pursuant to section 37 of the PO[75] and accounts be taken in respect of the Partnership. 212.It is perhaps pertinent to note that Agt C3 provided that P and D1 shall each have 1 moiety of the interests and “liabilities” of the Agt, which provision had not been amended/superceded by the 1st/2nd SAgts. Further, section 26 of PO provides as follows:
As explained by Hunter J in Chan Sau-kut & anor, in the context of a partnership agreement, any provision expressing confident expectation of return of capital within a specified period would not alter the fact that “[the] obligation to return the capital was subject to there being sufficient profits and the sufficient generation of money by the job at the expiration of the [specified period]”. 213.I have in paragraphs 145-146 above dealt with how advances by a partner to the Partnership should be dealt with. XXXIV. CONCLUSION 214.In the cirucumstances, P’s claims against D1 and D2 are dismissed. 215.In respect of D1’s counterclaim against P, I grant the following orders:
Since the Works had been completed and the Settlement Sum was received for the Partnership, no further purpose would be served by making declaration in relation to the floating charge under the C&G. 216.In respect of D2’s counterclaim against P, I grant a declaration that the Guarantee is valid and effective only to the extent of D1’s liability to the Partnership (if any) has been determined by taking accounts of the Partnership that remains outstanding and unsatisfied. 217.There is no reason why costs should not follow event. I grant a costs order nisi that P shall pay D1’s and D2’s costs of and occasioned by the present action (including D1’s and D2’s counterclaims against P and all costs reserved if any) to be taxed if not agreed. 218.Should P require translation of this Judgment into punti language, he can contact my clerk to arrange an appointment for a court interpreter to verbally translate this Judgment to him at the High Court Building at a mutually convenient time when the Court resumes business upon expiry of the General Adjourned Period (“GAP”) imposed by the Judiciary due to public health considerations. Further, Ds are at liberty to file sealed copy of the order/judgment herein during the GAP, and they must serve Chinese translation together with the sealed copy order/judgment herein to P.
The plaintiff, acting in person and present Ms Queenie Ng, instructed by K H Lam, for the 1st and 2nd defendants Schedule 1 - Agt 甲方: [D1](以下簡稱甲方) ...... [Party A: [D1] (hereinafter referred to as Party A)] ...... 乙名: [P](以下簡稱乙方) ...... [Party B: [P] (hereinafter referred to as Party B)] ...... 此合約根據甲, 乙雙方業務發展需要, 本著平等互利原則下, 及對拓展署制定的工(sic)項目文本, 規範要求和有關細則條款充分瞭解, 共同瞭解, 共同協商後達成以下有關承接上述工程項目的合約條款: [This agreement is based upon business development needs of Party A and Party B, the principle of equality and mutual benefit, thorough understanding of the documents of the (construction) work items compiled by [CEDD], the scope requirements and the relevant detailed rules and terms, after mutual understanding and mutual negotiation, the following terms and conditions in relation to the undertaking of the above mentioned construction work items were concluded:] 1. 履行及實施此合約必須根據香港拓展署於2003年12月15日與甲方簽訂合約編號: HK16/03的工程項目文本內之條款細則的前題下進行。 [Performance and execution of this agreement shall be carried out based on the terms and rules in the documents for the construction work items in [the Main Contract] entered into between [CEDD] and Party A on 15 December 2003.] 2. 甲, 乙雙方一致同意以甲方名議與香港拓展署訂合約編號: HK16/03之工程合約, 工程項目總價為港幣$28,376,154.20, 乙方同意在總工程款中提取3%出作為甲方投標及施工前準備工作之費用, 該費用款將於每期工程進度款中按比例扣除與甲方。[“Agt C2”] [Party A and Party B both agree that Party A shall in its own name enter into the [Main Contract] with the [CEDD], and the total price for the construction work items is HK$28,376,154.20, Party B agreed that 3% be drawn from the total contract sum of the construction works as Party A’s fees for submission of the tender and preparation work for carrying out the construction work, such fees shall be deducted from each periodic progress payment on pro-rata basis and paid to Party A.] 3. 此合約的權益與責任, 甲, 乙雙方各占一半股權, 乙方同意負責於合約後二個月內先投入港幣$200萬作工程第一期開辦費價之用。本工程的一切工程款及所得利潤必須每期全額記入雙方在香港開設的共同賬號內, 任何一方違約, 需按本合約工程項目總貸(sic)款港幣$28,376,154.20元的10%支付違約金賠償另一方。[“Agt C3”] [Party A and Party B shall each have one moiety of the interests and liabilities in this agreement, Party B agrees to be responsible for first injecting HK$2,000,000 within 2 months of the agreement as the first phase start-up fees for the construction works. All construction work monies and all profits received for each periodic payment shall be wholly credited into a joint account in Hong Kong opened by both parties. Any party in breach shall pay of 10% of the total loan (sic) amount of the construction works of this agreement in the sum of $28,376,154.20 as compensation for default to the other party.] 4. 由於乙方對香港的工程運作及有關法例不太熟悉, 所以, 此項目的日常施工之行政管理工作由甲方負責, 由甲方會編制每月之工程及財務報告與乙方查閱工程項目的收支情況。[“Agt C4”] [As Party B is not as familiar with construction operation and relevant laws in Hong Kong, the daily administration and management of the construction work for this project shall be undertaken by Party A. Party A shall compile monthly construction and financial report for Party B to inspect the income and expenditures situation of the construction prject.] 5. 每月之工程進度款, 需存入雙方於香港開設的銀行帳戶內。[“Agt C5”] [The monthly construction work progress payment shall be deposited in the bank account in Hong Kong opened by both parties.] 6. 有關此合約的一切付款支票, 需由甲, 乙雙方受權或指定代表, 或本合約的簽署方共同簽署方可生效。 [All cheque payments concerning this agreement shall be signed jointly by the authorised or designated representatives of Party A and Party B, or by the signatories of this agreement before they will take effect.] 7. 乙方需按本合約條款3)所定, 按時將工程開辦費港幣$200萬元存入甲, 乙雙方於香港開設的銀行戶內, 如乙方未能在指定限期內, 將工程開辦費之全數存入甲, 乙雙方於香港開設的銀行帳戶內, 則視作違約, 將自動喪失本合約條款3)所述之一半即50%之股權, 而在限期內曾投入的部份款項將不會發還乙方, 乙方亦不能向甲方追討。[“Agt C7”] [Party B shall pursuant to the terms of clause 3 of this agreement deposit by the time specified the construction start-up fee of HK$2,000,000 in the bank account opened by both Party A and Party B in Hong Kong. If Party B is unable to deposit the whole amount of the construction start-up fee in the bank account opened by both Party A and Party B in Hong Kong within the stipulated time limit, this will be regarded as a breach. Party B shall lose automatically half, that is 50%, of the moiety mentioned in clause 3 of this agreement, and the sum already injected within the time limit shall not be returned to Party B who shall also not be able to claim (it) from Party A.] [D1’s chop] [illegible signature] [illegible signature] 8. 乙方所投入之港幣貳佰萬元是本工程雙方共同向乙方借出作為本工程的前期開辦費, 雙方一致同意在此工程動工日起三個月內先付還乙方壹佰萬元, 如果工程收入未能協調, 則可彈性處理。其餘之壹佰萬元在開工日起半年期工程中的盈利攤期付還。[“Agt C8”] [HK$2,000,000 injected by Party B is the loan borrowed from Party B jointly by both Party A and Party B the construction project as the early phase start-up fees for this construction project. Both parties unanimously agree to first return to Party B $1,000,000 within 3 months from date of commencement of this construction project, but this can be flexibly dealt with if the income from the construction works is not coordinated. The balance of $1,000,000 shall be returned by instalments out of the profits from the half year period of construction work (which period is calculated) from commencement of the construction work.” 9. 因乙方在大陸尚有其他業務, 乙方無法長駐香港, 經甲, 乙雙方協商,同意乙方委託[Lui]作為其代理人, 並出任本合約工程總管。[“Agt C9”] [As Party B still has other business in Mainland China, Party B cannot stay in Hong Kong for an extended period. Through mutual negotiations between Party A and Party B, (both) agree that Party B shall appoint [Lui] as his agent, and ([Lui]) shall work as the general foreman of the construction works under this agreement.] 10. 本合約雙方字(sic)起至工程保修期完結, 工程結算及收回所有工程款後自動失效。 [This agreement shall (be effective) from (date of) signing up to the expiry of defects liability period, and shall automatically lose validity after final account of the construction works and receipt of all payments for the construction works.] 11. 如在執行此合約時遇有糾紛時, 雙方應本著友好協商解決。[“Agt C11”] [If there are disputes in performing this contract, both parties should resolve (such disputes) through friendly negotiation.] 12. 本合約一式兩份, 甲、乙雙方各執一份, 每份都有同等法律效力, 本合約經雙方署後即時生效。 [This contract is made in duplicate. Party A and Party B each has a copy and each copy shall have the same legal effect. This contract, once signed by both parties, shall immediately take effect.]
Schedule 2 – 1st SAgt 甲方: [D1] (下稱甲方) [Party A: [D1] (hereinafter referred to as Party A)] 乙方: [P] (下稱乙方) [Party B: [P] (hereinafter referred to as Party B)] 甲、乙雙方於2003年12月5日簽訂共同合作承接香港拓展署[Main Contract], 工程總造價為港幣28376154.20元, 工程現已生效, 現由於工程較慢和工程款不能按時回收, 資金不夠使用, 經雙方協商同意, 對原雙方2003年12月15日簽訂合作協議部份條款修改和補充。修改補充條款如下: [Party A and Party B on 15 December 2003 signed the mutual cooperation agreement to contract Hong Kong [CEDD] [Main Contract] at total construction sum of HK$28,736,154.20. The construction works have commenced. Now due to the relatively slow progress of the construction works and failure to receive construction payments on time, (and there being) insufficient funds for use, after negotiations, both parties agreed (that) some of the clauses of the cooperation agreement originally signed by both parties on 15 December 2003 shall be amended and supplemented. The amended (and) supplemented clauses are as follows:-] 一、原協議第2條，雙方同意在總工程款提取3%作為甲方投標及施工前準備工作之費用的款項，甲方同意不用提取。[“1st SAgt C1”] [1. According to clause 2 of the original [Agt], both parties agreed to draw 3% from the total sum of the construction works as Party A’s fees for submitting tender and preparation work before commencement of the construction works, but Party A agrees not to draw (such fees).] 二、原協議第3條，由乙方出資港幣200萬元作為第一期工程開辦費用和原協定第8條有關歸還乙方第一期工程開辦費用期限條款，乙方同意根據工程的財務狀況，如需要乙方可將回收的工程開辦費用給於再投入應急費用，若工程款能及時回收，乙方再投入的應急資金應及時歸還乙方。[“1st SAgt C2”] [2. Clause 3 of the original [Agt] (provides), Party B shall pay HK$2,000,000 as the first phase start-up fees for the construction works, and [Agt C8] concerns the time limit for returning to Party B the first phase start-up fees of the construction works, Party B agrees (that) depending on financial status of the construction works, if necessary, Party B shall re-inject the returned start-up fees of the construction works to meet urgent expenses, (and) if the construction payments are received in time, the money re-injected by Party B to meet the urgent expenses shall be returned to Party B in time.] 三、 修改補充的協定條款與原協定有抵觸，以修改補充條款為准。 [(If) the amended and supplemental clauses contravene the original [Agt], the amended and supplemental clauses shall prevail.] 甲方 [Party A]: [illegible signature] 乙方 [Party B] : [illegible signature] 2004年5月8日 [8 May 2004] Schedule 3 – 2nd SAgt 本協議訂立於2006年7月19日 [This agreement is made on 19 July 2006] 甲方 [Party A]: [D1] ...... 乙方 [Party B]: [P] ......
雙方現協議如下: [Both parties now agree as follows:] ...... (5) 甲方就此[Main Contract]所獲的利潤或權益將首先用作償還(a)核數師報告(2005年)披露甲方負債HK$973,271.61及其衍生的利息; 及(b)員工因工傷賠償及所有追索金額。而乙方不須為5(a)及(b)負責任。[“2nd SAgt C5”] [Party A shall use the profit or interest obtained from the [Main Contract] firstly for repayment of (a) the Debt HK$973,271.61 owed by Party A as disclosed in [Auditor Report] and interest accrued thereon; and (b) the compensation and all the amount claimed by employee arising from injuries at work. And Party B is not required to be responsible for 5(a) and 5(b).] ...... (7) 就[Main Contract]的工程, 乙方同意應甲方書面要求額外借貸予甲方, 而雙方同意該借貸為浮動按揭(Floating Charge)(內容包括乙方借給[Main Contract]首期付款未收回的金額), 而甲方承諾該浮動按揭須獲甲方董事局同意及簽署有關法律文件(即抵押擔保合同)生效及作實後三天內, 乙方須再借出港幣五十萬圓作工程費用。[“2nd SAgt C7”] [As regards the [Works], Party B in response to the written request of Party A agrees to make an additional loan to Party A, and both parties agree that such loan shall be a floating charge (Floating Charge) (the contents include the first phase start up payments of the Main Contract lent by Party B that had not been returned) and Party A undertakes that such floating charge shall be approved by the board of directors of Party A and (the board of directors) shall sign the relevant legal documents (that is [C&G]). Within 3 days after (the legal documents) are confirmed and take effect, Party B shall further lend HK$500,000 as construction costs.] (8) 以後如果因[Main Contract]工程資金不足, [D2]及乙方須共同投入同等資金作工程費之用。[“2nd SAgt C8”] [Thereafter, if the funds for construction works of the [Main Contract] are insufficient, [D2] and Party B shall jointly inject an equal amount of money as construction costs.] (9) 以上第(7)項投入資金是甲方向乙方借貸, 包括前乙方借給[Main Contract]首期付款未收回部份可先在今後每月的工程費盈餘部份收回。如以後每月工程費未有盈餘, 最遲還款期限為“[Main Contract]約內所有工程及後加工程完成日, (但不包括保養期)”, 由甲方完全清還欠款予乙方。雙方同意時間為必須遵守的條件。[“2nd SAgt C9”] [The money injected under item (7) above is the loan borrowed by Party A from Party B, including the portion of the first phase payment of the [Main Contract] lent by Party B that had not been returned yet, can be partially recalled first from the profit part of future monthly construction payment. If there is no profit from future monthly construction payment, the latest time for repayment shall be “the completion date of all the works and additional works in the [Main Contract] (but not including maintenance period)”, (when) the owed monies shall wholly be repaid by Party A to Party B. Both parties agree that time is a condition to be observed.] (10) 甲乙雙方同意HK16/03工程唯一的營運銀行戶口為南洋商業銀行 (0xx-xxx-xxxxxxxx5) 該營運工程的戶口為雙方之聯名支票戶口，此戶口不可以與其他任何銀行之支票戶口或任何儲蓄戶口一齊使用。上述唯一聯名支票戶口未獲得雙方書面同意，不能改動。” [“2nd SAgt C10”] [Party A and Party B agree that [the Joint Account] is the only operative account for the [Main Contract] construction works, such operative account for the construction works is a cheque account in the joint names of both parties, which cannot be used together with cheque account or savings account of any other bank. The afore-mentioned sole joint cheque account shall not be changed without the written consent of both parties.] (11) [Main Contract]之一切事務必須獲得[D1]代表[D2]和乙方代表[P]書面同意。[“2nd SAgt C11”] [Written consent of [D1’s] representative [D2] and Party B’s representative [P] shall be obtained for all matters in respect of the [Main Contract] construction contract.] (12) 甲乙雙方同意[Main Contract]利潤及後加工程項目的盈利和其衍生的其他利益為雙方共同擁有, 即各佔50%的利益。 [“2nd SAgt C12”] [Both Party A and Party B agree that the profits of the [Main Contract] and additional construction works and other derived interests shall be owned jointly by them, ie, with each having 50% of the interests.] (13) 甲乙雙方同意不可徹消的承諾授權及任命甲方[D2]和乙方代理人[Lui]協商處理[Main Contract]工程之一切所有有關事宜, 包括但不限於簽署有關文件及聘用顧問公司、會計師及律師等。 [“2nd SAgt C13”] [Both Party A and Party B agree to an irrevocable undertaking to authorise and appoint [D2] of Party A and [Lui] being agent of Party B to negotiate and deal with all matters relating to the [Main Contract], including but not limited to signing the relevant documents, employing consultant company, accountant and lawyers etc.] (14) 如任何一方違反就此協議或於2003年12月15日簽訂[Agt]及2004年5月8日簽訂之[1st SAgt], 甲乙雙方同意該違反的一方向另一方在不損害其他權益外賠償 [Main Contract]及後加工程項目所有款項和其衍生的其他利益總數”。 [“2nd Agt C14”] [If any party is in breach of this agreement or the [Agt] signed on 15 December 2003 and the [1st SAgt] signed on 8 May 2004, both Party A and Party B agree that the party in breach shall without prejudice to other rights compensate the other party the total of amount of the [Main Contract] and additional construction works item and other derived interests.] ...... (16) 除已修訂的條款、條文及內容, 甲乙雙方同意及確認已簽訂的協議書 (即2003年12月15日簽訂的[Agt], 2004年5月8日簽訂[1st SAgt]和以上所訂之第二份補充協議書)內所載所有條款、條文、內容及責任均具法律約束力, 約束甲乙雙方。而甲乙雙方須履行該已簽訂的協議書內所載所有條款、條文、內容及責任。 [Apart from the amended terms, provisions and contents, both Party A and Party B agree and confirm all the terms, provisions, contents and liabilities included in the already signed agreement (the [Agt] signed on 15 December 2003 and the [1st SAgt] signed on 8 May 2004 and the above signed second supplemental agreement) shall be begally binding, (and) shall bind both Party A and Party B. Both Party A and Party B shall perform all the terms, provisions, contents and liabilities as included in such already signed agreements.]
二、抵押 [2. Charge] 1. 抵押權人同意向抵押人提供總金額合共港幣九十萬元正 (HKD900,000.00) 的有期貸款; 包括抵押權人於2003年12月至2004年5月期間借給[Main Contract]作首期付款未收回部份, 即港幣四十萬元正(HKD400,000.00)及根據[2nd SAgt] [2nd SAgt C7]借貸予[D1]的港幣五十萬(HKD500,000.00) 元正。[“C&G C2(1)”] [The chargee agrees to provide the chargor with a term loan in the total sum of Hong Kong dollars Nine Hundred Thousand (HKD900,000.00), including the portion of the first phase payment the chargee previously lent to the [Main Contract] between December 2003 and May 2004 that had not been returned ie Hong Kong dollars Four Hundred Thousand (HK$400,000) and Hong Kong dollars Five Hundred Thousand (HKD500,000) lent to [D1] according to the [2nd SAgt C7] of the [2nd SAgt]. 2. 抵押人同意將抵押資產的全部權益抵押予抵押權人作為償還所有欠款之擔保, 並承諾在抵押權人未解除抵押資產的抵押權前將不在該等抵押權人(sic)設置新的抵押。[“C&G C2(2)”] [The chargor agrees to charge all the interests in the charged assets in favour of the chargee as security for repayment of all owed monies, and undertakes not to create any new charge over the chargee (sic) before release of the charged rights upon the charged assets.] 3. 抵押期限為本合同生效之日起止至欠款完全清償致令抵押權人滿意為止。還款期限為[Main Contract]內所有工程及後加工程完成日 (但不包括保養期)。[“C&G C2(3)”] [The charge period shall be from the day of this agreement becomes effective until repayment of all owed monies to the satisfaction of the chargee. Due date for repayment shall be the completion date of all the construction works and additional construction works in the [Main Contract] (but not including maintenance period).] 4. 抵押人同意抵押權人可在[Main Contract]每月的工程費盈餘部份收回該貸款合共港幣九十萬元正 (HKD900,000.00), 抵押人同意抵押權人按香港中國銀行最優惠利率加1厘作年息按月第1個工作日收取利息。[“C&G C2(4)”] [The chargor agrees that the chargee can recall the total amount of Hong Kong Dollars Nine Hundred Thousand (HKD900,000.00) from the surplus of the monthly construction payments for the [Main Contract], the chargor agrees that the chargee can receive interest the first work day of each month according to the prime rate of Bank of China plus 1% as the annual interest rate.] ...... 六、抵押人的承諾 [6. The chargor’s undertaking] ...... 5. 抵押人如不履行本合同所載之任何條款時, 抵押權人何依本合同規定行使抵押權, 抵押人對抵押權人處分抵押資產的方式不可有任何異議; 如抵押人任何時間有任何存款存於抵押權人處, 抵押權人有權自動扣除該等存款以清償欠款; [“C&G C6(5)”] [If the chargor shall not perform any clause as contained in this Agreement, the chargee may, according to the provisions of this Agreement, enforce the charge rights, the chargor shall not object to the manner of dealing with the charged property by the chargee; if the chargor at any time has any monies deposited with the chargee, the chargee has the right to automatically deduct such monies for repayment of the owed amount;] ...... 7. 在抵押權人行使抵押權時, 將按抵押權人的指示立即將抵押資產交予抵押權人保管; [“C&G C6(7)”] [When the chargee enforces his charge rights, then according to the chargee’s instruction, the charged property be immediately handed over to the chargee for safe keeping.] ...... 七、行使抵押權 [7. Enforcement of charge rights] 1. 如抵押權人向抵押人發出還款通知書, 而在還款通知書上指定的付款時間屆滿後, 抵押人的未能遵照該通知清償所有欠款予抵押權人, 抵押權人即有權立刻或於任何時間行使以下任何一項、數項或全部的權利:
...... 九、擔條 [9. Guarantee] 1. 擔保人對借款人(抵押人)於本合同協議項下的全部債務承擔連帶擔保責條, 擔保人承擔連帶擔保責任範圍包括本合同項下除專屬於抵押人的義務以外稱全部義務。[“C&G C9(1)”] [The guarantor undertakes correlative guarantee responsibility in respect of all debts of the borrower (chargor) under this Agreement, the scope of the correlative guarantee responsibility undertaken by the guarantor includes all duties under this Agreement other than the duties solely belonging to the chargor.] 2. 借款人、擔保人對借款人原向貸款人所借款人所借款項也承擔抵押擔保責任。[“C&G C9(2)”] [The borrower, the guarantor shall also undertake the charge guarantee responsibility in respect of the amount originally borrowed by the borrower from the lender.] 附表(抵押資產)
[Appendix (charged property) That is the [Main Contract] entered into between [D1] and [CEDD]] Schedule 5 – Guarantee 訂約日期: 二零零六年7曰19日 [Date of making the agreement: 19 July 2006] 立約人[Parties to the agreement] 債權人(甲方)[Creditor (Party A)]: [P] 擔保人(乙方)[Guarantor(Party B)]: [D2] 立約事緣 [Background of agreement] (一) 甲方同意向[D1]提供總金額合共港幣九十萬元正(HKD900,000.00)的有期貸款; 包括[P]借給[Main Contract]作首期付款未收回部份，即港幣四十萬元正(HKD400,000.00)及根據[2nd SAgt C7]借貸予[D1]的港幣五十萬(HKD500,000.00)元正。
(二) 擔保人對[D1] 償還[C&G]下債務承擔連帶保證責任。
(一) 如[D1]未能在有期貸款內償還給甲方作出之貸款及其利息，均須由擔保人負責償還。但利息及違約利息不計算在此內。
(二) 倘若[D1]未能履行或違反[C&G]之任何條款，本擔保人必須繼續履行[C&G]，並賠償甲方因[D1]引致之毀約或不能履行該合約之條款所引起之一切損失。
(三) 任何關於上述賠償金額之糾紛均經法庭根據香港法律為最終決定, 而一切費用均由擔保人負擔。
[1] P averred that under the Main Contract the main works would have been completed in/about January 2007 and the additional works were scheduled to be completed in/about August 2008, but actually he had no idea as to exactly when the additional works were completed [2] the English translation is that D1 and P would jointly perform the Main Contract contracted out by Hong Kong’s CEDD with P having a 50% moiety/share, but as P could not stay in Hong Kong for an extended period to deal with all the Works, he authorised Hong Kong resident Liu as his agent with full authority to handle all matters for him in respect of the Works, and without P’s consent no one shall terminate “full powers of [Liu] in such [Works]” [3] ie $100,000, $500,000, $500,000, $350,000 and $550,000 deposited in the Joint Account respectively on 16 and 19 December 2003, 17 January 2004, 12 and 14 February 2004 [4] but in fact the return of the sum of $500,000 to P was made on 8 April 2004 and not 28 April 2004 (see para 10 below) [5] Ds claimed cash flow was unsatisfactory due to slow progress of the Works in the 1st 3 months of the Main Contract even though progress payments were received from the Employer (see recitals of the 1st SAgt referred to in para 11 below) [6] see D1’s 2 letters dated 22 April and 30 May 2006 that requested P to re-inject the returned portion of the Capital pursuant to 1st SAgt C2 (see paras 122 and 126 below) [7] the English translation is that in view of Lui’s remissness in work and poor attitude, and D1’s repeated advice to P to no avail, D1 now decided to terminate Lui’s job duties at the site of CEDD’s Main Contract under D1 or other job duties, and such termination shall immediately take effect [8] the English translation is that D1 thereby gave notice that Lui had left his employment at this construction site, and all Lui’s job duties shall be temporarily handled by D2, and the staff would be notified separately if there were any further arrangements [9] the English translation is that (1) D1 did not admit the 22/8/07 Letter issued by D1 to Lui was in any way in breach of 2nd SAgt C13, and (2) D1 would not withdraw the 22/8/07 Letter issued by D1 to Lui [10] the English translation is that P was asked to sign the following cheques by 30 August 2007: (1) payment for charges by Union King for May 2007 in the sum of $13,750 (see enclosed invoice A), and (2) cash for materials and miscellaneous expenditures for works at the construction site in the sum of $10,000 (presently D2 had already personally advanced $4,000 odd) (see enclosed breakdown bills nos 1-11)
[12] the English translation is that one 6” water pump had to be purchased urgently for SP2 manhole, so P was asked to sign a cheque by 1 September 2007 for $7,000 [13] the English translation is that the 22/8/07 Letter issued by D2 on 22 August 2007 that terminated Lui’s site/other job duties as regards Hong Kong CEDD’s Main Contract was in breach of 2nd SAgt C11 and C13, so to protect all P’s legal rights and benefits, and if D1’s D2 insisted on not complying with the above-mentioned contractual provisions, P would have no alternative but to consider taking legal action, but to guarantee normal operation of Main Contract’s Works and to ensure the employees would be able to receive their wages on time, P reiterated and emphasised that Lui was still his agent having full power to deal with all the matters regarding 50% moiety/share in the Main Contract’s Works [14] but it was in fact common ground between P and Ds that the business venture in respect of the Main Contract / Works was between P and D1 (not D2) [15] the English translation is that Lui had received instructions from the moiety owner or shareholder of the Main Contract’s Works regarding the question of selecting a person responsible to deal with sundry expenses of the Works and Lui as the agent of 50% moiety owner or shareholder in the Main Contract’s Works wished to discuss the matter with D2, ie P opined that neither moiety owner nor his/its agent should be responsible for receiving/making payments for sundry expenses, and as no one could spare the time to take up this duty on top of his own duty, Lui proposed to ask Pang to temporarily handle this for them and to leave decision on the actual arrangements for this job duty until after discussion in meeting upon P coming to Hong Kong, and Lui would temporarily handle such duty as no one would be responsible for the same in the period from 21 June to 31 August 2007, ie (1) account for the period from 21 June to 31 July 2007 had been rendered/sent to D2 with total balance due to Lui at HK$75.34 (see attached schedule 1), and (2) income and expenditures for the period for 1-31 August 2007 with total balance due to Lui at HK$1,283.40 (see attached schedule 2), so the total balance for these 2 periods due to Lui would be HK$1,358.74 (see last paragraph of attached schedule 2), and as payment for sundry expenses had to be made every day, Lui hoped D2 could make a decision and reply before getting off work that day so that Lui could issue cheques to the temporary responsible staff [16] the English translation is that P was asked to sign and issue cash cheque $8,000 (for payment 6-9-07 EXI/BOX concrete pump truck charges and part of cash payment for other purchase of materials) by 6 September 2007 [17] the English translation is that on 5 September 2007 D2 informed Lui that he should sign and issue cheques by 6 September 2006 to meet the site’s daily urgent expenditures, but Lui still had not done so by 8 September 2007, so D2 had no alternative but to think of a way to borrow monies to pay in advance, and D2 enclosed attached schedule (1) showing details of cash payments already made on behalf of D1, and urged that Lu must sign and issue a cheque for $8,874 by 10 September 2007
[19] the English translation is that since various material suppliers and sub-contractors had made urgent demands for due or overdue payments (amongst them the demand by Union King for June 2007 payment could not be further delayed), and the balance in the Joint Account was insufficient, so D2 proposed it would be necessary for the time being to inject $50,000 by 14 September 2007 with P injecting $25,000 and D1 injecting $25,000, and to avoid delay to the construction works thereby causing serious losses in various aspects, P was asked to to inject the capital on time and to sign/issue cheques immediately (see enclosed invoice of Union King) [20] the English translation is that on 22 August 2007 D1 issued the 22/8/07 Letter terminating all job duties at the site of the Main Contract or other job duties of Lui as the agent with full authority for the Main Contract, so (1) D1 was already in breach of Agt C9 (which provided that because Party B still had other business in Mainland China, Party B could not stay in Hong Kong for an extended period, and through mutual negotiations both Party A and Party B agreed that Party B shall appoint Lui as his agent and Lui shall work as general foreman of the Works under the Agt) with the last paragraph of the Agt providing that the Agt having been signed by both parties shall take effect immediately, and (2) the 22/8/07 Letter D1 gave to P and Lui that termininated all Lui’s job duties at the site of the Main Contract or Lui’s other job duties was also in breach of 2nd SAgt C11 and C13, so P gave D1 2 final days (from and including today) until 12:00 noon tomorrow to respond (P was then in Hong Kong and his mobile phone number: 86-xxxxxxxxxx), but if there was again no response, after 2 days P would immediately appoint solicitors to take legal action on his behalf, including commencing litigation in the Hong Kong courts and to enforce the penalty clauses due to breach of contract, and P reserved all his rights and powers to pursue actions against D1 [21] the English translation is that regarding the serious and extremely inappropriate meddling or handling of the operation of the Works at the site in Central by P or P’s representative Lui, D1 considered this to be a serious breach of both parties’ agreement, which affected the operation of the Works at the site in Central, and whilst related matters have been relayed to P and P’s representative in different ways, there was no improvement; further, owing to demands for outstanding payments to material suppliers and sub-contractors, on 12 September 2007 D1 requested P (and D1) jointly to inject $25,000 by each party before 14 September 2007, but up to that day D1 still had not received P’s response and as a result the Works suffered serious delay and loss, so D1 considered P’s above-mentioned conduct as amounting to refusal to perform the Agreements between P and D1, and D1 by this letter acknowledged and accepted P’s refusal to perform the Agreements, and formally notified P that all related Agreements shall be terminated immediately [22] in the section on “Employer’s Statement for Payment” in such certificate there was no deduction for liquidated damages (but most of the delay was not caused by D1 – see eg paras 101, 112 and 114 below) [23] P issued a written power of attorney dated 30 October 2007 to appoint Lui to represent him with full authority to deal with matters in relation to the present action including affirmations [24] D1 used to be but was no longer a formwork contractor in private construction projects, but D1 still did associated formwork construction works in the course of carrying out roads and drainage works [25] ie from preparing/pricing tenders up until completion of the works, including procuring materials/equipment, sub-contracting works, handling progress payment applications, and preparing, negotiating and settling final accounts with employers, sub-contractors and suppliers [26] the Works essentially comprised replacing an existing stormwater pipe culvert with a 2.7m x 2.7m box culvert, laying about 110m long stormwater pipes along Connaught Place in front of the General Post Office in Central, Hong Kong and constructing associated sewerage works, which works were divided into 2 sections, ie the Drainage Services Department Entrustment – Sewerage Work (“S2 Works”) and all other works (“S1 Works”) [27] ie to pay for establishment expenditures such as expenses for setting up a site office and facilities, procuring necessary insurances and site cars, and carrying out site administrative works, site clearance and other preliminary works [28] ie to serve as ready fund to tie over any poor cash flow situation in the course of the Works due to unforeseeable problems/contingencies until improvement in cash flow [29] particularly as (a) the Works were to be carried out along one of the busiest roads in Hong Kong where traffic problems, large or small, might crop up at any time to disrupt progress of the Works, and (b) the site for the Works (like other roads in Hong Kong) would have all sorts of underground services such as power cables, gas pipes, telephone lines, water pipes, etc that might obstruct the Works or require diversions (and there could not be any certainty until the roads were dug up to reveal such underground services) [30] the Main Contract required D1 to commence the Works on 17 December 2003 being 14 days from acceptance of the Tender on 3 December 2003 [31] which was a common front-loading pricing strategy to create better cash flow at the initial stage [32] [1986] HKLR 84 [33] (1876) 5 Ch D 458, 485 [34] ie (a) safety training for competent person working in confined space, (b) training for detection of underground power cables and gas pipes, and (c) training in safety and health supervision [35] as recorded in a letter dated 17 December 2003 by C&A under its former name to D1, D1 appointed C&Ato provide project management services, engineering services relating to all temporary works (including issuing ICE certificates to certify the integrity/stability of the temporary works), design and implementation of temporary traffic arrangement, contractual advice, quantity surveying services, formation of extension of time and monetary claims for the Works [36] eg purchase of hand tools, minor equipment and small quantities of materials etc [37] such as quotations, invoices, receipts, payment vouchers etc [38] including (a) liasing, coordinating and dealing with the Employer, the Engineer, the sub-contractors, the suppliers and the construction consultants, (b) hiring and dismissing workers, and (c) making all necessary arrangements for the Works [39] ie Lui inserted the relevant amounts in these 2 Signed Blank Cheques and then passed such filled out cheques to D2 to sign on behalf of D1 [40] clause 5 of the recitals of the Draft Agt referred to in para 125 below prepared by P’s lawyers that P gave to D1 provided that “有鑑於[D1]未能根據2003年12月15日簽訂的協議書第8條償還[P]投資的HK$2,000,000.00”, and the letter dated 30 May 2006 by D2 on behalf of D1 to P referred to the Agt and pointed out that $1,600,000 of the Initial Capital had returned to P (see para 126 below) [41] see return of $200,000 (out of $300,000), $200,000, $100,000 and $100,000 respectively on 20 May 2005, 19 August 2005, 24 August 2005 and 21 February 2006 towards the Capital as shown in the table in paragraph 112 above [42] after return of the remaining balance of the first $500,000 of the Capital (see return of $400,000 and $100,000 (out of $300,000) respectively on 18 April and 20 May 2005 in the table in para 112 above) and the entire Further Capital of $400,000 (see return of $300,000 and $100,000 respectively on 21 January and 18 April 2005 in the table in para 112 above) [43] the English translation is that in the hope that P would perform his obligation to provide capital, D1 had no alternative but to sign the 1st SAgt which provided that (i) D1 would not draw 3% of the Contract Sum and (ii) P would inject capital for construction fees, but still P did not abide by the agreement to inject capital, and recently P’s representative Lui even requested D1 to sign an extremely unfair contract in exchange for P’s capital, so D1 considered P had completely destroyed the original intended cooperation by both parties and had seriously breached the above agreement, and in view of P’s repeated breaches of the cooperation agreements made by both parties resulting in insufficient capital for the construction works that seriously affected the operation of the Works, but taking into account the friendly relationship between both parties, D1 would give P final notice to inject $400,000 for the construction fees within 7 days from the date of such letter or else the agreements made by both parties would automatically become ineffective [44]the English translation is that as regards investing extra capital in respect of the Works of the Main Contract, P agreed that in case D1 had shortage of operational funds or tight financial situation due to the Works, pursuant to D1’s written request P would lend further money to “your company” and both parties would agree that such loan would be (secured by) a floating charge, and D1 would undertake for such floating charge to be approved by D1’s board of directors with the relevant legal documents signed before it would become effective and confirmed, and then P would make the loan available to “your company” [45] such agreement specified that the scope of works by C&A included (a) to certify the temporary work design and method statement, (b) to arrange the diversion works among the public service and adjacent building, (c) to arrange the inspection of construction works, (d) to attend the meeting such as the site progress meeting, safety meeting etcm, (e) to provide the construction proposal and report for submission, (f) to provide the procurement service for all construction materials, (g) to provide service of account and administration for the project, and (h) to provide a management team including site agent and construction supervisor [46] D2 recalled that at one time Lui showed him a piece of paper containing terms of reference same as those for C&A without name of any consultant company, and suggested to replace C&A with an unknown consultant, but Lui prevaricated when D2 pressed him for particulars of the proposed replacement consultant company (eg its name, professional qualification, experience etc), so D2 rejected Lui’s suggestion [47] P in his closing submissions claimed D1’s board of directions passed resolution to approve the 2nd SAgt and the C&G, and the C&G was registered at the Companies Registry, but there was no direct evidence of these matters [48] when Lui was cross-examined on clause 3 of the recitals of the 2nd SAgt, he kept saying there was no deadline for P to make further investment (ie “有一個咁樣嘅再注資要求囉 ..... 呢條第3條冇時間限制, 妳係話係一年後、兩年後、...... 以後一年呀, 我先仲要擺落去吖, 都冇時間限制, 妳話我兩年嚟、一年嚟, 如果我 ...... 唔夠用, 你就要繼續擺, 咁就有時間限制, 我冇計”), but this was immaterial since 2nd SAGt C7 specified that P shall pay $500,000 within 3 days after the C&G taking effect, and in fact P deposited the Sum into the Joint Account on 22 July 2006 [49] see 2nd SAgt C7 and 2nd SAgt C9 [50] see clause 3 of the recitals of the 2nd SAgt and 1st SAgt C7 [51] see 2nd SAgt C7, C&G C2(1)-(4), C&G C6(5), C&G C6(7) and C&G C7(1) [52] see C&G C9(1) and the Guarantee [53] see C&G 2(4) [54] see 2nd SAgt C8 [55] after all, Lui prepared and arranged for issuance of the the Signed Blank Cheques to pay the monthly interest payments, so Lui/P knew and/or must have known interest was paid by the Partnership and the true borrower of the Sum deposited in the Joint Account and used for the Works (being the sole Partnership Venture) was the Partnership [56] [1954] 1 WLR 1309 [57] [2003] 2 HKLRD 21 [58] [2003] 3 HKLRD 296, 311-312 [59] which I have found to be part of the Initial Capital ($400,00) being P’s capital investment in the Partnership and the Sum ($500,000) being P’s loan to the Partnership [60] see Halsbury’s Laws of England (2015) Vol 49 para 90 at p 82 [61] see Halsbury’s Laws of England (2015) Vol 49 para 99 at pp 88-89 [62] Lui claimed he gave the Cheque in the sum of $6,482.50 already signed by P and already affixed with D1’s company chop to D2 via Ho [63] eg having meetings with representatives of the Engineer, the sub-contractors and the suppliers, having meetings with D1’s supervisory staff including Lui for briefing/discussion on any concerns regarding the Works, and handling routine administrative works, etc [64] Lui claimed the scope of his job duties included (a) allocating work for the workers, and (b) checking/signing workers’ attendance records and calculating wage payments (see para 99 above), but on balance I do not accept he was responsible for checking/signing the attendance records for night-shift workers the following morning (which was D2’s responsibility) for the reason (which I do not accept) that D2 was always late for work and left before the end of his shift [65] see Ng Ai Kheng, Jasmine v The Open University of Hong Kong HCA9801/2000, DHCJ Carlson (unreported, 29 July 2005) para 40 [66] see Halsbury’s Laws of England 5th ed (2014) Vol 79 para 39 at p 34 [67] including all correspondences between the Engineer and D1 and between D1 and its sub-contractors and suppliers, progress reports prepared by D1 for the Engineer, minutes of meetings, monthly progress payment applications and payment certificates, claims submissions to the Engineer, sub-contractor’s and supplies’ quotations and invoices, accounting records, etc. [68] D2 further testified under cross-exaimation (which I accept) that the Agt clearly spelled out P was unfamiliar with situation in Hong Kong, and D1 was empowered to manage and supervise the Works, “...... 而喺[Lui]嘅職務，合約嘅職份上, [Lui]係做地盤老總, ...... 去帶領啲工人、替工去監管工程嘅進展嚟向[D2]報告”, “[P]係有權利透過[Lui] ...... 有全面性嘅知道到我哋工程嘅每一個 ...... 財政嘅情況, 我哋嘅工程嘅進度、...... 收入, 以及我哋工程嘅整體嘅情形, 佢都喺 ...... 我哋合夥公司入面佢係一目了然, 完全係清楚, 所以[P]係已經係有足夠嘅知情權, ...... 喺晒 ...... [Lui]身上 ......” and “[P]喺成單工程, 我再講一次, 無論係佢正常嘅問題, 冇證問題、工程進展嘅問題; 無論係工程進度, 款項中期嘅收入問題, 甚至我哋進度嘅情形, 你[P]都一目了然, 所以[P]係已經存在咗喺度, ...... [D2]完全係唔會話點會可以阻止啫” [69] the table showed loans and repayments totalling $5,635,000 and $4,375,000 from/to Eastern Civil, and overdraft and repayments totalling $5,140,000 and $5,399,85.70 from/to BoComm for the period from October 2007 to February 2015 [70] ie total loan amount $5,140,000 + total interest $256,693.89 + credit balance $2,491.81 [71] ie total loan amount $5,635,000 – total repayment amount $4,375,000 [72] [1915] AC 79, 86-88 [73] see footnote 26 above [74] see footnote 26 above [75] section 37 of the PO provides that “[on] application by a partner, the court may decree a dissolution of the partnership in any of the following cases – ...... (c) when a partner, other than the partner suing, has been guilty of such conduct as, in the opinion of the court, regard being had to the nature of the business, is calculated to affect prejudicially the carrying on of the business; (d) when a partner, other than the partner suing, wilfully persistently commits a breach of the partnership agreement or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable for the other partner or partners to carry on the business in partnership with him; (e) when the business of the partnership can only be carried on at a loss; and (f) whenever in any circumstance have arisen, which in the opinion of the court, render it just and equitable that the partnership be dissolved” | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under HCA 2269/2007