Li Tsz Chiu and Others v. Lo Kar Yam and Another

HCA000006/1946

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION No. 6 of 1946.

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Coram: Mr. Justice T.J. Gould

Date of Judgment: 31 July 1948.

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JUDGMENT

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1. The question between the parties in this action is essentially who, at the present time, are entitled to rank as partners in the partnership which owns the Stag Hotel of Nos. 148-150 Queen's Road, Central. The proceedings were commenced over two years ago and the parties were originally, on the one side Li Tsz Chiu, Li Kui Po, Ho Chup Suen, Wong Chan Shi, and Tong King Yong, and, on the other side, Ngo Leung Chit, Kam Chi Ting and the present defendants Lo Kar Yam and his wife, Chan Mo Ching.

2. The allegations by the plaintiffs were that the defendant Lo Kar Yam and his wife were not partners though they might have advanced money to the partnership during the occupation. The allegation by the then defendants was that during the occupation a new partnership had been formed and that Lo Kar Yam and his wife had been admitted as partners therein and secondly, that Li Kui Po had never been a partner in the original partnership. However, after protracted interlocutory proceedings, Ngo Leung Chit and Kam Chi Ting were, on their own applications, added as plaintiffs and eliminated as defendants. This manouevre probably deprived the remaining defendants of any chance of showing that Li Kui Po's claim to have been an original partner was spurious as these two gentlemen have been in the partnership from its inreption and the present first defendant's connection with it dates from 1943 only. Another result of the change is that the two gentlemen concerned are in a position in which they now at least acquiesce in Li Kui Po's claim, though Ngo Leung Chit had previously denied it on oath, and in which they must be taken as refuting the claim of the remaining defendants which they had previously supported. It is perhaps idle to speculate upon the reason for this remarkable volte face but as neither of the gentlemen concerned thought fit to enter the witness box, it can only have been one which is discreditable.

3. It is not my intention to summarise the very lengthy evidence given in the case. The brief history of the matter is that at the outbreak of the war, all the plaintiffs (if Li Kui Po's claim is admitted) together with two who are not parties to the action, Pang Fai Nam and Tang Kam Tong, were partners in the Stag Hotel Mun Kee of which Li Kui Po was manager. In 1943, Li Kui Po, having been accused of defrauding shareholders in other hotels in which he was interested, claims that he was forced by the Japanese Gendarmerie to sign away his interest in them and in other property as compensation. He fled from Hong Kong under threat of further trouble. At the time, he was regarded by the partners in Hong Kong who, after his departure, took an active interest in the Hotel as having absconded with the hotel's funds but no attempt has been made (or could be in the action as now constituted) to substantiate this. Advertisements were inserted in a local newspaper calling upon partners to appear and register their shares and calling a meeting of all partners. In November, 1943, a meeting was held and was attended by Ngo Leung Chit, Tang Kam Tong, Pang Fai Nam and various representatives of the other partners with the exception of Li Kui Po and Wong Chan Shi. The authority of these representatives is now denied by the parties concerned. Lo Kar Yam was present, according to him, at the invitation of Tang Kam Tong who had arranged that he take over the post of Treasurer upon his subscribing further capital to the hotel. Various resolutions were carried including one that the subscription of new shares in the partnership be invited. Lo Kar Yam took up the post of Treasurer and paid in M.Y. 1500 which he claims was a capital subscription and which the plaintiffs now alleges was merely security in respect of his position. In February, 1945, trouble having arisen between Tang Kam Tong the supervisor and Lo Kar Yam, Tang Kam Tong took over the receipt of hotel moneys. A report was made to the Japanese Gendarmerie by Lo Kar Yam through his then solicitor Mr. Ford and Tang Kam Tong was apprehended. A little later, he was released and signed a document acknowledging that he was retiring from the business and the next day a further document surrendering his share therein. Tang Kam Tong states that he did this under threat of further involvement with the Japanese whereas Lo Kar Yam states that the surrender was compensation for books and bed sheets which had disappeared while in the custody of Tang Kam Tong. The latter then left the Colony.

4. A further meeting was then held (April 1945) at which were present Ngo Leung Chit, Pang Fai Nam, Tong King Fong and Lo Kar Yam as partners, and persons purporting to act as representatives of the other partners with the exception of Li Kui Po. At this meeting, according to the minutes, the post of Supervisor hitherto held by Tang Kam Tong was abolished, Lo Kar Yam resigned as Treasurer and was appointed manager in lieu of Pang Fai Nam who was removed from that office. Ngo Leung Chit was elected Treasurer. Shortly after the meeting, according to the evidence of Lo Kar Yam, Pang Fai Nam indicated that he wished to leave the business and sold his share to Ngo Leung Chit and Lo Kar Yam - half to each. It is a singular fact that although Pang Fai Nam was stated to have been in court during part of the hearing and although Tong King Fong, one of the plaintiffs who was present at that meeting, was stated to have been in the Colony at the date of hearing, neither of these persons gave evidence. After the meeting of April, 1945, Ngo Leung Chit, Lo Kar Yam and his wife, the second defendant, all put further money into the business purporting to be contributions to capital authorised by resolution at the meeting of April, 1945 at the rate of M.Y. 2000 - $1000. After the re-occupation of Hong Kong, the absent partners returned and, after a great deal of negotiation, the present proceedings were commenced.

5. After hearing the evidence of the various witnesses and having seen them in the witness-box, I have formed a particularly low opinion of the credibility of the plaintiffs and their witness Tang Kam Tong. I am convinced that with the possible exception of the woman Wong Chan Shi, every one of them was prepared to say on oath whatever he considered would serve the interests of his case. Their present association with the turncoats, Ngo Leung Chit and Kam Chi Ting, does nothing to remove this impression. The woman, Wong Chan Shi, if she has not in fact forgotten what took place, has probably been influenced by her co-plaintiffs. With regard to the first defendant. I cannot say that I was much more favourably impressed with his evidence. Some parts of it are highly suspicious but I am inclined to view his account of the proceedings of the various partners after the re-occupation as being more reliable than that of the plaintiffs.

6. Before considering the effect of my view of the evidence, it is necessary to deal with one of the points of law raised by counsel for the defence i.e. that the fact that two of the partners, at some time during the Japanese occupation of the Colony, went to Free China ipso facto dissolved the Stag Hotel partnership.

7. The position is a peculiar one and does not appear to be covered by settled authority. It has been frequently held that a partnership between persons one or more of whom were in England and one or more in another country is automatically dissolved upon the outbreak of war. Hugh Stevenson & Sons v. Aktiengesellschaft fur Canton-nager Industrie 1916 1 K.B. 763 is an example. The doctrine is based upon the acquisition of enemy commercial domicil by trading in an enemy country, or by voluntary residence therein and upon the illegality of communication between the two countries. I do not agree with the submission that it is only when the illegality arises upon the actual outbreak of war that the dissolution takes place - it would apply as soon as continuance of the partnership involved trading or communicating with the enemy e.g. where a neutral branch of a British firm moved to enemy territory during war. McNair's Legal Effects of War refers at Note 2 p.282 to "equivalent events" which he outlines at page 86 one of which is the occupation of non-enemy territory by the enemy. With regard to such territory which of course included Hong Kong, one thing is clear i.e. that it is not illegal for the occupiers to carry on their ordinary business - unless it involves direct assistance to the enemy - notwithstanding that enemy character attaches to the trade or goods of those occupiers. In In re an Arbitration 1942 K.B. 222, Lord Greene M.R. said at page 226:

"Every one who is living in enemy occupied territory and has not adhered to the enemy in some way or another is primarily concerned with the continuity of life in that territory. The inhabitants must eat and be clothed, industry and commerce must go on if the community is to exist. The butcher who continues to sell meat in his shop and the manufacturer who continues to make boots in his factory are concerned with providing the necessaries of life for the community, and neither the fact that the meat or the boots may be requisitioned by the enemy, nor the fact that the improved credit of the trader or manufacturer gives an opportunity for pecuniary extortion, nor the fact that, if the butcher did not supply the meat or the manufacturer the boots, the enemy, if sufficiently humane, might feel constrained to supply them out of his own resources, appears to me to justify the proposition that the mere act of trading in itself induces enemy character."

Though this case was overruled as to the point in issue, this passage was approved in the judgment of Lord Wright (1943 A.C. 203 at p.230) when he said :-

"The reason is that, while the occupation lasts they are on the wrong side of the line of demarcation, the line of war which shuts off those on that side of the line from communication and intercourse and commercial dealing with those on our side in substantially the same way as if they were originally enemies as nationals of, or resident in, the enemy state. This rule is only concerned with relations across the line of war. So far as concerns the internal commerce and ordinary activities of those in the occupied territory, such as those activities as the Master of the Rolls enumerates, the rule has no application, even though those activities go to promote the advantage of the German State and strengthen its war effort."

The rule referred to is that residents in occupied territory were to be deemed alien enemies at Common Law as well as under the Trading with the Enemy Acts.

8. The position is then that after the occupation of Hong Kong, it was lawful to continue the partnership in question, and what has to be decided is whether the departure of two partners to Free China rendered it illegal. The partnership was domiciled in Hong Kong and it is by the law of Hong Kong that the legality of its continuance must be determined. What law rendered it illegal for those in Hong Kong to receive communications from Free China or to send them? Our own Trading with the Enemy Ordinance, 1914 must be regarded as having been suspended - it could not operate as it were in reverse so as to make it illegal for the residents to communicate with their countrymen. At the time of the occupation, no Hong Kong law made it unlawful to communicate with Free China. No law passed by the Japanese prohibiting such communication has been proved before me - it is in fact notorious that they adopted the policy of forcing great numbers of the population out of the Colony and that for Chinese nationals travel between occupied and unoccupied China was quite easy - nor has the validity of such a measure as part of the law of the Colony been argued. Counsel did mention a measure concerning those whose sympathies were with the enemy but it was not proved and if in fact it would have included this partnership in its operation no dissolution in fact took place pursuant to it, and it would surely be contrary to public policy and perhaps to the doctrine of postliminium to give it effect now. I find therefore that it has not been shown that there was any illegality in continuing the partnership after the retreat of two of the partners (who, though it may not be relevant, took no part in the management) to Free China and therefore no dissolution by operation of law.

9. Turning now to the evidence I hold that the real intention of the partners and alleged representatives present at the meeting of November, 1943 however they expressed themselves, was to form a partnership in which all the old partners were to take part according to their shares together with such new partners as were admitted and that they had particularly in view the first defendant who was recognised as a partner thereafter and so appeared at the meeting of April, 1945. That they had no intention of excluding absent partners except as creditors appears from the amount of the capital inserted in the new draft book and from the fact that the allegation of the original defendants was that Li Kui Po had never been a partner rather than that he was a partner who had failed to register his shares. It appears further from the fact that there was no sale or valuation of assets as should have taken place upon a dissolution. It remains to consider the effect of this re-organisation and the position of the various parties.

10. Dealing first with Li Kui Po, he states that he is the original partner King Sau Tong and that he subsequently purchased shares from two other partners. Documentary evidence in support has been produced and while the defence has been able to point to some evidence of underhand conduct in the matter of the purchase price paid, the vendors have made no complaint and none of the then partners have complained that paragraph 9 of the partnership agreement was not fulfilled. There has been no evidence to rebut the claim to the original share. Li Kui Po must therefore be deemed to have established that he is a partner.

11. Passing to the position of the defendants, I find that the evidence of the first defendant as to the events which followed he re-occupation is more in accordance with the probabilities and more consistent than that of the plaintiffs and I accordingly accept it. I find that all the plaintiffs who were not personally present at either of the meetings (with the exception of Li Kui Po) either had in fact authorised representatives there or approved and ratified the acts of the meetings and such representatives by words on conduct. I find further that the evidence of the first defendant (which, as I have said, I accept as to this part) that Li Kui Po worked in the Hotel for over a month on some undefined basis of co-managership (as he admits) together with the evidence that Li Kui Po having been told of the two meetings acquiesced in his partnership and asked him as a partner to negotiate with Ngo Leung Chit as to his own holding, was sufficient ratification of the act of the meetings in bringing in Lo Kar Yam as a partner. I do not believe Li Kui Po when he states that the split between the parties occurred by reason of the new partners names being put in the draft partnership book and am convinced that his change of attitude arose from a denial by Kam Chi Ting and Ngo Leung Chit of his own share in the partnership. Apart from ratification, the circumstances of the departure of Li Kui Po from the Colony in 1943 are such as to clothe the remaining partners with moral and possibly legal authority to take such steps outside their existing authority as were necessary to save the business. He had been in sole control of it as manager and partner, and he left it suddenly, without funds, indebted to the staff, leaving even his daughter without knowledge of his whereabouts. That he may have had a good reason for a hurried departure is immaterial. In effect, he said to his partners, "I take no further interest - you may do whatever is necessary to carry on." In view of the judgment of Scrutton J. in Jebara v. Ottoman Bank 1927 2 K.B. at pp.270-271 in which he criticized the extension of the doctrine of agency of necessity advocated by McCardie J. in Prager v. Blatsfiel, Stamp and Heacock Ltd. 1924 1 K.B. 566 it would probably be incorrect to regard the situation as giving rise to an agency of that type; but it differs from it and is stronger than agency of necessity in that the necessity was here actually created by the principals own conduct. Can he be heard later to deny that he thereby conferred upon his partners authority to take such steps as proved essential? As I have held that ratification took place in fact I do not need to decide this point, but refer to it merely as indicating that ratification of at least necessary action by the partners was what would be expected from the point of view of equity and good conscience.

12. I have held that Lo Kar Yam is a partner and the position of his wife remains to be considered. There is no evidence that Li Kui Po was ever told that she also claimed as a partner. He may have been, and it may be that he would have had no personal objection to her as a partner but I cannot assume it without evidence. Lo Kar Yam said he obtained the approval of the other partners to the introduction of his wife. I very much doubt it - nothing in writing was produced and I consider, that although the transaction of 1943 was genuinely for the benefit of the partnership, the capital advances of 1945 are very suspicious. Even allowing for the probability that the value of a $1 share was a good deal less than $1, the real value of Yen against dollars was then according to the Debtors & Creditors (Occupation Period) Ordinance, 1948 in the proportion of M.Y. 1000 to HK $ 16. The rate fixed by the 1945 meeting was M.Y. 2 to a $1 share - while at the same time Lo Kar Yam and Ngo Leung Chit paid more than M.Y. 4 per $1 share to Pang Fai Nam in respect of his $1500 share. The cash book showed no urgent need for cash and it is probable that Lo Kar Yam and Ngo Leung Chit were getting rid of yen which were of little value, in Lo's own words, "in anticipation of good business after the libaration." Looking at the evidence as far as it bears on the position of the second defendant, I hold that the requirements of section 24(7) of the Partnership Ordinance 1897 have not been fulfilled with regard to her and that she is not a partner. It is to be noted that the cash book shows part of the moneys paid in by Ngo Leung Chit and Lo Kar Yam at this period to have been paid subsequently to June 18th, the limit fixed by the meeting, and the partnership would not be bound in the absence of acquiescence to accept such payments as capital.

13. The position of the remaining parties to the action is clear and needs no discussion. Tang Kam Tong has not been joined as a party and if he claims that the circumstances of his signing a surrender of his share were such as to entitle him to have it set aside, he must take the appropriate step to that end. The issues are answered as follows:-

There is no necessity to answer issue No.4 and I give liberty to apply with regard to issue No. 5 and generally.

Representation: