George Chen Sheng Liang v. L.S. Shum Trustee of the Property of the Above-named Bankrupt and Another
Read the full judgment text of HCB 31/1967 on BabelCite. This HCB judgment.
1. George S.C. Liang, to whom I shall refer as 'the bankrupt', died on about 23rd January, 1966. He was insolvent. He left a will appointing a Madame Lau his sole executrix. At the time of his death he was the sole proprietor of a firm called Wood & Co.
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HCB000031/1967 IN THE SUPREME COURT OF HONG KONG IN BANKRUPTCY NO. 31 OF 1967
----------------- Coram: Briggs J. in Court. Date of Judgment: 16th June, 1970. ----------------- JUDGMENT ----------------- 1. George S.C. Liang, to whom I shall refer as 'the bankrupt', died on about 23rd January, 1966. He was insolvent. He left a will appointing a Madame Lau his sole executrix. At the time of his death he was the sole proprietor of a firm called Wood & Co. 2. In July 1966 the solicitors for Messrs. Van Shung Chong Hong, the second respondent, to whom I shall refer to as 'the second respondent', wrote a letter to the executrix informing her that the bankrupt owed the second respondent $850,000 being the price of certain goods sold and delivered to the bankrupt. On the same day Madame Lau renounced probate. 3. On 30th September 1967 an order was made for the administration in bankruptcy of the estate of the bankrupt and a first meeting of creditors was held on 20th October. A proxy for Tak Ming Company, the applicant in these proceedings and to whom I shall refer as 'the applicant' attended the meeting claiming a debt of $370,319, which was a judgment debt. The second respondents did not attend this meeting, nor were they represented. The Official Receiver was appointed trustee. 4. No more was heard of the alleged debt of the second respondent for two years after they had written to Madame Lau when they lodged a proof of debt for $850,650 on 29th July, 1968. Part of this was rejected by the Official Receiver, but the sum of $619,497 was admitted on 17th September, 1969. 5. On 5th September 1969 the usual Notice of Intended Dividend was published. This states that creditors who had not proved their debts by 20th September 1969 would be excluded. This of course means that the debt of the second respondent was admitted for dividend. By these proceedings the applicant moves the court for an order that the proof of debt of the second respondent be expunged. Upon the matter first coming before me, after hearing the parties I gave leave to the Official Receiver, the first respondent, and the second respondent to file affidavits in reply to the affidavit filed in support of the notice of motion. This was done and the matter came before me again on 27th May, 1970. On that occasion I gave leave to the parties to cross-examine the affirmations on their affidavits, which was done. 6. The case for the applicant is first that there is no evidence that the bankrupt owed the second respondent this debt: that the accounts of the bankrupt show that money was owed to him not by him to the second respondent. 7. The second point made by the applicant is that even if the evidence shows that there was money owed by the bankrupt the true position between the parties was not that of creditor and debtor: that there was a previous business relationship between the parties: that the second respondent had been financing the bankrupt. And he relies on the principal laid down in Re. Beale [1951 2 All E.R. 168]. If he is right this would have the effect of deferring the claim of the second respondent. The principle can be succinctly expressed in the words of Bacon C.J. in Re. Beale [1876 4 Ch. D. 246] thus:-
The first point can be dealt with shortly. The accounts of the bankrupt did indeed show a balance in his favour but upon investigation it was obvious that the figure in question was doubtful. A comparison between the books of the second respondent and the bankrupt disclosed various transactions between the parties. It is these which form the basis of the applicant's second point. Affidavits were filed by Ho Kwan King, a certified accountant and Shum Lap Shing, a solicitor, both employed in the Official Receiver's Office. 8. The former examined the books of the bankrupt and the books of the second respondent. He found the former far from complete. However, both books contain a figure of $1,248,705.73 which is stated to be moneys owed to the second respondent by the bankrupt on 21st June, 1963. In the account of the second respondent made for the purposes of their proof of debt at least six invoices dated later than 21st June, 1963 appear totalling $1,352,430.73. These do not appear in the books of Wood & Co. No purchases are shown in the books of the bankrupt after 21st June, 1963. 9. Mr. Ho found no document from Wood & Co. the bankrupt's firm acknowledging any outstanding indebtedness and subject to what I have to say below, no document signed or accepted by Wood & Co. that sales had taken place. 10. However, he was satisfied that the evidence before him was sufficient to show that a large sum was owing by Wood & Co. to the second respondent due to the fact that the purchase price of goods sold by the second respondent to Wood & Co. had only partially been paid. 11. The evidence in question consists of:
At first Mr. Yao, the managing partner of the second respondent, stated that the statement of account between the parties was prepared for the Official Receiver in 1966. This cannot be true. He corrected himself later and said it was prepared for his solicitor in 1966. It is dated 30th March, 1966, and I can only presume that it purports to be an account as at that date. The last entry bears a date nearly 2 months before the death of the bankrupt. This statement is not a true account between the parties. Mr. Yao admitted this. In his affirmation he exhibited certain receipts totalling $39,182.10 from Wood & Co. These sums he admitted were not in the statement of account. And it was an enormous account in other respects. 12. Mr. Ho did not say in so many words that he checked the entries in the statement of account submitted with the books of the second respondent. But he did say that he had thoroughly examined "the relevant books of account of the second respondent" for the period in question. 13. In passing it may be remarked that so inefficient was the bookkeeping of the parties that Mr. Ho found a balance of $334,920.92 in favour of the bankrupt in the books of Wood & Co. This should read $195,170.92 only. The difference is due to faulty arithmetic. The second respondent despite his claim against the estate of the bankrupt admitted that $164,750.57 was owed to Wood & Co., this sum has been accepted by the Official Receiver. It is said that it relates to the purchase of scrap iron by Wood & Co. for the second respondent. This was not mentioned in the account produced by the second respondent. It follows I think that that account must be looked at with the greatest suspicion. 14. Mr. Ho was at pains to show that he did not accept the sums allegedly representing purchases by Wood & Co. which appears in the statement of account of the second respondent solely for the reason that they appeared in that account. He said that they were substantiated by copies of invoices of the second respondent and by receipted delivery orders of the bankrupt. His point was that these delivery orders could not have been signed by Wood & Co. if Wood & Co. had not first purchased the goods to which they relate. 15. The copies of the invoices came from the second respondent. The originals have not been found. As such they are of very little evidential value. They are concerned with mild steel bars of various sizes and amounts. The price is mentioned and this is reduced in most cases by a commission. Some of the invoices deduct a sum called "Your commission" and some have the words "Less commission paid by you". After 10th December, 1963 there is no mention of commission. These copy invoices are not signed or chopped by Wood & Co. 16. The delivery notes are made out on the forms used by Vantage Godown Company but are signed on hehalf of Wood & Co. as storer. There are very many of them and I was told that attempts had been made by the applicant to discover from the persons to whom the goods were delivered whether they were dealing with Wood & Co. or the second respondent. The transactions occurred so long ago that the enquiries were fruitless. 17. There was also shown to Mr. Ho certain documents which were put in as Exhibit A. These are of two kinds. What are stated to be monthly statements of amounts of goods sold by Wood & Co. And certain Debit Notes of Wood & Co. addressed to the second respondent. These documents seem to have been used for the preparation of the copy invoices I have referred to above. Mr. Ho accepted these documents as further proof that the second respondent had sold goods to Wood & Co. though he did admit in evidence that they could be evidence of sales by Wood & Co. 18. Upon this evidence the claim of the second respondent was admitted. Both Mr. Ho and Mr. Shum being satisfied that the relationship between the parties was that of debtor and creditor. 19. Mr. Ho and Mr. Shum had a difficult task because of the paucity of the material before them. No blame at all attaches to them, but I do not think that the correct assumption was drawn from the facts. 20. As I have already said the bankrupt was the sole proprietor of Wood & Co. He was also a friend of Yao Shu Sing, the managing partner of the second respondent firm. The two men were also the sole shareholders of the Vantage Godown Co. This firm and Wood & Co. appear to have occupied the same premises: Wood & Co. renting them to the Vantage Godown Co. 21. In 1963 and 1964, which is the period with which we are chiefly concerned, the second respondent imported large quantities of iron bars from Japan and elsewhere and these were stored in the Vantage Godown to the orders of various banks. Mr. Yao told the court that the bankrupt was sold quantities of iron bars and cement from time to time and he in turn, sold these to his customers. However, Mr. Yao said he was away from Hong Kong for most of the relevant time. He also admitted to being "negligent" in carrying on business with the bankrupt. The bankrupt at least for most of the period of time with which we are concerned held a responsible position in the godown where the goods were stored and could take delivery or make deliveries when and as he wanted. Mr. Yao said that he did take delivery freely. 22. Mr. Yao also said that the bankrupt did not act as the agent for the second respondent. However, he admitted financing him to purchase scrap iron on his firm's behalf. 23. The evidence in my opinion shows that the bankrupt and the second respondent were as from 21st June 1963 at least closely associated in business. I think the true position shown is this:- the bankrupt delivered goods to customers and informed the second respondent of those deliveries. The documents comprising Exhibit A are in my view notifications to the second respondent of how many of the iron bars of the second respondent the bankrupt had delivered for the second respondent. They came from the custody of the second respondent. They were made out by Wood & Co. They are their documents which had been handed to the second respondent. I think that Mr. Ho was wrong in thinking that they may be proof of sales to Wood & Co. They are in my view evidence of sales made by Wood & Co. in the circumstances stated above. And there is some evidence that the bankrupt received a commission. If the copy invoices and the documents in Exhibit A are to be given one meaning suggested by Mr. Ho i.e. that the invoices are records of sale by the second respondent to Wood & Co. and the documents in Exhibit A are records of sale by Wood & Co. to their customers we have the position that Wood & Co. are buying and selling at the same price, with no margin for profit. If the relationship between the parties was as I have described no difficulty arises. 24. If there had been a true relationship between the parties of creditor and debtor: if the bankrupt had purchased various lots of goods from time to time there would have been some written agreement or some receipt from the bankrupt. That the bankrupt did give receipts on some occasions with reference to other transactions is shown by the documents YSS2 exhibited to the affirmation of Mr. Yao. Further, there is no document coming from the bankrupt to show that the bankrupt actually acknowledged the purchase of any goods. All the documents show is that that the goods were put in a Godown and delivered from there to various customers. In the absence of a document acknowledging the purchase of the goods by the bankrupt, I do not think it is a fair assumption that because the bankrupt signed the delivery notes he must have previously purchased the goods to which they refer; had control of such goods, yes, but not purchased. 25. According to the second respondent the amount owing was very large and it had been outstanding for a very long time. Yet no letter from the second respondent has been produced asking for payment during the life time of the bankrupt. Most of the transactions were in 1963 and one would have expected at least that an account would be rendered asking for payment by 1966. Mr. Yao's attitude in the witness box was casual in the extreme. 26. Mr. Mills-Owens for the applicant also pointed out that no interest was charged on the outstanding debt. More extraordinary if there was such a large sum outstanding between the parties is the fact that the second respondent did not ask for any security. Mr. Yao admitted himself that this was unusual. 27. It is clear from the evidence that the second respondent was financing the bankrupt so far as the purchase and sale of scrap iron was concerned. This was in 1964. The amounts were not included in the statement of account submitted to the Official Receiver. And in his evidence Mr. Shum said that he did not know of those amounts. Mr. Yao said however that these amounts are shown in the books of the second respondent. 28. Taking all these circumstances into consideration, I am of the opinion that the evidence shows a quasi partnership to have existed between the parties during the relevant period of time. And I am satisfied of this beyond a reasonable doubt. It follows that the applicant succeeds in his application and I will order that the proof of debt lodged by the second respondent on 27th July 1968 and admitted for dividend by the Official Receiver on 17th September 1969 be expunged. The applicant is to have his costs to be paid by the second respondent. Costs of the Official Receiver to be paid out of the estate.
Representation: Mills-Owens (Samuel Soo & Co.) for Applicant Miss Smith for Official Receiver, 1st Respondent Robert Wei (Woo & Woo) for 2nd Respondent. |