Cheung Hau Chun v. To Suet Chun and Others
Read the full judgment text of HCA 1259/2015 on BabelCite. This High Court CFI judgment was delivered on 2 February 2021.
1. This is a partnership dispute.
Cited by 3 cases · Cites 6 cases
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HCA 1259/2015 [2021] HKCFI 264 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1259 OF 2015 ________________________ BETWEEN
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________________________ J U D G M E N T ________________________ 1.This is a partnership dispute. 2.The plaintiff, Mr Cheung Hau Chun (“P”), alongside with the 1st defendant, Ms To Suet Chun (“D1”), the 2nd defendant, Mr Cheung Yiu Fai Danny (“D2”), and the 3rd defendant, Mr Wong Tung Hoi (“D3”) (together “D1-D3”), were partners of a business in the name of Tai Dou Building Contractor (大道建築公司) (“Tai Dou”). The partnership was constituted by a partnership agreement dated 7 December 2010 (“PA”) entered into between P and D1-D3 (collectively “Partners”). 3.The 4th defendant, Mr Wong Siu Wah Paquet (“D4”), was pursuant to a power of attorney dated 7 December 2010 (“POA”) appointed as attorney of the Partners to carry on the business of Tai Dou. 4.P claims against D1-D3 for declarations that the partnership has been dissolved on 15 August 2012, alternatively, 28 September 2012 or 31 May 2015; return of capital of $2,025,000 or damages to be assessed and other consequential relief. As against D4, P claims damages for breach of the POA, alternatively, an account of all monies received by D4 qua attorney of the Partners. 5.D1-D3 and D4 (collectively “Ds”) counterclaim for a declaration that P has been holding his 25% interest in the partnership as a trustee of D3. A. BACKGROUND 6.Unless otherwise stated, the following facts are taken from the statement of agreed facts or evidence which are not in dispute. 7.Tai Dou was first established in March 1963 by the late Mr Lau Yuen To, who was the husband of D1 and the grand uncle of D3 and D4. Since then, various other persons had become partners of Tai Dou and their names were notified to the Business Registration Office (“BRO”) and registered as its partners. 8.Tai Dou held a B Licence for building services contractors issued by the Works Branch of the Development Bureau of the Government, which entitled to tender for and undertake Government’s construction projects for contract sums of up to $300 million. 9.D2 is a full time insurance agent. He has been an authorised signatory of Tai Dou, responsible for signing documents on its behalf. He has been a good friend of D4 for many years. 10.D3 is the younger brother of D4. He acted as a foreman in respect of the projects undertaken by Tai Dou. 11.Since the demise of the late Mr Lau, D4 has been in charge of all the affairs of Tai Dou including soliciting business and submitting tenders for Government works. 12.P has since 1992 been engaged in mechanical and construction works (“E&M works”) through a number of companies controlled by him. These included United-Power Engineering Co Ltd (聯力工程有限公司) (“United Power”) and Pacific Fine Engineering Limited (順明工程有限公司) (“Pacific Fine”). 13.In 2001, P came to know D4 through the introduction of D4’s uncle. In 2002, upon D4’s request, P advanced a loan of $200,000 to D4 which was repaid in 2 months. 14.Since around 2004/2005, P had become acquainted with D3 and D4 and their father, Mr Wong Ming Robert (“Robert Wong”), inasmuch that P was willing to provide short term loans to D3, D4 and/or Robert Wong upon their requests. These included:
15.In addition, during the period from 2005 to 2010, D2-D4 through Tai Dou or Chinaway (Union) Construction Co Ltd (華威 (聯合) 建築有限公司) (“Chinaway”), a company owned and controlled by them, sub-contracted more than 10 projects involving E&M works to P’s companies. Amongst these projects, in respect of the project at Haven of Hope Nursing Home, Chinaway did not pay the contract price to United Power in full, leaving an outstanding balance of around $850,000 (“Unpaid Balance”). 16.It is P’s case that at the meeting held in the third quarter of 2010, D4 told P that the partners were grateful to P advancing interest free loans to Tai Dou and not suing Chinaway in respect of the Unpaid Balance, and they invited P to become a 25% equity partner of Tai Dou. It was orally agreed between P and D4 (on behalf of D1-D3) (“Oral Agreement”) that:
17.Pursuant to the Oral Agreement, D4 instructed WHC to prepare the PA and the POA. The PA and the POA were signed by all the parties on 7 December 2010 before a solicitor of WHC. 18.Under the PA, the Partners agreed as follows:
19.By the POA, the Partners irrevocably appointed D4 to be their “true and lawful attorney” to act for them and in their names or in D4’s name to do, perform and transact the following acts, deeds, matters and things or any of them:
20.It is P’s case that after execution of the PA, he paid the balance of $300,000 to D4 in cash while they were in Macau. This is denied by Ds. 21.It is not in dispute that after P had become a partner of Tai Dou, United Power did not demand, and Chinaway never repaid, the Unpaid Balance. P says that the Unpaid Balance was waived pursuant to the Oral Agreement, while Ds say that the Unpaid Balance was not and could not be treated as capital injection by P into Tai Dou as it was owed by a separate legal entity (Chinaway), not Tai Dou. 22.Ds do not dispute that P has procured the 5 loans and the 3 loans to be advanced to Tai Dou (collectively “Loans”) and that the Loans were used by Tai Dou to meet the working capital requirement for tendering work contracts from the Government. However, Ds contend that the advancement of the Loans was the mode of cooperation between P’s companies and Tai Dou so as to enhance the prospect of Tai Dou succeeding in its tenders for Government projects which, if successful, would be sub-contracted to P’s companies. 23.During the period when P was a partner of Tai Dou, he was involved in (1) co-signing cheques for Tai Dou (alongside with D4); (2) assisting (by himself or through his staff) Tai Dou in obtaining quotations from other sub-contractors required for undertaking the works under the contracts before submitting tenders for such contracts to the Government; (3) preparing tender documents for submissions to the Government; and (4) allowing D4 to use P’s office when dealing with Tai Dou’s business. No remuneration or rent was ever paid by Tai Dou to P. 24.By August 2012, P became dissatisfied with the fact that no dividend had been paid by Tai Dou despite the profits which had been generated from its business in the past 2 years or so. 25.On or around 15 August 2012, P informed D4 that he would withdraw from the partnership. There is a dispute as to whether on this occasion, P requested for return of his share of capital in the partnership and whether D4 (on behalf of D1-D3) agreed to repay the same to P. 26.By a notification of change of partners dated 15 August 2012[1] signed by P and Ds and submitted to the BRO, they confirmed that P retired as a partner while D4 became a partner on 15 August 2012. 27.On 19 November 2012, Ds entered into another partnership agreement in respect of Tai Dou prepared by WHC which stated, inter alia, that:
28.According to the information registered at the BRO, the dates of the incoming and outgoing partners of Tai Dou, insofar as they relate to the PA, are as follows:
29.Despite P’s withdrawal from the partnership, he continued to attend to the follow up and rectification works in respect of those projects handled by him whilst he was a partner of Tai Dou. These included attending the hearing on behalf of Tai Dou in March 2013 in ESS 4560/2013, in which Tai Dou was prosecuted for failure to comply with the safety requirements in the course of the Nursing Home Project. 30.At no time did D4 render any accounts or pay any amount, whether by way of distribution of profits or return of capital, to any of the Partners. 31.By letters dated 17 December 2014 addressed to Ds, Messrs Oliver C M Chan & Co (“OCC”), on behalf of P, referred to the failure of Tai Dou to pay any profits or capital or to provide any books of accounts to P, and demanded Ds to (1) provide the partnership’s accounts, (2) pay $2,025,000, being P’s share of capital, and (3) inform P of the other amounts payable to P in accordance with the financial statements of Tai Dou by the end of the month. 32.Notwithstanding WHC’s involvement in preparing and witnessing the execution of the PA and the POA qua solicitors of the Partners, they responded to P’s demands by letters dated 29 December 2014 stating that (1) P’s claim was “none of [D4’s] concern” as D4 had never entered into any partnership agreement with P; (2) P was a mere trustee of D3 and had no involvement with Tai Dou’s business in this way:
33.By letter dated 6 March 2015 to WHC, OCC referred to the fact that WHC had acted for all the parties concerned with the PA and the POA including giving legal advice, preparing, executing and attesting to them and it was inappropriate for WHC to act for Ds, given that they sought to challenge the validity of the PA and POA. 34.After WHC informed P that they had no instructions to accept service of the writ on behalf of Ds, OCC sent another letter of 23 April 2015 to Ds repeating P’s earlier demands on the basis that he had retired from the partnership with effect from 15 August 2012 or 28 September 2012. Further, for the avoidance of doubt, P gave one month’s notice pursuant to clause 9 of the PA to terminate the partnership on 31 May 2015[3]. 35.In response, D3 (on behalf of himself and D1-D2) and D4 repeated the same assertions contained in WHC’s letters of 29 December 2014. 36.In their letter dated 1 June 2015 to Ds, OCC denied all the allegations made by Ds and reminded them that making false declaration or affirmation was a criminal offence under the Crimes Ordinance (Cap 200). 37.No further response was made by Ds. 38.On 9 June 2015, P issued a writ indorsed with a statement of claim (“SOC”). B. ISSUES 39.It is P’s case that by virtue of the PA, he became an equity partner of Tai Dou alongside with D1-D3 until he retired from the partnership on 15 August 2012, alternatively, on 28 September 2012 or 31 May 2015. Upon his retirement, the partnership constituted by the PA was dissolved on the same day. 40.Although many alternative relief are pleaded in the SOC, at trial, Mr Cheung confirms that P does not pursue his claim for damages for breach of the PA and POA as P has not been provided with any accounts of Tai Dou. Instead, he focusses on the following claims:
41.Ds contend that P was a partner “on paper” only and he was a trustee of D3 and, as such, P is not entitled to obtain return of the capital or to enforce any terms of the PA and the POA. 42.As Mr Wong confirms in his oral opening, the only basis relied upon by Ds in support of their contention is the “express mutual understanding” allegedly reached between P and Ds at the meeting held at Tai Dou’s office prior to the parties executing the PA and the POA whereby all parties agreed and understood that P would be a partner “on paper” only, and he was a trustee of D3 (“Mutual Understanding”). In respect of the Mutual Understanding, it is Ds’ case that each of D1-D3 was privy to, and agreed with, the Mutual Understanding, and D4 did not act as representative or agent of D1-D3. 43.In his oral opening, Mr Wong (rightly) acknowledges that on Ds’ case, the PA, the POA and the registration at the BRO, to the extent that they described P as a partner of Tai Dou and had been provided to third parties or made available to the public, constituted misrepresentations made by the Partners to such parties. 44.The issues which require determination by the Court are:
C. DISCUSSION C1. Evidence 45.At trial, only P, D2 and D4 give viva voce evidence. 46.I find that overall P is an honest witness who tries to give his evidence in a candid manner where possible. This is despite the long lapse of time between the trial and the events he is asked about during cross-examination. His evidence is unshaken on the main issues including the circumstances he was invited to join Tai Dou as a partner, the Loans advanced to and repaid by Tai Dou, the Oral Agreement, how the capital contribution to the partnership came about, how he paid up his share of the capital and his involvements in dealing with Tai Dou’s affairs and projects. His evidence on these issues are largely corroborated by contemporaneous documents and accord with commercial sense. I accept the evidence of P insofar as it is inconsistent with the evidence of D2 and D4 on these issues. 47.As for D2, I find that his evidence on the Mutual Understanding and the Unpaid Balance to be unreliable. 48.So far as Mutual Understanding is concerned:
49.However, during cross-examination, D2 is unable to say when, where and how P allegedly made the request other than asserting that there was a meeting at Tai Dou’s office between P and Ds during which the Partners talked about the partnership agreement, which was the only meeting he had with P. This casts doubt on the credibility of what he said in WS (summarised in §48(1) above). The alleged meeting also does not sit well with the evidence of P and D4, who both confirm that Tai Dou did not have its own office at that time. 50.When asked by this Court as to whether the parties used the words “paper partner” and whether that phrase was discussed at the meeting, D2 accepts that in fact, there was no discussion at the meeting, and his understanding that P would be a “paper” partner was based entirely on what D4 had told him before the meeting. 51.D2 says that he has never contributed any capital to, or received any profits distribution from Tai Dou. Nor has he ever been asked to assume any liability of Tai Dou in his capacity as a partner. This raises the obvious question as to why D2 considers himself was a real partner whereas P was a “paper” partner. When this is put to D2, he acknowledges that he has never thought of what distinguishes a real partner from a “paper” partner, other than saying that he is a real partner on the basis that he carried out work for Tai Dou. Given that P also did much, if not more, work for Tai Dou (see §23 above), the purported reason for contending that P was a “paper” partner cannot be true or correct. 52.As regards Unpaid Balance, in his WS, D2 did not deny that the amount was owed and never repaid to United Power, he claimed that this had “nothing to do with” Tai Dou given that D3, D4 and he did not have the “right” to allow P to join as a real partner of Tai Dou or treated him as having contributed $2,025,000 as capital. I am unable to see why the Partners (represented by D4) could not agree to admit P as a new partner and treated him as having contributed $2,025,000 as capital, which was precisely what the Partners agreed under the PA. 53.I find that the Partners (acting by D4) agreed to treat the Unpaid Balance as part of P’s capital contribution pursuant to the Oral Agreement. This is corroborated by, and consistent with, the fact that since execution of the PA, United Power has not demanded Chinaway to repay the Unpaid Balance. 54.I turn to the absent witnesses, D1 and D3. They have not filed any WS or given evidence even though D3 is present throughout the trial. No explanation has been provided by D1 or D3 as to why they elected not to give evidence in this action. 55.Mr Cheung submits that D3 is an important witness in that he was one of the partners and the alleged beneficiary of the 25% interest held by P in Tai Dou. As such, D3 is expected to have material evidence to give on the Partnership Issue. D3’s absence without explanation is sufficient for the Court to draw adverse inference against him that his evidence would not be helpful to his case (Li Sau Keung v Maxcredit Engineering Ltd & anor [2004] 1 HKC 434 (CA), at 443H-444A). On the other hand, Mr Wong contends that “there is no single piece of evidence privy to [D3’s] knowledge in which by calling [him], the evidence can be further explored” and there is “no material evidence which can only be given by [D3]”. 56.I do not accept Mr Wong’s contention.
57.Where, as here, D1 and D3 elected not to give evidence which are material to the issues raised by the parties, the Court is entitled to draw all reasonable inferences as to what are the facts which they have chosen to withhold. The principle was stated by Lord Diplock in British Railways Board v Herrington [1972] AC 877 at 930G-931B as follows:
58.The inference to be drawn must be grounded on the primary facts proved (Nina Kung v Wong Din Shin (2005) 8 HKCFAR 387 at §§185-187, per Ribeiro PJ). 59.Where the evidence is incomplete and obscure in critical aspects, the silent party’s failure to give evidence may convert that evidence into proof on the matters which are within his knowledge. As stated by Lord Sumption JSC in Prest v Petrodel Resources Ltd and others [2013] 2 AC 415 at §44:
60.Applying the above principles, I will not treat the evidence of D2 and D4 as evidence in support of Ds’ counterclaim and the defence advanced by D1 and D3 unless such evidence is not in dispute or is corroborated by other credible evidence. Where I find that P has adduced sufficient evidence to prove the matters asserted by him and such matters were or likely to be within D1 and D3’s knowledge, I will draw reasonable inferences against D1 and D3 as to the facts which they have chosen to withhold from the Court. 61.I do not find D4 to be a satisfactory or credible witness. He has a tendency to say things which suit his purposes without any regard to the objective facts or facts which are indisputable. I give 2 examples:
62.As further discussed below, while it is unnecessary to refer to or rely on the evidence of D2, D4 and P when considering the issues I have to decide, if and insofar as their evidence is or may be relevant to a particular fact, I prefer the evidence of P over that of D2 and D4. C2. Partnership Issue 63.It is well established that where, as here, persons of full age and understanding are bound by the documents they signed unless they can establish a recognised legal basis to disown such documents. The principles were stated by Ribeiro PJ in Ming Shiu Chung & ors v Ming Shiu Sum & ors (2006) 9 HKCFAR 334 at §§84-87:
64.P and D1-D3 signed the PA before a solicitor of WHC who had interpreted the contents to, and witnessed their signatures. Prima facie, D1-D3 are bound by the contents of the PA. 65.In my judgment, the fact that P was admitted as a partner of Tai Dou in the same way as D1-D3 is amply supported by the following matters:
66.There was nothing in the above contemporaneous documents which suggested or even hinted that P was a “paper” partner or that he held his 25% interest in Tai Dou as trustee of D3. 67.The burden is on D1-D3 to plead, and establish by evidence, recognised vitiating factors to disown the PA. This has not been done. There is therefore no basis for D1-D3 to resist P’s claim that a partnership comprised of the Partners was constituted by the PA, and that P held his 25% interest in his own right. 68.As the Mutual Understanding (and the alleged trust said to have been part thereof), even if established, are not recognised legal basis for D1-D3 to disown the PA, it is unnecessary to make any findings on such allegations. Nevertheless, as much time and costs have been incurred by P and Ds in respect of such allegations, I shall state the reasons why I consider such allegations to be wholly devoid of merit:
69.For the above reasons, I hold that by virtue of the PA, a partnership was formed between P and D1-D3 to carry on the business of Tai Dou and P held his 25% interest in the partnership in his own right. C3. Retirement Issue 70.It is not in dispute that P informed D1-D3 that he would withdraw from the partnership with effect from 15 August 2012, which was accepted by D1-D3. This is evidenced by their act in signing the notice to the BRO reporting the changes in partners. 71.I hold that P retired as partner of Tai Dou on 15 August 2012 and the partnership between P and D1-D3 was dissolved on the same day. A declaration on the date of dissolution of the partnership is the appropriate relief (see for eg, Atkin’s Court Forms, 2nd ed, Vol 30, 1994 Issue, Forms 26-27). C4. Partnership Relief Issue 72.The only point advanced by D1-D3 in opposition to the relief sought by P is that he has never paid $2,025,000 to Tai Dou as his capital contribution and, as such, he is not entitled to obtain the return of his share of capital. I reject D1-D3’s contention. 73.First, it was stated in clause 3(i) of the PA that the capital of the partnership was contributed by P as to $2,025,000. Having agreed to such statement in the PA, D1-D3 are estopped from asserting that P did not make his share of capital contribution to Tai Dou. The relevant principle is explained by Lord Toulson in Prime Sight Ltd v Lavarello [2014] AC 436, §41, (cited with approval by Lam VP in Asgain Co Ltd v Cheng Ka Yan (No 2) [2018] 2 HKLRD 641, §11). In summary, a clause can operate as an estoppel if as a matter of construction it amounts to a mutual agreement to treat it as true, and if there are no vitiating factors such as illegality or misrepresentation, then the fact that the parties have willingly so bound themselves is itself sufficient reason for the contract to be enforced. The mere fact that parties knew that it was false is not sufficient to defeat the effect of the clause. 74.Second, I accept P’s evidence on the Oral Agreement, specifically that he had been told by D4 (on behalf of D1-D3) that the net value of Tai Dou was $4,500,000 and he had to pay 25% of such value in the amount of $1,125,000 as his share of capital contribution. I find that P did pay his contribution by procuring United Power to waive the Unpaid Balance and he paid $300,000 cash to D4, who received the same on behalf of D1-D3.
75.However, I do not think that P is entitled to obtain return of capital in the amount of $2,025,000. On P’s own case, the net value of Tai Dou was $4,500,000, which was $3,600,000 less than the capital stated in clause 3(i) of the PA. This suggests that at the time P became a partner of Tai Dou, part of the $8,100,000 had either been lost or had been offset by the liability of Tai Dou. 76.In my view, it is appropriate to order taking of accounts and inquiries in respect of the partnership’s transactions, assets and liabilities during the time when P was a partner, that is, from 23 August 2010 to 15 August 2012 (“Relevant Period”), given that:
C5. Attorney Issue 77.At trial, Mr Wong (rightly) does not advance any submissions in opposition to P’s claim, whether in respect of the duties owed by D4 as attorney of the Partners or the relief claimed against D4. This is unsurprising in light of the following undisputed facts:
78.Where, as here, the fiduciary relationship is established, the beneficiary or principal is entitled to an account as of right. An order for an account does not in itself provide P with a remedy, it is only the first step in the process which enables P (the beneficiary) to identify the deficit in the trust fund and seeks the appropriate means by which it may be made good (Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681, at §166-169, 172, per Lord Millett NPJ). 79.It is in the circumstances appropriate to order D4 to account for (1) all the dealings, transactions, credit and assets belonging to the partnership for the Relevant Period, and (2) all the debts and liabilities of the partnership, if any, during the Relevant Period. 80.In practice, the account which D4 is going to provide may overlap with the taking of accounts and inquiries of the partnership given that D4 was the agent who handled all the affairs of the partnership during the Relevant Period. As D4 has thus far refused to provide any accounts or financial information covering the Relevant Period to P, despite the many requests made by P, it is necessary to make an order against D4 to ensure that he cannot avoid the obligation to account by shifting the obligation to D1-D3 or Tai Dou. D. CONCLUSION 81.I make the following order:
82.I direct the parties to try to agree on the directions on the taking of accounts and inquiries and submit the same to the Court within 14 days of this Judgment. If no agreement is reached, P and Ds do lodge their respective proposed directions together with explanatory submissions within 7 days thereafter. 83.The parties be at liberty to apply to the Court for the purpose of executing or carrying into effect the terms of Order and for directions on the taking of accounts and inquiries. 84.As for costs, I make a costs order nisi that Ds do pay the costs of and occasioned by the action (including all costs reserved) to P on a common fund basis, to be taxed if not agreed. It seems to me that it is appropriate to order costs against Ds on a higher scale, in light of my findings that Ds have absolutely no basis to resist P’s claims or to raise the alleged Mutual Understanding. As a result of Ds’ allegations raised in their D&CC, much time and costs have been wasted by the parties in what would otherwise be a simple and straight forward claim for dissolution of the partnership.
Mr Victor CF Cheung, instructed by Joseph P. K. Pang & Co., Solicitors & Notaries LLP, for the plaintiff Mr Kenneth YF Wong, instructed by Raymond Siu & Lawyers, for the 1st – 4th defendants [1] P’s primary case is that the partnership constituted by the PA was dissolved on 15 August 2012 [2] P’s alternative case is that the partnership constituted by the PA was dissolved on 28 September 2012 [3] P’s further alternative case is that the partnership constituted by the PA was dissolved on 31 May 2015 [4] §§14 – 17 [5] At §15 of WS, D2 said “the express mutual understanding that [P] was only named on paper as a partner of [Tai Dou] and that [P] was a mere trustee of and for and on behalf of [D3]” [6] §§13-16 |
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