Wong Leung Wah, Alias Wong Leung v. Tsang Sau Han and Another
Read the full judgment text of HCA 982/1984 on BabelCite. This High Court CFI judgment.
1. In 1982, the plaintiff, who is a middle-aged man resident in Hong Kong, invented an electronic dart-board. The dart-board was to be made of plastic plus a few metal parts such as springs and screws. The electronic parts also included some metal.
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HCA000982/1984
IN THE SUPREME COURT OF HONG KONG HIGH COURT ___________ BETWEEN
_______________ Coram: Hon. Rhind, J. Date of hearing: 18th - 22nd, 25th - 29th Nov.; 2nd - 4th Dec., 1985. Date of delivery of judgment: 6th Jan., 1986. ___________ JUDGMENT ___________ INTRODUCTION 1. In 1982, the plaintiff, who is a middle-aged man resident in Hong Kong, invented an electronic dart-board. The dart-board was to be made of plastic plus a few metal parts such as springs and screws. The electronic parts also included some metal. 2. To produce the various plastic and metal parts, moulds had to be made. For reasons which I will explain in due course, I am satisfied that, not only did the plaintiff design the electronic dart-board, but, also, he prepared the working-drawings from which the moulds were to be made. 3. At a cost of HK$64,000, the plaintiff had six plastic and four metal moulds made. I am not sure who made the plastic moulds. Probably it was Hang Ngai Plastic Manufactory ("Hang Ngai"), but nothing turns on this. He paid in full for the six plastic moulds. The four metal moulds were fabricated by Kam Wong Metal Manufactory ("Kam Wong"). The full price of those metal moulds was somewhere between HK$7,000 to HK$10,000. The evidence is not very clear on the precise price. A point which did emerge clearly, though, was that the plaintiff lacked the funds to pay Kam Wong in full. The amount by which he paid them short was HK$3,000. That sum remains owing to Kam Wong till this day. Kam Wong has never released possession of those metal moulds to anyone. They have remained on Kam Wong's premises throughout. No doubt, Kam Wong enjoys a possessory lien over them for the unpaid HK$3,000. 4. Once the moulds were made, the plaintiff used them to produce sufficient parts to make up a sample of his electronic dart-board. 5. The plaintiff got in touch with Li Fung Fedelity Limited, ("Li Fung"), a Hong Kong Company, which acts as a broker in exporting toys from Hong Kong to overseas customers. Through Li Fung, the plaintiff secured an order for the purchase of 50 dozen of his electronic dart-boards at a price of HK$40 each, the total price of the 600 games, therefore, being HK$24,000. 6. A difficulty stood in the plaintiff's way when it came to exploiting his invention. He lacked capital. That is readily apparent from his having been unable to pay Kam wong in full for the moulds. He looked around for a partner capable of providing the necessary capital. 7. Years previously, the plaintiff had known the man who was the proprieter of Yau Yee Company ("Yau Yee"), which did processing and assembly work. Yau Yee had its own workshop and labour force. The plaintiff phoned that firm. He then learned that the man he was trying to phone had died in 1980, but the man's widow and their two daughters now carried on the firm. Whilst the widow and her two daughters were now the partners in Yau Yee, the widow took no part in the actual running of the firm, leaving that to her two daughters. Those two daughters are the defendants to the present action. The 1st defendant is the older daughter, and the 2nd defendant the younger. Hereafter, I will refer to them as "the older sister" and "the younger sister", or, collectively, as "the two sisters". 8. On learning that their father was dead, and that they were now running the business, the plaintiff broached the two sisters on whether they might be interested in participating with him in a joint venture to exploit his invention. The two sisters were interested. The plaintiff met them, taking along the sample of his electronic dart-board to show them. The parties discussed whether they should go into partnership together for the purpose of exploiting the plaintiff's invention, and, if so, on what terms. There were several such meetings between the parties, culminating in the parties executing a formal partnership agreement ('the Partnership Agreement'), dated the 22nd September 1982. (See Agreed Bundle pages 4 to 8). What transpired at those meetings between the parties prior to entering into the Partnership Agreement was an area of controversy in the trial before me. 9. It is common ground that the plaintiff informed the two sisters that he had secured the contract to sell 50 dozen of the games at HK$40 each, and that he estimated the production costs per game would be HK$31-odd, leaving a profit of HK$8 to HK$9 per game. He claimed he led the two sisters to understand that if Yau Yee were to be given the job of manufacturing the plastic parts, and assembling both the plastic and metal parts into the final form of the game, Yau Yee would be entitled to charge a total of HK$10.16 per game, made up of HK$8.36 for producing the plastic parts and HK$1.80 for assembling the game. 10. Prior to interviewing the two sisters, the plaintiff had drawn up a cost list (Exh. P8), showing his estimate of the cost of making each part, and the cost of the assembly work. I accept that the plaintiff did have that cost list with him at some stage when he negotiated with the two sisters, and did show it to them. It is common ground, however, that he never supplied them with a copy of it. 11. Of the two sisters, only the younger sister gave evidence. She contended that she and the older sister had never agreed to produce the parts and assemble them at the prices shown in the cost list. According to the younger sister, she and the older sister had agreed with the plaintiff that the plastic parts would be produced by Yau Yee for HK$9.90 per game, but nothing had been agreed on the price of assembly. 12. There was nothing to choose between the plaintiff and the younger sister when it came to credibility, except where there was some independent corroboration, or where inherent probabilities supported either the plaintiff or the younger sister's version, as the case might be. The court generally found against the party carrying the burden of proof. As there was a claim, and a counter-claim, the burden shifted. Whichever party asserted something, had to prove it, but, generally, failed to, because the plaintiff was not to be preferred to the younger sister, and vice versa, when it came to telling the truth. 13. On the particular point of whether the plaintiff was correct when he said that the two sisters, on behalf of Yau Yee, agreed with him to produce the plastic parts and do the assembly work for a total of HK$10.16, or whether the younger sister was to be preferred when she claimed that Yau Yee had agreed only to make the plastic parts for HK$9.90, the court inclined to the view that neither version could be accepted. 14. The impression I received of the plaintiff is that, he was so intoxicated by his own invention and so fixed was he in his own ideas on how it was to be exploited for the purpose of reaping huge profits, he did not even stop to consider whether the two sisters actually agreed to the prices in his cost list when he showed it to them. 15. I think that probably the two sisters neither assented to, nor dissented from, the prices shown in the cost list. I do not think that they can be taken to have tacitly consented to the prices in that cost list. My view is that nothing was agreed as to the cost at which Yau Yee was to produce the plastic parts and to assemble them. In such circumstances, the law would imply that matters had been left on the basis that Yau Yee would be able to charge a reasonable price. 16. While I did not believe the younger sister about a price of HK$9.90 being settled before the Partnership Agreement, I, nonetheless, saw no reason to suppose that it was more than a reasonable price for Yau Yee to charge for a set of parts, as events turned out. 17. At this point, I will not go further into what I found did, or did not, transpire in the negotiations between the plaintiff and the two sisters leading up to the Partnership Agreement. Rather than go into further details now, I will try to continue with a general outline of the events which led the parties to Court. 18. The Partnership Agreement provided that the parties would form a partnership together which would trade under the name of Yau Woo Industrial Company ("Yau Woo"), for the purpose of producing and selling the game which the plaintiff had invented. The plaintiff agreed, in effect, that Yau Woo would have the sole right to exploit his copyright in the game for the duration of the Partnership Agreement, which was three years. Yau Woo was to pay the plaintiff 50 cents per $100 of gross sales of the game by way of royalty. The plaintiff was to contribute 50% of the capital and share 50% of the profits and losses, while the two sisters were, between them, to contribute the other 50% of the capital and share 50% of the profits and losses. 19. The initial capital of Yau Woo was described in the Partnership Agreement as HK$60,000. What in fact happened was that the plaintiff sold a half share in the six plastic and four metal moulds to the two sisters for HK$30,000. He never told the two sisters that he still owed Kam Wong $3,000 for the metal moulds. 20. Of the sum of $30,000 the two sisters agreed to pay to the plaintiff, they have paid him only HK$21,500, and the balance of HK$8,500 has never been paid. When he received that HK$21,500 for a half share in the moulds, he pocketed it for his own purposes. The reality was that Yau Woo started off with no working capital. It was a partnership possessing the moulds as its sole asset. 21. Reading the Partnership Agreement, one might be forgiven for imagining that the partnership was meant to start off with HK$60,000 as working capital, but, regrettably, that was not the case. If the partnership had started off with adequate working capital, it is not inconceivable that relations between the plaintiff and the two sisters would never have deteriorated in the way which will in due course be described. ' 22. Shortly after the execution of the Partnership Agreement, the six plastic moulds were delivered to Yau Yee's premises, so that work could commence on producing the plastic parts for the 50 dozen games ordered through Li Fung. The four metal moulds remained with Kam Wong. 23. I got the impression that the two sisters were simply not consulted by the plaintiff about the making of the metal parts. It would not had been convenient for the plaintiff to discuss with the two sisters who should make the metal parts, in case they had suggested someone other than Kam Wong. Since, unbeknown to the two sisters, the plaintiff still owed Kam Wong HK$3,000, I do not think the plaintiff would have wanted to run the risk of the two sisters. suggesting someone else. Thus, instead of all the parties to the Partnership Agreement deciding upon who should make the metal parts, the plaintiff unilaterally made that decision in a way which suited his own convenience. 24. Making the first 50 dozen games turned out to be fraught with difficulties and time-consuming. At pages 326 to 337 of the court record, the younger sister gives a litany of the unexpected problems which arose, such as, for example, springs which were too weak or too strong, parts of the game which could only be made to fit together by using washers which had to be specially made, circuit-boards for which the screw-holes were not properly aligned on the base, and so forth. 25. As there were so many problems in making the 50 dozen games, I think it was only human for the two sisters to feel, at least, some mild irritation with the plaintiff as new problems kept emerging. However, I am satisfied that none of the unexpected production difficulties amounted to more than the sort of teething problems which are likely to occur when a new product is first mass produced. The two sisters probably took comfort from the thought that, once the problems encountered in making the first batch of fifty dozen had been overcome, future orders would be relatively plain sailing, with resultant savings in cost, time and frustration. 26. Besides using its own staff, Yau Yee had to bring in an outsider, Chan Chiu Yan, from Vigor Plastic-Industrial Co. Ltd. ("Vigor") to do the soldering work required for assembling the game. I am satisfied that the plaintiff not only knew that Yau Yee was doing that, but he also agreed that Yau Woo would pay for the cost of hiring that solderer. That the plaintiff agreed to Yau Woo paying for that solderer can be discerned from the fact that the plaintiff signed the cheque in payment of Yau Woo's debt to Vigor. 27. Albeit somewhat belatedly, the 50 dozen games got made and despatched by Yau Woo to the overseas purchaser. The games should have been ready by the end of October 1982, according to the purchase contract, but the evidence as a whole indicates that they were not completed till late November 1982. As there were no complaints from the purchaser, one presumes that the games must have been satisfactorily made by Yau Yee. 28. While the 50 dozen games were being made, the plaintiff realized that the plastic moulds could be modified in such a way as greatly to increase the rate of production, thereby saving costs. On the 4th December 1982, three and a half of the plastic moulds were collected from Yau Yee's premises by hang Ngai and taken to Hang Ngai's premises. According to the younger sister, the two sisters merely agreed to Hang Ngai giving a quotation for the cost of modifying the moulds. The plaintiff, on the other hand, contends that the two sisters had agreed with him that the actual modification of the moulds should be carried out by Hang Ngai at a cost of HK$15,000. 29. I accept the plaintiff's version of what happened in relation to those plastic moulds. If Hang Ngai were merely giving a quotation, it would not have been necessary for the moulds to be taken array from Yau Yee's premises. The moulds are bulky and heavy. If Nagi ligai were merely giving a quotation, it would have made far more sense merely to inspect those moulds on Yau Yee's premises. Yau Yee would have known as a matter of common sense that Hang Ngai would not be taking the moulds away merely for the purpose of giving a quotation. The two sisters who were in day to day control of Yau Zee would have been unlikely to allow the moulds to leave Yau Yee's premises for any reason other than having actual modification work carried out. 30. Hang Ngai has carried out modification of those three and a half moulds at a price of HK$15,000, but has never been paid. The moulds are still on Hang Ngai's premises, and Hang Ngai is one of Yau Woo's unpaid creditors. 31. Merely because the plaintiff saw a way of improving the plastic moulds by no means implies that the plastic moulds, as originally made, were unsuitable for their task. It is platitudinous to observe that there are few things made by man which cannot be improved upon. 32. At some stage, a fifth metal mould was made by Kam Wong. Quite when this fifth mould got made is unclear on the evidence. Nothing turns on the making of this fifth metal mould, but, for the sake of completeness. I mention its existence, as it is one of the partnership assets. 33. Like any other business, Yau Woo faced started-up costs. There was, for example, stationery to be printed, and various types of material to be purchased. Some creditors demanded immediate payment or at least the payment of a deposit. 34. In relation to many items, it was not practical to order merely sufficient for 50 dozen sets. Suppliers simply would not accept such a small order for some items, and there were economies of scale to be reaped by placing orders for larger quantities. 35. Yau Woo was starved of capital from the outset. The two sisters contributed an opening balance of HK$5,000 to its bank account. That sum was matched in due course by the plaintiff, who paid a deposit of HK$5,000 (which included some travelling expenses) to Sonny Electronics Co. which supplied a thousand circuit-boards to Yau Woo at a total cost of HK$9,500. Lack of cash seemed a problem both for the plaintiff, who could not afford to pay the $3,000 owed Kam Wong, and the two sisters who could not afford the $8,500 due to the plaintiff for a half share in the moulds. 36. In the course of manufacturing the 50 dozen games, Yau Woo incurred debts, which according to the calculation of the two sisters, amounted to HK$33,068.55 by the end of November 1982 (see Agreed Bundle at p.14). That total of HK$33,068.55 included HK$11,561.07 which the two sisters' claim is owed by Yau Woo to Yau Yee. The plaintiff disputes part of the money claimed by Yau Yee, but does not dispute any of the other debts owed to the other creditors. Without Yau Yee's claim for $11,561.07 included, the amount owing to the other creditors was $21,507.48. 37. Apart from the HK$5,000 contributed by the two sisters to start Yau Woo's bank account, the only other credit ever made to that account was $23,000-odd, being the net amount received for the sale of the 50 dozen sets, after making allowance for some freight charges and the royalty of 50 cents per $100 due to the plaintiff under the Partnership Agreement. The plaintiffs royalty on that sum of HK$24,000 would be HK$96, but I was not informed of the precise amount for freight. 38. If Yau Yee were to be paid the full HK$11,561.07 which it claimed, there would be insufficient money in Yau woo's bank account to pay all the other creditors. On the other hand, if Yau Yee were not paid (or, if it were paid only a substantially reduced amount), there would be sufficient money in the bank account to see all other creditors paid. 39. It was over the question whether Yau Yee should be paid in full in preference to other creditors that the plaintiff and the two sisters fell out. The two sisters, who, together with their mother owned Yau Yee, insisted upon Yau Yee being paid the full $11,561.07 which they claimed was due from Yau Woo. Yau Yee's claim for $11,561.07 was made up of $5,940, being the total for 600 sets of plastic parts at $9.90 per set, plus $2,649 for the wages of Yau Yee's employees engaged on the assembly work, plus $2,972.07 for the price of plastic parts made by Yau Yee surplus to those needed for the 600 sets. 40. According to the plaintiff's way of thinking, Yau Yee was entitled to no more than HK$10.16 for making and assembling each of the 600 games, with the result that it should not have claimed more than HK$6,096. The plaintiff accused the two sisters of inflating the true price of the goods which Yau Yee had produced, and making unnecessary parts. 41. This demand for payment made by the two sisters, which was countered by the plaintiff's refusal, has led to an acrimonious state of relations between the two sides. 42. Even before the plaintiff had refused to pay Yau Yee's demand in full, there had been cause for some sourness in the relations between the plaintiff and the two sisters. I have already mentioned the two sisters' irritation at the problems encountered in mass producing this first batch of goods. On the other side, the plaintiff was rather annoyed at the way in which the younger sister had handled a problem relating to signatories for Yau Woo's bank account. He felt she had disregarded his request about when a particular form should be sent to the bank. There was also the matter of the HK$8,500 still outstanding from the two sisters to the plaintiff for their share in the moulds. 43. A more important cause of dissatisfaction on the plaintiff's part was his belief that the younger sister was deliberately holding up the payment of some of the creditors of Yau Woo. The plaintiff considered that his honour was at stake, as he thought those creditors had only allowed Yau Woo credit on the strength of the plaintiff's reputation. The plaintiff had signed cheques for creditors, but then the younger sister stalled over paying them. I accept the plaintiff's evidence on this. The younger sister told Sonny Electronics, one of the creditors, that she had lost the cheque in its favour, which the plaintiff had signed on behalf of Yau Woo. I find that explanation of hers so inherently unlikely that, on this particular point, I disbelieved her. 44. It is clear that the foot-dragging by the two sisters in signing Yau Woo's cheques for the other creditors was inextricably linked to Yau Yee 's claim for $11,561.07 against Yau Woo. 45. I do not know the exact date when relations between the plaintiff and the two sisters reached the point of no return, but, clearly, it was some time between the 4th December 1982, when Yau Yee was still sufficiently well-disposed towards the plaintiff to allow the plastic moulds to be taken away by Hang Ngai for modification, and the 31st December 1982, when the mutual hostility between the plaintiff and the two sisters led to happenings of such a bizarre nature that there was no longer any practical possibility of the Yau Woo partnership continuing after that date. 46. By about the middle of December 1982, each side was becoming rather irritated with the other. As I have already mentioned, the two sisters were not pleased at all the problems which had been encountered in making the first batch of games. At some stage, too in early December, the two sisters discovered that the plaintiff had not completely paid Kam along for the metal moulds. The event, though, which, no doubt, must have aroused the wrath of the two sisters more than any other was when the plaintiff queried Yau Yee's claim against Yau Woo for $11,561.07. The plaintiff accused the two sisters of deliberately "inflating" their charges. In context, the plaintiff was, in effect, accusing the two sisters of cheating on their bill. 47. The counterpart of the two sisters' anger at the plaintiff for accusing them, in effect, of cheating was his anger at the thought they were trying to cheat him. 48. The tug-of-war between the plaintiff and the two sisters over who should be paid first - Yau Yee in the full amount of $11,561.07, or the other creditors - came to a climax on the 31st December 1982 when a series of grotesque events occurred which made the continuation of the Yau Woo Partnership a practical impossibility from that day onwards. 49. In the middle of the day on the 31st December 1982, the plaintiff organised a gathering of Yau Woo's creditors to descend upon Yau Yee's business premises for the purpose of seeking the recovery of their debts. The younger sister suddenly found herself having to cope with this body of creditors all clamouring for payment of their debts. After the younger sister saw that it was the plaintiff leading this posse of creditors, it would be quite unrealistic to suppose that either she or the older sister would feel like cooperating with the plaintiff in a business venture from that time forth. 50. While the plaintiff was on Yau Yee's premises on that occasion, it is clear that he tried to take away the two and a half plastic moulds which were still with Yau Yee, which shared the same address as Yau Woo. Trying to take away the moulds which were part of the partnership assets was wholly inconsistent with the plaintiff wanting to continue the joint venture with the two sisters. 51. It is clear that there must have been heated exchanges between the younger sister on one side, and the plaintiff, allying himself with the creditors, on the other side. Despite the demands of the plaintiff, who, no doubt, was enthusiastically supported by all the other creditors, the younger sister refused to yield in her insistence that she would only sign the cheques for other creditors if the plaintiff first of all signed a cheque on behalf of Yau Woo for the full amount claimed by Yau Yee. Neither the younger sister, nor the plaintiff and the other creditors would budge from their respective positions for some time. Then the plaintiff hit upon a ruse he agreed to sign Yau Yee's cheque for its full claim, but, at the same time, he secretly intended to stop that cheque as soon as he left the younger sister. 52. Because he signed the cheque for Yau Yee, the younger sister agreed to go along with the plaintiff's request that she should sign the cheques on behalf of Yau Woo for all the other creditors. The only problem with this procedure of the plaintiff and the younger sister signing all the cheques was that there happened to be insufficient money in Yau Woo's bank account to cover all those cheques if they were all presented. 53. After everyone was temporarily, pacified when all the cheques got signed, the plaintiff, together with the band of creditors he was leading, left Yau Yee's premises. 54. The plaintiff's first action on getting away from the younger sister was to contact the bank immediately for the purpose of stopping payment on the cheque in favour of Yau Yee. As soon as the younger sister got to the bank to cash the cheque, she learned that it had been stopped. Thereupon, she stopped a cheque for HK$6,155.10 in favour of Breeze Offset Printing Co. Ltd ("Breeze"), which was one of the creditors she had purported to pay earlier that day by signing a cheque in its favour in the circumstances I have already described. May she should have picked on Breeze in particular was not clear from the evidence. Perhaps Breeze was the only creditor slower than Yau Yee in getting to the bank. 55. Breeze had a wholly legitimate claim for its debt against Yau Woo. The younger sister's action in stopping that cheque was quite irresponsible, and was of a type which would excuse a partner from wanting to continue in business with her. 56. Breeze did not react meekly at the stopping of its cheque. It immediately contacted a debt-collection agency to get the money on its behalf. Debt-collectors are not well-known in Hong Kong for their genteel manners, and I am satisfied, that the individual, called "Mok Chai”, who approached the younger sister in the course of his duties on behalf of the debt-collecting agency was, to say the least, rude and rough in his manner towards her. I will not say any more about Mok Chai's character as he was not before me to defend himself. 57. The plaintiff allowed himself to accompany Mok Chai to the younger sisters premises for the purpose of demanding payment on behalf of Breeze. I do not doubt that this must have been an unnerving and frightening experience for the younger sister. After the visit from the plaintiff accompanying Mok Chai, the younger sister made a report to the police which resulted in the plaintiff being arrested on suspicion of inciting Mok Chai to blackmail, criminally intimidate and attempt rape in relation to the younger sister. 58. How, after the events I have described, there could be any prospect whatsoever of the plaintiff and the two sisters continuing in business together, I simply do not see. 59. Unsurprisingly, the two sisters gave instructions to their staff that the plaintiff was not to be allowed into the premises of Yau Yee, which also happens to be the address of Yau Woo. 60. To my mind, it is abundantly clear that a stalemate had been reached between the two sides by the 1st of January 1983, and the partnership of Yau Woo had effectively broken down by that date. 61. Before me, the plaintiff and the younger sister each claimed that he or she was willing to continue with the partnership after that date, but I do not believe either of them on that point. I do believe the plaintiff, however, when he said (at page 49 of the record) that each side refused to put in more cash for the purpose of continuing the business. Refusing to put in more cash was a sure way of condemning the Yau Woo partnership to death, and I am sure that each side treated the Yau Woo partnership as dead from 1st January 1983 onwards. THE PLEADINGS 62. By a writ, which included a statement of claim, the plaintiff commenced proceedings against the two sisters for dissolution of the partnership. After reciting various provisions of the Partnership Agreement, the statement of claim went on to complain that the two sisters had conducted themselves in a manner calculated prejudicially to affect the carrying on of the partnership business by -
63. As relief; the plaintiff claimed: -
64. By their Defence, the two sisters denied the plaintiff's claim and then they went on to counterclaim for damages, alleging that the plaintiff was liable for misrepresentation prior to the execution of the Partnership Agreement and for breach of the Partnership Agreement (Prayer 2 and 3). The two sisters also sought the return of the HK$21,500 which they had paid to the plaintiff for a half share of the moulds (Prayer 1A). 65. The misrepresentations alleged against the plaintiff were.
66. As breaches of the Partnership Agreement, the two sisters alleged the plaintiff conducted himself in a manner calculated prejudicially to affect the carrying on of the partnership business by : -
67. One issue which the parties were agreed on was that the partnership should be dissolved. That was the plaintiff 's first prayer in his statement of claim and it was the two sisters' first prayer in their counterclaim. The only slight difference in the two prayers is that the two sisters specified dissolution from January 1983 whereas the plaintiff was silent on the date. As already indicated in this judgment, the Court is satisfied that the partnership was dissolved with effect from 1st January 1983. 68. Like the plaintiff, the two sisters contended that all necessary accounts and enquiries should betaken and made (plaintiff's prayer No. 3 in his statement of claim; and the two sisters' prayer No. 4 in their counterclaim). 69. By their prayer No. 5, the two sisters asked for payment of all sums found due upon taking of the accounts and their prayer No. 5 sought such further or other relief as the Court deemed fit. 70. I need not go into details of the plaintiff's Reply to the Defence. Suffice it to say that Reply denied any misrepresentation or breach of contract. The remarkable feature about the Reply is that after making a whole series of denials and explanations in paras. 1, 2, 3 and 4(i) to (vi), it then goes on to state illogically and inappropriately in (vi)
71. That is the first and only reference to a claim for damages by the plaintiff in the whole of the plaintiff's pleading. There was never any application to amend the statement of claim. 72. At the trial, the two sisters were willing to abandon their counterclaim for damages, so that then the action could have been confined to the taking of accounts and making enquiries ancillary thereto. That course could have been adopted, because it was agreed on the pleadings that the partnership should be dissolved, and there was no live issue on whether a Receiver should be appointed. The Course The Trial Took 73. Instead of merely seeking a dissolution, as the statement of claim foreshadowed, the trial was conducted on behalf of the plaintiff as if it were an action for damages for breach of the Partnership Agreement. 74. That might not have resulted in too many complications if the plaintiff's counsel had confined himself to the two grounds complained of in the statement of claim as justifying a dissolution: namely; : -
75. Instead, the trial degenerated into a wide-ranging, shapeless enquiry into whether the two sisters were generally responsible for the break-up of the partnership. In particular, without any pleadings to underpin him, the plaintiff's counsel sought to show that, in effect, the two sisters were guilty of fraud by overcharging Yau Woo. The only hint of what lay in store at the trial was the reference in para. 8(c) of the defence to the counterclaim :
76. In retrospect, it is easy to say now that probably counsel for the two sisters should have objected to the line of questioning which sought to show that the two sisters were dishonest, as any Court will generally set its face against unparticularized allegations of fraud, especially when they are made at a late stage, rather than from the very outset in the pleadings. The Issues 77. I will now deal with the issues. In an endeavour to make this case more readily intelligible, I propose to deal with the counterclaim of the two sisters first. With hindsight, I now see that the case should have been opened by the two sisters on their counterclaim. On the pleadings there was no live issue on whether there should be a dissolution of the partnership. The plaintiff's case, on the pleadings, was confined to accounts and enquiries after dissolution. On the plaintiff's case, the Court could have granted interlocutory judgment by consent that there should be a dissolution, and then have referred the accounts and enquiries including plaintiff's loss of profits to a Master. However, the counterclaim of the two sisters for damages for alleged misrepresentation and breach of the partnership agreement needed to be tried in Court. Whereas the plaintiff's case on the pleadings was confined to the consequences of a dissolution, the counterclaim of the two sisters, on the other hand, was concerned not only with the consequences of that dissolution, but also with the events leading up to the formation of the partnership agreement and the conduct of the parties under the partnership agreement up to the point of the dissolution. The Issues Raised by the Counterclaim A. Alleged Misrepresentations i) Whether the plaintiff failed to Produce documents in support of his claim that he was the copyright holder of the design. 78. Strictly speaking, the counterclaim of the two sisters does not deny chat the plaintiff is the copyright holder. 79. Their pleading is to the effect that the plaintiff represented he would produce documents in support of his claim to copyright, but then failed to. 80. This alleged representation is rather difficult to understand. I think it probably confuses two different concepts, namely, copyright, and registered designs. Perhaps it refers to copyright in plans. This rolled-up idea of copyright in designs is novel, in my experience. True, sometimes there can be an overlap where someone holds the copyright and is also entitled to be the holder of the registered design, but I really cannot fathom what the pleader was getting at with this reference to "copyright holder of the design". 81. I tend to doubt whether a meaningless representation such as "I am the copyright holder of the design" could ever be actionable. 82. For the defence, the younger sister gave evidence to the effect that the plaintiff had claimed in the negotiations leading up to the Partnership Agreement that he was the registered holder of the copyright. The plaintiff admits that he did say something of that nature (see page 63 of the record) but, if taken literally, such words would be nonsensical because there is no such thing under our law as registered copyright. (See Pendleton, The Law of Intellectual and Industrial Property in Hong Kong, page 180). Fortunately, (at page 64 of the record), the plaintiff went on to explain for the Court what he meant by registering the copyright. What he really meant, according to his explanation, was registering a design, or registering a patent. 83. It is clear that the plaintiff told the two sisters that he intended to register something which would have the effect of ensuring that he alone was entitled to exploit his invention. I do not think that any misrepresentation was involved there. For reasons which I shall give in a moment, I was satisfied that the plaintiff was, indeed, the owner of the copyright in his game, and I am satisfied, too, that during the pre-contract negotiations, he genuinely did harbour an intention to register his design. 84. When the plaintiff made assertions during the pre-contract negotiations that he was the owner of the copyright in the game, I think he was probably correct. Whether in fact he was, is a question of mixed law and fact. Although there was no explicit evidence on this particular matter either way, I think more probably than not he drew the plans on which the moulds were based. This was an area the plaintiff's counsel should have clarified for the Court, but never did. Indirectly, the Court became aware of the plaintiff's skill as a technical draftsman. That was when he prepared the drawings which became Exhibit P7A-E, to illustrate the modifications which needed to be made to his design. 85. On the evidence as a whole, I am prepared to infer that the plaintiff drew the plans from which the moulds were made, and I am satisfied he had copyright in those drawings. Probably he also had copyright in the game, too. (See Pendleton, Op. Cit. at pages 182, 185, 189, 260). 86. I think also that the game is probably registerable as a design. (Again see Pendleton at pages 198, 260, 262). 87. In the course of the pre-contract negotiations, I expect the plaintiff probably did tell the two sisters that he intended to apply in due course for the registration of the design. I accept as a fact that was his intention at the time he made any such statement. The explanation why he has not consummated the registration of the design is that he has lacked the money to have this done. Shortage of money has been one of the plaintiff's main problems throughout. 88. In my view, the onus was on the defence to prove that the plaintiff made the representation alleged. The only evidence that the plaintiff allegedly said he would produce documents in support of his claim was the younger sister's word in the witness-box. Against that, was the plaintiff's denial. 89. As there was nothing to choose between the plaintiff and the younger sister when it came to credibility, and as there was no inherent probability that the plaintiff said what the younger sister alleges, I find the alleged representation unproved. ii) The plaintiff's alleged refusal to assign the copyright to Yau Woo for three Years 90. The plaintiff admits he agreed to "render" the copyright to Yau Woo for three years from the date of the Partnership Agreement. Clause 3 of the Partnership Agreement is an explicit provision to that effect, I am prepared to accept that the word "render" in Clause 3 means the same as "assign". That provision by itself is probably enough to bring about, at least, an equitable assignment of the copyright for the duration of the Partnership Agreement. (Pendleton, Op. Cit. at page 195) There was nothing whatsoever in the evidence to suggest that the plaintiff did anything to renege on his agreement to assign the copyright to Yau Woo, whereas everything in the evidence shows that the plaintiff by his conduct and oral statements treated the copyright as if it were assigned to Yau Woo while the Partnership Agreement subsisted. 91. I can discern no misrepresentation here. iii) Whether the plaintiff owned all the moulds 92. The existence of Kam Wong's lien for $3,000 in respect of the unpaid price for the metal mould did not, in my opinion, prevent the plaintiff from rightfully holding himself out as owner of all the moulds in his pre-contract negotiations with the two sisters. It was wholly within the plaintiff 's power to deliver a good title in respect of all the moulds to the two sisters as soon as he paid Kam Wong the balance of $3,000 due. I have no doubt that the plaintiff would have paid that $3,000 to Kam Wong, if only the two sisters had put him in funds by paying the $8,500 still owing from them in respect of the purchase of their share of the moulds. I have no doubt at all that if in the pre-contract negotiations, the two sisters had been told by the plaintiff that he still owed Kam Wong $3,000, but would pay that as soon as the two sisters paid-up their $30,000 partnership share in full, they would still have entered into the Partnership Agreement. I do not think there was any misrepresentation here, but if there was, it was not material in my view. iv) Whether the moulds would readily produce the game 93. The plaintiff admits making that representation, but denied there was anything misleading in it. 94. I do not think that the problems encountered in mass producing the first 50 dozen games falsified the plaintiff's representation. Those problems, in my view, did not fall outside the limits of what people in the plastic-moulding and assembly line of business must reasonably expect. Nor do I think the fact that a further $15,000 was needed to have some of the plastic moulds modified by Hang Ngai meant that the original moulds would not readily produce the game. 95. More likely than not, I think there would have been far fewer production problems on future orders. When the parties entered into the Partnership Agreement, I am sure that all of them had visions of orders running into tens of thousands of dozens, which would make them all rich, and, in those circumstances, I do not think that teething problems on the first 50 dozen are of any significance. B. Plaintiff's Alleged Breaches of the Partnership Agreement i) Whether the plaintiff refused and/or failed to pay Yau Woo's Creditors 96. Making accusations of failure to pay creditors is obviously a game at which two can play. It ill-behoves the two sisters, however, to start complaining about the plaintiff on this score. My view is that, generally, the plaintiff behaved more honourably towards the creditors than the two sisters did. He wanted to pay all the creditors, except Yau Yee whose bill he genuinely disputed. The two sisters, with their interest in Yau Yee, were not too concerned about the other creditors so long as Yau Yee was alright. Morally, I have little doubt that the two sisters should have allowed all the other creditors to have been paid first, and then sorted out their dispute with the plaintiff over Yau Yee's bill. 97. Perhaps this particular allegation by the two sisters was made tongue-in-cheek. There was no merit in it. ii) Whether the plaintiff removed and/or attempted to remove partnership assets from the partnership premises 98. I think he did. That was merely one of a whole series of acts on both sides which showed that the parties simply could not get along together, so that dissolution of their partnership was inevitable. The two sisters fail on their counterclaim for damages 99. The Court has found that the alleged misrepresentations by the plaintiff were either never made, or were of no materiality. The alleged breaches of the Partnership Agreement either never occurred or were of no consequence. Hence, the counterclaim by the two sisters for damages failed. 100. As there was never any properly constituted claim for damages on behalf of the plaintiff, he never had any prospect of receiving an award of damages in the present action. 101. Thus none of the parties gets any damages. Taking of Accounts and Enquiries 102. Having cleared these ill-founded claims for damages out of the way, the Court can now get down to the real business in the present proceedings, which is to take accounts and make enquiries ancillary thereto. 103. Many of the enquiries have been made incidentally to the hearing of the action. 104. Had not the plaintiff's counsel insisted on going off on a wild-goose chase in pursuit of damages for the plaintiff, all of the accounts and enquiries could have been referred to a Master from the outset, after entering interlocutory judgment for a dissolution. In view of the mess this case has got into, I would not wish it on any Master at this stage. The only practical course is for me to finish out the hearing of the accounts and enquiries. I will, in a moment, set out my findings on the evidence relating to issues forming fit subject matter for enquiries in the context of an account-taking exercise. 105. In due course, it will be necessary to have a further hearing before me to complete the account-taking process and to conduct any further enquiries incidental thereto. 106. As things stand at the moment, neither side looks as if it will reap much, (if anything), in the way of profits. After settling the debts of $15,000 owed by Yau Woo to Hang Ngai, and $6,000 to Breeze, it might well turn out that all the parties actually have to dig into their own pockets to see that the creditors finally get paid. 107. The assets of Yau Woo, namely the moulds and a stock of parts for making the games, are not likely to fetch much. The moulds are now worth less than $10,000 according to the plaintiff, and, as a matter of common sense. I think that the parties will be hard put to find any purchaser at all for the game parts. 108. It is a pity that the legal advisers on both sides did not think through from the outset what their respective clients stood to gain in terms of hard cash from this present action. Now that the parties find themselves up to the armpits in alligators, it is, unfortunately, rather late to lament that they should never have entered into the swamp in the first place. I doubt if either side will finish up with an award greater than the Small Claims Tribunal limit of HK$5,000, and, certainly, not greater than the District Court limit of HK$60,000. 109. As a general observation, I cannot help wondering whether it is a good use of public money to expend it on legally-aiding commercial-type cases. Such cases tended to be long, complex, and expensive. And the question arises in my mind whether it is right that the tax payer should have to fund such litigation. Similar thoughts occurred to me when I dealt with a legally-aided application in relation to the case of Mohan and another v. McElney and others H.C.A. No. 4611 of 1978 which was another long, complex and expensive piece of legally-aided litigation. I know that in some Australian jurisdictions which have legal aids schemes, commercial-type litigation is expressly excluded from the scheme. In Hong Kong, at present, only defamation actions can never qualify for legal aid, but I would have thought that a reasonable case could be made out for adding commercial-type litigation to the excluded category. 110. If the plaintiff had been a man of more substantial means, I cannot help wondering whether he would have sat quite so calmly through the 13 days of hearing as his own money was being spent. Findings on Issues of Fact for Purposes of Accounts and Enquiries I. How much was Yau Yee entitled to charge Yau Woo? i) Price for producing one set of plastic parts 111. I have indicated elsewhere in this judgment that I am satisfied that the two sisters on behalf of Yau Yee never agreed to a price of $8.36, as the plaintiff contended, and that $9.90 is no more than a reasonable price for Yau Yee to charge. ii) Price for assembly work 112. According to the plaintiff, the two sisters agreed on behalf of Yau Yee to charge only $1.80 per set. I do not accept that they ever agreed to that price, or any other price. Instead, they are entitled to charge a reasonable amount. Spread over 600 sets, the amount Yau Yee charged for assembly works out at $6.80 per set. That calculation is arrived at by adding together $2,649 for Yau Yee's labour charges (see Agreed Bundle at page 88) and the amount of $1,435 paid to Vigor for the hire of the solderer, Chan Chin Yan (see Agreed Bundle at page 64), divided by 600. 113. In respect of the latter item of $1,435 paid to Vigor, I have already indicated that the plaintiff agreed to Yau Yee paying that to Vigor. 114. Yau Yee's alleged labour charges of $2,649 gave rise to much controversy in the trial. One alleged ingredient of that $2,649 is $900 paid to Tse Yeung Bon for 9 days work at $100 per day. 115. Tse Yeung Bon gave evidence on behalf of the plaintiff to the effect that at most he had worked 2 - 3 days on Yau Woo's game. I did not find Tse Yeung Bon impressive as a witness and was not satisfied he could really remember how many days he had in fact worked at that game. 116. I was not prepared to hold on the evidence before me that the two sisters had attempted to cheat Yau Woo by inflating the number of days Yau Yee's workers had put in on, the game. Nor was I prepared to hold that Yau Yee might have made an honest mistake in respect of the number of days Tse Yeung Bon had worked. 117. At the end of the day, I concluded that, more probably than not, Yau Yee had accurately charged for the number of days its workers had in fact applied themselves to Yau Woo's work. I am prepared to allow Yau Yee the full amount of $2,649 it claimed under this head. 118. I am aware that if Yau Yee were always to charge at the rate of $6.80 for the labour involved in assembling one of these games, the venture would hardly be profitable if each game were to be sold at only $40. It must be borne in mind, however, that this figure of $6.80 for assembling each set was incurred in respect of the first order, which was beset by all the teething problems already referred to. For future orders, if there had been any, one might reasonably have expected a reduced labour cost for assembly. 119. The evidence I heard did not suggest there was anything abnormal about a firm in Yau Yee is line of business charging according to the actual expense incurred for labour. Mr. Ho Yu Lerk, called on behalf of the plaintiff, explained how his processing firm, which traded under the name Manful, would expect to be paid extra to compensate it for unexpected problems which arose during processing work. iii) Surplus Parts produced by Yau Yee 120. Yau Yee produced surplus parts for the game, in respect of which it has asked Yau Woo to pay $2,972.07 (see Bundle B at page 16). According to the plaintiff, Yau Woo is obligated at most, to pay for the parts in respect of 600 sets precisely. 121. On this matter, the plaintiff is clearly being unreasonable. It was alright for him to order, for example, 1000 circuit-boards when only 1 is needed for each set; 29,160 springs, which were sufficient for 2,243 sets, cardboard box-bottoms sufficient for 3,130 sets; and more than 5 times as many reflectors as were required for 600 sets. 122. On the principle of what is sauce for the goose is sauce for the gander, I do not think it lies in the plaintiff 's mouth to complain about Yau Yee seeking to charge for surplus parts. At the time those parts were manufactured, both sides contemplated that they would be used for fulfilling future orders. There was also the point that extra parts were needed in case damage occurred while assembling the 600 sets. There is the further point, too, that when the raw material is made ready for pouring into the plastic moulds, it is difficult to measure the exact amount needed for 600 sets. Any sensible manufacturer who is expecting further orders is bound to err on the side of producing too many parts, rather than too few. 123. That the plaintiff should make such a fuss about these surplus parts is symptomatic of how impossible it had become for the two sides in the Partnership Agreement to co-operate. II. Losses Arising On the Break-up of the Partnership i) Future Profits 124. This is really the same as damages. The plaintiff, for reasons I have described, did not plead in such a way as to entitle himself to damages. Even if he had pleaded correctly, he would not have got any damages, because it was impossible to pinpoint which side was responsible for the break-up of the partnership. This was not a situation where the Court could say that the fault all lay with one side while the other side was completely innocent. In my view, both sides share the blame for the break-up of this partnership. The two sides were simply incompatible with each other. 125. Except where there has been misrepresentation in the negotiations leading up to the formation of a partnership, I have not been able to find a single case where damages have been awarded to a partner on the break-up of a partnership. Perhaps the reason for that is, that when partnerships fall on the rocks, it is normally due to the circumstance, ultimately, that the individuals involved simply cannot get along together, and attempting to apportion the blame in such a situation is an unrealistic task. 126. Taking up a question put by his counsel, the plaintiff asked for half the profits on cancelled orders. The reality is that there were no cancelled orders. The nearest thing to a firm order after the break-up of the partnership at the end of 1982, was an enquiry from an Australian buyer, through Li Fung, in June 1983, for 300 dozens of the game. As, on his own admission, the plaintiff was no longer prepared to contribute money for the running costs of Yau Woo, he is in no position to complain about loss of future orders. 127. A supplemental list of documents no. 15 to 24 was put in on behalf of the plaintiff with a view to showing how much business had been lost as the results of the break-up of Yau Woo. Apart from document No. 22, which relates to the potential buyer from Australia for the 300 dozen, I have already referred to, none of the other documents comes any where near showing that Yau Woo could have expected future orders. 128. The plaintiff himself spoke vaguely about orders for 1300 dozen games from England and Japan, but never condescended to go into any particulars of when the order was received, what the price was, who the supposed buyer was, etc. I disregarded that evidence, because it was just too vague to attach any weight to it. 129. Not only was the plaintiff led by his counsel to ask for loss of future profits, but also he asked to be compensated for loss of goodwill. This claim for goodwill borders on the farcical. There is not a scintilla of evidence to suggest that any goodwill attached to the business of Yau Woo, which was conducted over the period between 22nd September and 31st December 1982, and produced a grand total of 50 dozen game for one buyer. ii) Vigor's offer to buy the moulds 130. Some time in January 1983, Vigor offered to buy the moulds. Instead of malting an offer to the Yau Woo partnership, Vigor approached the plaintiff, offering to buy his share in the moulds plus surplus parts and his copyright for $40,000, and made a separate offer to the two sisters to buy their share for a figure which the younger sister could no longer remember by the time she came to give her evidence. 131. According to the plaintiff's counsel, the two sisters are alleged somehow to be at fault in failing to accept whatever the offer was from Vigor. No authority was cited to me for the proposition. that a partner or former partner is under a duty at law, sounding in damages, to accept an offer for the capital assets of a partnership, and I would be rather surprised if such an authority did exist in the case-lace of any common law jurisdiction. iii) Yau Yee Garnishees Yau Woo's Bank Account 132. I have already indicated that I consider Yau Yee has proved its entitlement to the full $11,561.07 for which it billed Yau Woo. Already, Yau Yee has recovered $8,825.07 of that by means of a judgment it obtained in the District Court.. That judgment was enforced by garnisheeing the full credit balance in Yau Woo's bank account. Obviously, in any account-taking, that amount o??§o $8,825.07 will appear on the debit side for Yau Yee. 133. The taking of accounts and making further ancillary enquiries now stands adjourned until the Court is moved to continue with the exercise.
Representation: Mr. N. Persaud (instructed by Lo, Wong & Tsui) for the Plaintiff. Mr. A. Wong (instructed by Pang, Kung & Co.) for the Defendant. |