Cheng Kwok Man v. Lam Chiu Ming

HCA001646/1979

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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Coram: Power, J. in Court

Date of Judgment: 13th March 1980

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JUDGMENT

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1. In this matter the plaintiff, Mr. Cheng Kwok Man, sues the defendant, Mr Lam Chiu Ming, for $24,700 being money alleged to be owing under a cheque which was dishonoured on presentation.

2. The defendant admits giving the plaintiff the cheque as payment for certain furniture and fittings but alleges that there has been a total failure of consideration thereof as the plaintiff has prevented the defendant from taking possession of the said furniture and fittings.

3. Further the defendant counterclaims against the plaintiff seeking an order that an account of the dealings of the Tai Fat Engineering Company which was formerly conducted as a partnership by the plaintiff and the defendant.

4. The defendant also seeks injunctions restraining the plaintiff from carrying on business in the name of the former partnership and consequential orders.

5. The defendant gave evidence in which he said that in October 1977 he and the plaintiff had agreed to form a partnership to do decoration work which was registered by the plaintiff as the Tai Fat Engineering Co. (Exhibit 1).

6. The application for registration (Exhibit 1), which bears the name of the plaintiff only, was registered on 19th October 1977.

7. It appears that a Mr Lau Sui Yuen acting on behalf of the plaintiff conducted the preliminary negotiations with the defendant and, indeed, that Mr Lau acted for the plaintiff almost continually during the life of the partnership. It seems that this came about because the plaintiff is both deaf and physically handicapped. It was agreed that profits be shared 2/3 to defendant and 1/3 to plaintiff and that defendant would supervise the outside work and plaintiff would be responsible for the office. During the cross-examination of the defendant it became apparent that when he had used the words "Mr Cheng" in his evidence in chief he had sometimes been referring to Mr Cheng personally but had sometimes been referring to Mr Lau acting as the agent of Mr Cheng. In the outcome it seemed clear that all significant negotiations had been conducted by Mr Lau.

8. The defendant said that the authorized signatory of the firm cash account with the Hang Seng Bank was the plaintiff and that he had handed in bills to the office for payment. He said that, for convenience sake, in about November 1977 the firm opened an account for him in the Hang Seng Bank by paying in an initial $10,000 so that he could pay suppliers directly.

9. He said that initially he had contributed the capital of the partnership to the extent of $50,000 to $60,000. He said that in about November 1977 the partnership moved its office into premises in the Park In Commercial Centre, Room 1202, 56 Dundas Street, Kowloon. He said that he never drew any profits from the partnership and did not know if the plaintiff had done so. He said that in March or April 1978 he had a dispute with "Mr Cheng' about an account owing to the firm which he had been told was in the sum of $6,000 but which, in fact, was in the sum of $36,000. He said that he had then suggested that the partnership should be dissolved.

10. He said that in June or July 1978 there was a big project with Cheung Kwong at Choi Sai Wu and La Salle College and that this work commenced in August or September. He said that "the firm" did not reimburse him for cheques he issued in relation to this work and that "Mr Cheng" said that he considered that this contract was risky and that the account of the firm did not have money.

11. He said that it was then agreed that he would complete the remaining part of the project and that "Mr Cheng" asked him to obtain a business registration to allow him to finish the project. This evidence was given to explain how Exhibit 7 came into existence. Some explanation was needed, in this regard, as it is a Business Registration application made by the defendant on 23rd September which seeks to register the "Tai Fat Engineering Company" and shows the business commencement date as 25th June 1978.

12. It would appear from the defendant's evidence that the partnership came to an end at the end of September as he said: "According to Mr Cheng the firm did not have money so I have to pay him $70,000 in order to allow him to settle the firm's debts. I would then have all the rights and interests of this firm". He said that on 1st October an agreement to this effect was signed (Exhibit 2) and that he paid the $70,000 by way of 4 postdated cheques the last of which was dated 30th November.

13. He said that he did not formally take over the office at this time "because there were lots of problems in connection with the tenancy". However, the nature of these problems was never specified by the witness.

14. He said that he then commenced to collect debts owed to the partnership and that when he went to Franki Contractors Ltd he found that they had paid the account of $68,040.06 to the partnership and been issued a receipt (Exhibit 9) which bore a facsimile of his signature. He said that at his request Franki stopped payment on this cheque. He said that he later learned that a cheque in the stated amount had been paid to L.H. Kwan & Co., Solicitors.

15. He said that "Mr Cheng" did not hand over the premises and that after negotiation a second agreement was signed on 30th October (Exhibit 3) and he handed over a cheque postdated to 31st March 1979 in sum of $24,700. Both agreements were witnessed by a Mr Wu and, as to Exhibit 3, he said that this was done in the office of L.H. Kwan & Co.

16. He said that he paid the rent for the office from October 1978 until September 1979. However, under cross-examination, he did agree that he had not paid the rent for October 1978. He also said that after October he paid the telephone and electricity charges.

17. He said that he had an office key and that he "tried to open the door after 30th October". It is to be noted that in his evidence in chief he made no suggestion that the lock had been changed. He said that the plaintiff transferred the office car to him "after payment of the postdated cheques in November" the last of which was dated 30th November. The Vehicle Registration Book, which was handed up to the Bench but not tendered, indicated that the car was, in fact, transferred in late November. He said that after the last payment in November he asked "Mr Cheng" about handing over the business premises but he said that he was told that he had to wait until the accounts were clarified.

18. He said that he stopped payment on the cheque sued upon because he was "unable to take over the business premises and on top of that he (the plaintiff) had received $60,000 odd from Franki". His evidence was not altogether clear but he seemed, under cross-examination, to be saying that the $50,000 to $60,000 which he said he had put into the partnership initially, was, in fact, advanced to pay for goods and that part, at least, of it had been paid back to him.

19. Under cross-examination he did say that it was agreed at the end of September that the money in the account at the Hang Seng Bank upon which he operated was to be treated as his property but he said that the amount was only a few $100.

20. It was put to the witness that Exhibit 2 was in fact drawn up and signed on 30th October and that it was dated 1st October at his insistence so that he would be in a position to refute any allegation that he had been wrongly trying to collect partnership debts during October. It was put that the whole partnership was would up on 30th October when it was agreed, by Exhibit 2, that the partnership business would be transferred to defendant and, by Exhibit 3, that the former partners would divide the profits 2/3 to defendant and 1/3 to the plaintiff and that they then proceeded to draw up and agree upon the accounts and to apportion the profits.

21. He was shown a list headed "Receivable Amount From" (Exhibit 17). He admitted that it was in his handwriting and that it was a record of amounts owed to the partnership both for work completed at the end of September and for work which had run into October. However, he said that it was his personal record and formed no part of any negotiations. It showed that an amount of $295,465.91 was owed to the partnership.

22. He was then shown a number of account sheets (Exhibit 18) and it was put to him that these were a record of the discussion on 30th October and that they contained notes scribbled thereon by him. He was then shown Exhibit 19 and it was put to him that this was a finalized account used on 30th October. He denied this but did agree that it was one of his records. He said it was a "private" record showing income and expenditure.

23. Finally Exhibit 20 was put to him on the basis that it was an agreed statement of the amounts owed by the partnership on 30th October. He denied ever having seen this document.

24. It was put to him that the agreed partnership debts of $140,433.80, shown in Exhibit 20, were deducted from the agreed partnership credits of $295,465.91, shown in Exhibit 17, so as to produce a partnership profit as at the 30th October of $155,032.11 and that 1/3 of this profit, namely $51,677.37, was then apportioned to the plaintiff. It was then put that the plaintiff was given a further credit of $90,545 as he undertook responsibility for the payment of Items 2, 4, 12, 13 and 14 in Exhibit 20 and that this brought the plaintiff's entitlement from the partnership funds to the sum of $142,222.37 ($51,677.37 $90,545). It was then put that it was agreed that this entitlement would be satisfied, and the plaintiff thereby bought out of the partnership, by allowing him an amount of $142,220.60 to be paid by the defendant's giving him four postdated cheques in the sum of $74,180, and by the defendant's agreeing to let the plaintiff have the sum of $68,040.60 which had already been paid by Franki Contractors Ltd and was then being held by L.H. Kwan & Co. All of this was denied by the defendant who alleged that the figures put to him were false. He was unable to explain how the total of $74,180, which he did pay to the plaintiff, had been arrived at other than to say that the figure was supplied by the plaintiff. He denied ever having authorized Miss Lee to use his signature.

25. It was common ground that on 30th October defendant had given plaintiff a further postdated cheque (Exhibit 10) in sum of $24,700 and that the plaintiff had issued a receipt, Exhibit 5, stating that the amount was "the purchase price of all the furniture, miscellaneous chattels, decorations and money earning equipment at Room 1202 of Park-In Centre, Kowloon".

26. The defendant in cross-examination said that on several occasions during late October and early November he had tried his office door key and found it would not fit. However, the defendant made no mention of having raised this matter on 30th October when he was purchasing the office furniture etc. for $24,700. He said that he had complained to the landlord about this matter and had tried to contact Mr Cheng but to no avail and that he was never able to gain admission to the office.

27. Finally the defendant said that on 10th November 1978 he had registered a limited company called the Tai Fat Sun Kei Ltd and in that month had taken offices for it in the Bank of Communications Building.

28. The defendant did not call any witnesses.

29. The plaintiff gave evidence in which he said that he entrusted all matters in relation to the business to Mr Lau.

30. He said that Exhibits 2, 3 and 5 were all signed by him in his home on 30th October in presence of Mr Lau, the defendant and Mr Wu Kin Shun.

31. He said that he had never changed the lock and had never given any instructions that it was to be changed.

32. Miss Maria Lau gave evidence saying that she was the sister of Mr Lau Sui Yuen and that she had worked for the partnership in 1978 and that in October she went to "the Franki Company" to collect a cheque for the partnership. She said that, as far as she knew, the partnership was still in existence at that time. She said that she signed Exhibit 9, the receipt for the cheque using the defendant's signature, and that she had been authorized by him to do so. She was cross-examined but it was never put to her that she had no authority to use the defendant's signature.

33. She said that she ceased to work for the partnership late in October and was paid her full monthly wage of $850 by her brother early in November and was also given a month's severance pay.

34. Miss Li Sau Yin gave evidence saying that she was a book-keeper for partnership from March to 1st November 1978, and that she drew up Exhibit 18 at the end of October at the request of both Mr Lam and Mr Lau and that she gave each a copy.

35. She said that she knew nothing in October 1979 of any change of ownership of partnership and that, in that month, Mr Lam was still the manager of the partnership and that on 31st October she went to the office and used her ordinary key to obtain entry and that Mr Lam brought in two new colleagues and asked her to teach them how to work. She said that she took them to have duplicate keys made for their use. She said that she was paid for October on 28th or 29th and that she later received one month's severance pay for November.

36. Under cross-examination she said that she had made telephone calls in October to collect money but was told by the companies that they had paid. However, she said that the office did not receive any money. She said that Mr Lam made no enquiries of her about accounts in October.

37. Her evidence was not subjected to any real challenge in cross-examination.

38. Mr Lau Sui Yuen gave evidence saying that in 1977/78 he worked for Hang Lung Group but that he represented the plaintiff in the partnership and the plaintiff was to have a one third share of partnership and Mr Lam and a Mr Chan were to have the other two thirds. He said that the plaintiff was to be the boss, the defendant was to be responsible for running business and Mr Chan was the sleeping partner. It appeared clear that, in fact, he ran the business on behalf of the plaintiff who, he said, had put up the initial capital.

39. He said that about 19th October 1978 he learnt that the defendant had collected partnership debts and not accounted for them.

40. He said that he then went on his honeymoon from which he returned on 26th October and that on 27th or 28th October he met the defendant, Mr Chan and a Mr Wu at Golden Island Restaurant. Mr Chan proposed to close down the partnership and that it was agreed that an account was to be drawn up and that they would meet later to discuss it. He said that this was the first discussion as to dissolution and that Miss Li then drew up an account and on 30th October he met the defendant, Mr Chan and Mr Wu at the office of L.H. Kwan & Co. and that the accounts (Exhibit 18) were then discussed and agreement was reached whereby the plaintiff would withdraw from the partnership which would pass to the defendant and that this was recorded in two documents - Exhibit 2 and Exhibit 3.

41. He said that Exhibit 17, showing the amounts owed to the company, was drawn up by the defendant who used Exhibit 18, drawn up by Miss Li, and Exhibit 19, drawn up by the defendant himself. He said that he drew up Exhibit 20, showing the debts owed by the partnership, and that these documents were agreed by the parties. Exhibit 17 shows that the partnership was owed a total of $295,465.91 and Exhibit 20 shows that it owed debts of $140,433.80. The difference between these two figures is a profit balance of $155,032.11. Mr Lau said that it was agreed, as set out in Exhibit 3, that the plaintiff should be entitled to 1/3 of the profits and that this amounted to $51,677.37.

42. Mr Lau said that he undertook, on behalf of the plaintiff, to pay some of the debts shown in Exhibit 20 to the sum of $90,545.00. These were Items 2, 11, 12, 13 and 14 and he explained why it was considered appropriate that the plaintiff should pay these particular items.

43. He said that it was agreed that the plaintiff would be reimbursed for paying these debts and that he was to receive, therefore, a total of $142,222.37 being $51,677.37 as his share of profits and $90,545.00 reimbursement. He said that it was agreed that the plaintiff would be allowed to keep the Franki Contractors Ltd cheque in the amount of $68,040.06, then being held by L. H. Kwan & Co., and that this left a balance owing to the plaintiff of $74,182.31. He said that it was agreed that this should be rounded off to a figure of $74,180 and that the defendant would pay this amount by handing over four postdated cheques.

44. He said that the defendant also agreed to pay the plaintiff $24,700 for the fittings and furniture in partnership office and that he gave a postdated cheque in payment thereof (Exhibit 10).

45. He said that Exhibit 2, Exhibit 3 and Exhibit 5, the receipt for Exhibit 10, were all signed by the plaintiff at his home later that evening. He said that Exhibit 2 was dated 1st October at the request of the defendant who said that he wanted this date inserted so that he would be protected should any action be taken against him for wrongfully collecting partnership debts during October.

46. He said that profits of the partnership had been distributed each month to the partners in the agreed proportions.

47. He said the plaintiff left everything in the office at Room 1202 Park In Centre to the defendant after 30th October and he said that when he visited the defendant's office in Bank of Communications at a later date he saw furniture therein which had come from the partnership office.

48. Under cross-examination he explained that he did all the business for the plaintiff because he was handicapped and that he was like a brother to him. He said that he introduced most of the clients and that the defendant signed the contracts and supervised the work and that he was responsible for handling the partnership's bank account.

49. He said that when the partnership's bank balance reached a certain limit the extra money was shared among the partners.

50. He denied knowing that the defendant had a special bank account so that he could pay workers if necessary.

51. He said that before the dissolution of the partnership there had been arguments about the Braemar Hill and the La Salle College projects occasioned by the fact that they were risky because the profit margin was small but he denied that there had been any agreement prior to the dissolution that they should be taken over by the defendant.

52. He said that the defendant negotiated the tenancy in the Park In Centre with Hang Lung Holdings and that the deposit was as far as he knew still with Hang Lung Holdings.

53. As to the transfer of the car he said that, in November, he telephoned the defendant who sent someone to his house to collect the registration book.

54. It was put to the witness that Mr Yiu Hou To of the Tak Cheng Airconditioning Co. had been paid $77,000 odd on 23rd September 1978 and it was suggested that this was established by Exhibit 26, a payment voucher dated 18th September. If this was so it would be most significant for it would strongly suggest that the witness's evidence as to the drawing up of accounts on 30th October 1978, which included a payment to Mr Yiu Hou To (Item 2 in Exhibit. 20), must be incorrect. However, Mr Lau explained this by saying that although the payment cheque had been drawn up in September, as shown by the voucher, it had, in fact, never been sent to Mr. Yiu because there was not sufficient in the partnership's bank account and so this debt was still outstanding on 30th October and, therefore, figured in the accounts which were discussed on that date.

55. He said that, after discussion, the final figures in Exhibit 17 were arrived at by discounting the amounts owed and that it was agreed that the defendant could keep what he collected above the discounted figure but would bear the loss if he collected an amount below the discounted figure.

56. He gave figures showing how the amount of the cheque upon which the plaintiff now sues, Exhibit 10, was arrived at.

57. As to Exhibit 2 he said that he had explained to the plaintiff in the presence of the defendant that "the debts" mentioned in clause 1 of Exhibit 2 were the five debts starred in Exhibit 20.

58. He said that he similarly explained to the plaintiff that "the date" in clause 3 referred to 30th October. He said that he agreed to the date "1st October" being inserted at the foot of the document by the defendant who said that he wanted that date on the document because he had earlier threatened to report him to the police for wrongfully collecting partnership debts during October.

59. As to Exhibit 3 he said that was written, at his direction, by Miss Lau early on the evening of 30th October and that during the writing of it, clause 2 was inserted at the defendant's request. Although in his evidence the witness had said that the partnership accounts had been finalized as at the 30th October he conceded that he had placed the date 30th September in Exhibit 3. He was asked how this came about and said that he inserted the date 30th September both because there was not much business in October and in order to prevent the plaintiff from being involved in the "risky" Braemar Hill project which was undertaken in October.

60. Mr Wu Kin Shuen gave evidence saying that he was employed by L.H. Kwan & Co. in October 1978 and that after Mr Lau returned from his honeymoon he attended a meeting at the Golden Island Restaurant, at the request of Mr Lau, with the defendant, Mr Lau and Mr Chan. He said that the parties said that they wanted a dissolution of the partnership and that finally he suggested that they prepare accounts and produce them for inspection and that, on 30th October, the three met in an office at L. H. Kwan & Co. He said that the three eventually came out and told him of the terms agreed but that he could not remember exactly what was said other than that some of the accounts would be received and paid by Mr Lam and some would be received and paid by Mr Lau who was representing Mr Cheng.

61. He said that they then went to Mr Cheng's house and that he witnessed Exhibit 2 and Exhibit 3. Under cross-examination Mr Wu said that "at the time when they signed these two documents they also had some other oral agreement".

62. The issues with which I am concerned are essentially matters of fact. On the one hand the plaintiff contends that the parties:

63. The defendant on the other hand says that all that was agreed was that the business of the partnership and certain of the partnership chattels would pass to him and that the profits would be divided between the partners. He denies that accounts were ever drawn up and agreed upon.

64. I have carefully considered the evidence of each of the witnesses. I have considered the evidence of each in the light of all of the evidence and of the documentary exhibits which have been placed before me.

65. In the outcome I find that the evidence of the plaintiff and his witnesses made a credible and coherent whole which I have no hesitation in accepting. The defendant was not an impressive witness and I am satisfied that his evidence as to the events of September, October and November 1978 was untrue. I reject that evidence where it is in conflict with the evidence of the plaintiff and his witnesses.

66. I am satisfied that the defendant, Mr Lau, who was acting for the plaintiff, and Mr Chan, the sleeping partner, agreed on the 27th October to dissolve the partnership and that on 30th October they drew up lists of the partnership debts and credits (Exhibit 17 and 20) as they stood at that date and agreed as to the correctness of those lists and as to the benefits and liabilities which would fall to each in regard thereto.

67. I am satisfied that it was agreed, as Mr Lau set out in his evidence, that the plaintiff was to receive the sum of $74,180 from the defendant and was to have the benefit of "the Franki cheque" in sum of $68,040.06 and that the business of the partnership was to pass to the defendant. I am satisfied that the defendant paid the sum of $74,180 by the four postdated cheques and thereafter took over the business of the partnership.

68. I perhaps should add that I am quite satisfied that the real agreements between the parties are not set out in Exhibit 2 and Exhibit 3. These documents must be looked at in the light of what was agreed orally by the parties as sworn to by Mr Lau. For the avoidance of doubt I make a specific finding that Exhibit 2 was not executed on 1st October but was executed on 30th of that month and that it was intended by the parties to come into effect on that date. I accept the explanation given by Mr Lau with regard to the date it bears.

69. I further specifically find that the accounts were drawn up and agreed as at 30th October and again I accept the explanation of Mr Lau as to why Exhibit 3 bears the date "30th September".

70. I have no doubt that on 30th October the parties drew up final partnership accounts and reached agreement upon them and then executed that agreement. I am satisfied that the parties intended to and did thereby dissolve the partnership and did finally resolve the partnership finances.

71. It was also, I am satisfied, agreed on 30th October, that the defendant would pay a sum of $24,700 to the plaintiff in consideration of the plaintiff's transferring his share in the partnership chattels to the defendant.

72. It is true that in Exhibit 5 this payment was stated to be for "all the furniture, chattels and decorations at Room 1202" however, it is clear from the evidence of Mr Lau that other assets, such as the Mucedes-Benz car, were taken into account at the time when this agreement was reached.

73. I am satisfied that the defendant paid the sum of $24,700 by a postdated cheque, the cheque now being sued upon, and that it was handed over in pursuance to this agreement. In this regard the defendant contends that the agreement was limited to the furniture, chattels and decorations in Room 1202 and that the locks on the door of the room were changed thereby preventing him from taking possession. I reject this evidence and am quite satisfied, relying particularly upon the evidence of Miss Li, that the defendant placed his staff in Room 1202 and took possession of the room and its contents on 31st October 1978.

74. The defendant's contention that there was a total lack of consideration fails - I am satisfied that full consideration passed and give judgment to the plaintiff on his claim in sum of $24,700.

75. I dismiss the counterclaims of the defendant.

76. Defendant is ordered to pay plaintiff's costs to be taxed.

Representation:

Mr J. Chan (Leonard K. L. Heung & Co.) for plaintiff

Mr Van Buuren (S. T. Poon & Co.) for defendant