Wong Bing Shiu v. Mui Bun Wah

HCA001568/1967

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 1568 OF 1967

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Coram: Huggins, J.

Date of Judgment: 11 October 1969

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JUDGMENT

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Huggins, J: The plaintiff claims the equivalent of a sum of £1,000 which was admittedly paid by him to the defendant. The statement of claim alleged that the £1,000 was in New Zealand currency. Leave was obtained to amend so as to allege that the payment was in sterling but no amendment has in fact been made. Leave was also given to amend the defence but, again, no amendment has been made. In the middle of the plaintiff's evidence leave was sought, and was granted without objection, to amend the further and better particulars of the statement of claim. It may be significant that this amendment was sought shortly after one of the allegations in the original further and better particulars had been shown to be false. I give this judgment conditionally upon the amendments' being made within 4 days from today.

1. The plaintiff and defendant were formerly patient and herbalist. They became friends and later became partners in a medicine business. There is undisputed evidence that at or about the end of January 1966 the plaintiff sent to the defendant a draft for st. £1,000, but issue has been joined as to the purpose for which the payment was made. The statement of claim alleges that the money was sent for safe custody pending the return of the plaintiff to Hong Kong from New Zealand. The case as presented on behalf of the plaintiff, however, has been that the money was sent primarily to enable the defendant to make on behalf of the plaintiff a payment which was about to fall due and which the plaintiff might not have returned in time to make, that the plaintiff did in fact return in time to make the payment himself, but that the defendant refused to repay the money he had received to the use of the plaintiff. The case for the defendant is that the money was sent as a contribution to the partnership funds and has been expended in the course of the partnership business. On the one hand the plaintiff is painted as a rather gullible young man dominated by an overbearing and self-seeking adviser and on the other hand he is painted as a generally shrewd man of business who finds himself involved in an unsuccessful medicine business and now attempts to evade his responsibilities at the expense of a partner who has shown him nothing but kindness.

2. The parties first became acquainted in 1960 when the plaintiff was on a visit to Hong Kong but it was not until 1964 that the partnership was formed. The plaintiff was working as a farmer in New Zealand and he saved a substantial sum of money. On a visit to Hong Kong in 1964/5 he had a discussion with the defendant in the course of which it was suggested that they go into partnership for the marketing of medicine. It is from this point that the parties tell diametrically opposed stories. The defendant maintains that the whole scheme revolved around a particular medicine which he had produced after years of research and that his contribution to the assets of the partnership was to be the sale to it of his formula at a price which was less than its true value, the plaintiff financing the business with the necessary cash. The plaintiff denies the very existence of this new medicine and, as I understand it, contends that the defendant was to bring in nothing but his knowledge and skill in administering the business. At the same time the plaintiff says that he himself was to manage the business despite the fact that he knew nothing about the pharmacy trade.

3. The relationship was then complicated by some transactions relating to two flats. The plaintiff says that his father was contemplating the purchase of real estate as an investment and that he (the plaintiff) happened to mention this fact to the defendant at a time when the proposals for a medicine business were in the doldrums because he could not raise the capital which the defendant had suggested was required. The plaintiff concedes that the defendant located two available flats, although his case is that the defendant was not in the first instance intended to be party to the purchase of either flat. The agreements of purchase and sale appear to have been oral agreements but the deposits on both flats were paid by the plaintiff and the single receipt (Ex.D) purports to record the terms of the agreements under which the deposits had been paid. This receipt is stamped merely as a receipt and not as an agreement for the sale of land. The fact that it shows the payment was made by the plaintiff is not, of course, by any means conclusive of an agreement to purchase both flats by the plaintiff alone and the fact that the document, which is on a printed form, describes the plaintiff as "purchaser" carries the matter little further. The deeds show that in the event flat No.23 was bought by the plaintiff alone (although, he says, partly with his father's money) and flat No.25 was bought in the joint names of the plaintiff and defendant. It is, however, emphasised on behalf of the plaintiff that this transaction relating to flat No.25 was entirely independent of the partnership and that the flat was at no time part of the assets of the partnership. According to the plaintiff this joint purchase was an afterthought and was decided upon only "when they went to the solicitor's office". As the deposits appear to have been paid direct to the vendors I understand this to mean the occasion when they went to the solicitor's office to make the indenture. Even according to the plaintiff himself the defendant had at an early stage "spoken of obtaining a flat for future letting to the medicine factory". By that he appears to have meant that his father was to buy the flat and let it to the factory. By the time the agreement to purchase the flats was made, however, the possibility of a letting to the medicine factory can no longer have been in contemplation for the plaintiff makes it clear that both he and the defendant were then thinking along the lines that the flats would be sold at a profit. It would be strange if, as he said at one point, the jointly purchased No.25 was to be used for speculation and the plaintiff's solely owned flat No.23 was to be let to the partnership. In re-examination the plaintiff said that in fact in March 1966 it was agreed that No.25 be used as the factory and that a rent of $400 should be paid, although it was not very clear who was to be the tenant. According to the defendant use of the word "factory" was misleading because it was never intended to manufacture pharmaceutical products on the premises. He further says that the decision for a joint purchase was reached before they went to the solicitor's office. That must be true. On the other hand he says that he was not aware until they went to the solicitor's office that the plaintiff was purchasing No.23 at all, although he was present when the deposit was made. I do not believe that denial. He had himself admitted that when he read the plaintiff's letter dated 25th February 1966 he understood the plaintiff to be saying that he had purchased No.23 and I believe he knew it before that.

4. The plaintiff's evidence shows that by the date of completion of the purchase he was worried at the possibility that "the flat" (by which I understood him to mean No.25, the flat purchased jointly) might prove difficult to sell and that the defendant then indicated he would be able to arrange a mortgage to ensure payment of the outstanding balance of the purchase price. I do not believe this conversation took place on the date of completion: I accept that there was such a conversation but I find that it must have taken place earlier.

5. The plaintiff says that on completion of the purchase he himself paid $19,775 in respective of No.23 and $16,775 in respect of No.25. Although neither his evidence nor that of the defendant was as clear on the point as I might have wished I gathered that the $4,000 deposits were credited towards these initial payments of the purchase prices.

6. At this point, the plaintiff says, there was yet another kind of transaction between him and the defendant: he says that the defendant asked for, and obtained from him on 14th March 1965, a loan of $5,000. Counsel for the defendant told me that this was admitted.

7. According to the plaintiff's evidence in chief he also paid the following sums as his share of the partnership funds: $5,000 in mid-December 1964, $2,000, $5,000. "about $18,000" and $8,000. In addition he paid a further $2,000 by instalments. There is no documentary evidence to support any of these payments but one of $2,000 (apparently the lump sum payment) was admitted by counsel for the defendant. There was one final payment alleged by the plaintiff - of a sum of $5, said in examination-in-chief to have been put in to make up a total of $45,000 which was being deposited in the Dao Heng Bank in March or early April 1965. How the figure of $45,000 was arrived at was not explained to me although in cross-examination the plaintiff repeated that he paid $45,000 before leaving Hong Kong 'in October 1965" (this must have meant May 1965). At another point in his cross-examination he said the figure was $40,000 but agreed it was not the whole sum paid. The total of the particular sums he says he paid was about $40,005. The plaintiff's detailed calculation of the payment of $5 was hardly convincing. He said there had been payments of $5,000, $16,000 (a figure not mentioned elsewhere), $2,000, $16,775 (the initial payment on No.25) and $220 (the legal costs on No.25), making $39,995. "Add $5 and you get exactly $40,000". He then destroyed his own explanation by saying "that was not how I came to pay $5". The defendant said that prior to the plaintiff's departure from Hong Kong in 1965 "no money was paid to me in relation to the partnership". By that he seems to have meant that the moneys which he admits receiving were not the working capital as distinct from the $30,000 which he says the partnership was to pay him for his formula. He admitted receiving $5,000 on 16th November 1964, $5,000 at about the end of November, $18,000 on 22nd January 1965 and the $5. Yet he says the $5 was "to make up the amount of $45,000 given to me", the $45,000 being a "first payment". Even on his own evidence this cannot be right for his figures do not total $45,000: with the first instalment on No.25 the payments by the plaintiff would come to $47,780 while without it they would be far below $45,000. Counsel for the defendant said it was to make up a sum of $17,000 ($16,775 for No.25, $220 costs and the $5) but it was not explained how that assisted the defendant. In cross-examination the defendant admitted having received a total of $59,900 from the plaintiff altogether but then went on to admit that he had received $61,000 odd, being $45,000 paid before the plaintiff went to New Zealand in May 1965 and $16,031.70, the equivalent of the £1,000. Even that does not take into account a sum of $1,500 which he says the plaintiff paid as a capital contribution in March 1966.

8. The £1,000 was remitted from New Zealand in January 1966, shortly before the plaintiff returned to Hong Kong for the last time. The occupation permit for the building which included the two flats was expected to be issued in about February. The correspendence before me, although it is incomplete, suggests that the defendant had had a conversation with the vendors and that they had indicated their willingness to extend until the plaintiff's arrival in Hong Kong the time for payment of the balance of the purchase price, but whether this related to the purchase price of both flats or only to that of one of them is not clear. In any event the plaintiff was not satisfied that the vendors had bound themselves to extend the time and he asked the defendant to see them again. Between this request and the plaintiff's next letter - the letter accompanying the remittance - the defendant wrote twice but neither of these letters is in evidence. The letter dated 27th January 1966 asked the defendant to cash the "cheque" (it was in fact a draft) and told him he could temporarily deposit the money in a bank. The plaintiff was still hoping to be back in Hong Kong by the date on which the balance of the purchase prices would fall due but in case he was not he told the defendant he could "handle the matter according to the situation or go to the lawyer's office to pay money first". There has been much argument whether this related to both flats or, as the plaintiff says, only to No.23. I find nothing in the letter itself which would justify the conclusion that the remittance and the authority to handle the matter was confined to No.23: the letter certainly does not "state clearly to Mui that the £1,000 which (the plaintiff) remitted should only be used to pay off 20% of the purchase price for No.23 in case the occupation permit was issued before (the plaintiff's) return", It does not seem to me to be material that the letter indicates that there had already been some negotiation with the vendors for payment of the balance in respect of No.23 by instalments.

9. The draft was cleared by 18th February. By that time the plaintiff had returned to Hong Kong and on that or the following day, he says, he asked the defendant for the money, but both then and subsequently he was put off. Very soon after the plaintiff's return there also arose a dispute about the partnership funds. The plaintiff asserts that early in February 1965 he agreed to put up $50,000,i.e. $40,000 before he left for Australia in May 1965 and $10,000 when he returned. It must be remembered that the payment of $16,775 in respect of No.25 was alleged by him to be entirely independent of the partnership. As we have seen his evidence was not very precise as to the amount which he in fact paid before his departure but it appears to have been between $35,000 and $40,000. In his long letter of 25th February 1966 the plaintiff promised to increase his contribution to $60,000 and in his evidence he said that two or three days later the defendant "agreed to the $60,000." However, he further said the defendant was not satisfied and in August 1967 demanded that he (the plaintiff) should sign a document saying (1) that the plaintiff had agreed to contribute $70,000 of which $30,000 was to be paid by the partnership to the defendant for his own use, but that (2) the plaintiff having paid $60,000 the defendant now agreed to the reduction of the payment to himself to a sum of $10,000. The defendant admits both parties signed this document although he says the original of it was produced by the plaintiff and that he himself made one copy of it. On this point I think the plaintiff's evidence is more reliable, especially as I cannot believe the defendant when he says he asked the plaintiff at the same time to sign two entirely inconsistent agreements. Although the document in fact signed by both parties provided that the dispute as to the $10,000 should be referred for arbitration to the Secretary for Chinese Affairs no such reference was made. The plaintiff's evidence that the defendant agreed "that if we suffered a loss he would let me have half of the capital back" seems to me most unlikely to be true.

10. On 9th March 1966 the parties went to the solicitor's office to complete the purchases. The plaintiff having made the initial payment on No.25 the defendant paid by cheque a cash sum towards the balance and the rest was advanced upon a mortgage. In examination-in-chief the plaintiff said he did not see the amount of the cheque although the clerk had said the right figure was $14,000. In cross-examination he said he saw the defendant write a cheque for $14,000. The inconsistency here is perhaps more apparent than real. However, the defendant's cheque has been produced and it is for $14,469. This is made up as to $1,737 and $257 for professional services and disbursements and as to $12,475 to be paid to the vendors. I do not have the mortgage deed but the bill states the mortgage advance to be $20,000 and together with the $12,475 that makes up the balance of $32,475 due to the venders. When the time came to deal with No.23, the plaintiff says, he was surprised to be asked to execute a similar mortgage to that executed in respect of No.25 when he had $25,000 in cash and was expecting the defendant to produce the equivalent of £1,000. which would enable him to pay the whole purchase price for No.23 without a mortgage. He said he had given no instructions for preparation of a mortgage and yet the mortgage deed had been engrossed. When the defendant said he had forgotten the money the plaintiff, although he was suspicious, "was not quite sure" and he executed those document's. The defendant's case is, of course, that the partnership agreement did not require him to put up any cash at all, that in particular he never agreed to pay that proportion of the balance of the purchase price of No.25 which was not covered by the mortgage advance, that the £1,000 was part of the partnership assets and that he properly used the £1,000 to make the payment for No.25. The plaintiff says he was unaware that the £1,000 had been so used until 25th April when the defendant asked him to pay $15,000 "as capital for operating the factory". According to him his reaction was "my $15,000 as capital should be deducted from the £1,000 I have". This could only be right if there had been an agreement not only to increase his total capital contribution from $50,000 to $60,000 but he had also in fact paid $45,000 of the $60,000. In the event he says he paid one sum of $10,000 and another of $5,000 during April but he seems to suggest that he made these payments only because the defendant was threatening that, if he did not, the whole undertaking would be a failure.

11. The plaintiff says that in about August 1966 he asked for and received from the defendant "some rough accounts" of the cost of operating the factory, His story is that the friendship between them did not survive the production of these accounts because they were false, in the sense that "they included moneys (the defendant) had paid to (the plaintiff's) father". He explained that this referred to a sum of $3,000 paid by the defendant to one Chan Wah-Ling for the plaintiff's father, a sum which the plaintiff complains has been shown in the accounts as still outstanding although it has, he says, been repaid. The defendant admits the payment to the plaintiff's father has been entered as a payment to the plaintiff. He gave no satisfactory explanation of this but merely said that the figure of $3,916 should be $3,116, apparently made up as to $3,000 by the payment to the father and (as I understand him) as to $116 by advertisement expenses, though that last would appear to be an expense of the partnership. In cross-examination the plaintiff said that although he had paid $60,000 into the partnership it was written down as $20,000. on the other hand although the defendant "had contributed nothing towards the capital" there was an entry to the effect that he had contributed $20,000. (I think the exact figure shown in the trial balance which apparently accompanied the rough accounts is $24,950 in each case). I confess I do not understand the accounts, nor was the defendant able to enlighten me: he admitted a number of mistakes. In his own summary of income and expenditure the very first figure, according to the defendant, represents a payment to the plaintiff's father from the partnership's money, not from his own. Debits and credits seem to be entered wholly without system, as he himself admitted.

12. Whatever the truth may be about the moneys paid and received the defendant is clearly most blameworthy for the manner in which the finances of the partnership were organiced. Initially moneys admitted by him to have been for the credit of the firm were paid into his own bank account without any separate records being kept. He even suggests that when the name of the firm was substituted for his own name in account No.4812 on 13th May 1966 that was done without his consent. I do not believe that. According to him a single entry in the bank account may relate partly to moneys of the partnership and partly to his own moneys. Thus he said a deposit of $2,500 on 12th March 1966 represented $2,000 from the plaintiff and $500 from himself. There is no deposit of $2,500 shown in any of the three accounts produced from the Dao Heng Bank (with which the partnership's money is said to have been deposited) on that or any other date.

13. I now have to consider whether amid the welter of falsehood on both sides there is sufficient evidence to support the claim of the plaintiff. On the basis of the case as presented the short question is What was the authority given to the defendant in relation to the admitted payment of £1,000? It is for the plaintiff to establish on the balance of probabilities that he communicated an intention that the money should be used for the purchase of flat No.23 and that if it was not necessary for the defendant to use it for that purpose before the plaintiff's return to Hong Kong the defendant would repay it to the plaintiff.

14. As counsel for the defendant says, the weakness of the case for the plaintiff is manifest in his pleading for he there alleges that the payment was for "safe custody". Attention was focused on this by the application for further and better particulars but still no mention was made of what is now said to have been the true purpose of the remittance. I do not overlook the fact that where money is remitted for the purpose of making a payment which in the event is not made there is an implied duty to keep the money "in safe custody" pending further instructions from the payer, but the custody is not there the purpose of the remittance. It is difficult to see how the plaintiff's account of what happoned on the date of completion of the purchases of the flats can be true. According to his letter of 27th July 1966 he was expecting to pay "about $12,000", being 20% of the total purchase price of No.23. He expected the defendant to pay for No.25, as in fact he did although not from his own moneys. It appears to be the plaintiff's story that subsequently to this letter he decided to pay the whole balance of the purchase price of No.23 in cash (i.e. $39,475). To this end he took $25,000 in cash himself and looked for $16,000 odd from the defendant. In the event he paid "around $22,000" from his own money and the $15,000 advanced on the mortgage. The actual sum he paid himself must have been $24,475, plus the solicitor's charges and stamp duty, and these extras far from being "about $1,000" were $1,977 so that he would not have had sufficient money with him. On the other hand if he was still expecting to pay 20% of the purchase price (meaning, as his calculation of $12,000 for No.23 suggests, another 20% of the total purchase price) then the sum due for both flats would have been $21,700 plus costs and stamp duty, which would have been conveniently covered by the $25,000 he says he brought. Para. 2 of the defendant's letter of 2nd February 1966 appeared to contemplate a payment of this order. The conclusion I have reached is that neither party is entirely correct and that the £1,000 was intended to be not for No.23 nor for No.25 alone, but that it was for both as might be required. The terms of the correspondence are not specific and I do not accept the plaintiff's interpretation of it entirely. Such letters as have been exhibited do suggest that the remittance was made to meet eventualities in relation to the flats, that the money was to remain the plaintiff's money and that it was not generally for the credit of the partnership account. Nothing in the evidence which appears to me worthy of credence is inconsistent with this interpretation. Some slight support for it may be found in the remark by the defendant that he "had to pay the money to the plaintiff on his arrival so that he could pay it to the partnership". In the result I think the defendant was entitled to pay the instalment on No.25 out of the £1,000 but that he was not entitled to regard the balance over and above what he actually paid for that purpose as part of the partnership funds. The defendant paid $12,475 in respect of No.25 and it seems to me that the plaintiff must be entitled to judgment for $3,556.30. Whether or not flat No.25 is part of the assets of the partnership it is unnecessary for me to decide in this action.

11th October, 1969.