Re Madam Poon Yau-cheong t/a Kwok Fu Restaurant

HCB000104/1981

IN THE HIGH COURT OF JUSTICE

IN BANKRUPTCY

NO. 104 of 1981

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Coram: Hon. Liu, J. in Court

Date: 14 May 1982

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JUDGMENT

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1. This is a straight-forward case, and the question to be decided between the parties is in the form a framed issue, namely, whether Madam Poon Yau Cheong was a partner of the firm, Kwok Fu Restaurant during the period of employment of the petitioners in the said firm from about the 1st December, 1980 to about the 6th September, 1981.

2. In this framed issue, the petitioners have been made the plaintiffs and Madam Poon, the defendant. It is common ground that some time at the end of 1980 Madam Poon decided to invest in the restaurant business then run by Madam Yau Cheuk (or Chuk) Ying. It is also not a matter in dispute that at the inception Madam Poon intended her investment to be in the form of shareholdings in a limited company to be formed. Instructions to solicitors had duly been given for securing a proposed company name from the Registrar of Companies. That was done on or about the 19th November, 1980. It also transpired that for the advice given by her then solicitors Messrs. D'Almada Remedios against any change in the legal entity of the restaurant business for fear of a breach of the tenancy agreement whereby the premises of the restaurant were acquired and held. Madam Poon in her viva voce evidence supplemented that the legal advice given to her in the latter part of 1980 by her then solicitors was in fact that any partnership or limited company to run the restaurant business in place of the sole proprietorship might be in breach of the tenancy terms. Be that as it may, it is a fact that no limited company was formed. We know not what the reason was. Without the formation of the company a total sum of $800,000 was paid by Madam Poon to Madam Yau on no less than five occasions $20,000 on the 16th October, then $100,000 on the same or the next day, another $100,000 on the 21st October, $80,000 on the 17th November and to be followed by a cashier order of half a million dollars on the 18th November all in 1980.

3. By the 18th November, 1980 when the last payment was effected, Madam Poon was left in no doubt that no limited company was to be incorporated, and yet she paid the last instalment and joined the business.

4. To summarize the facts chronologically: After these payments of Madam Poon to Madam Yau, a meeting was convened in the restaurant premises. In attendance were Madam Yau, Madam Poon and her husband Mr. Ng and the restaurant staff, amongst whom was one Mr. Wong Sai Ching. According to Mr. Wong, Madam Poon was present with her husband, Mr. Ng when an announcement was made by Madam Yau to the effect that she, Madam Yau, had sold two-thirds of her shares in the restaurant to Madam Poon, who would thereafter be President of the Board of Directors of the restaurant and the person in charge of the running of the restaurant business and that Madam Poon's husband would be appointed an overall supervisor of the restaurant. Madam Poon's husband also addressed the staff. Thereafter, on or about the 1st December, the restaurant suspended business for a day, and on the following day the 2nd December a cocktail party was hosted in which both Madam Poon and her husband Mr. Ng assumed predominent roles. After the cocktail party, Madam Poon took an active part in the running of the business and supervising of the staff, the takings of the restaurant and its accounts so much so that she opened an account in her own name into which the restaurant takings were put and from which creditors of the restaurant were paid.

5. Some time in the middle of 1981, it was on the 29th June, 1981, Madam Poon caused to be secured an acknowledgement duly prepared by Messrs. D'Almada Remedios and signed by Madam Yau. It is necessary to set out the terms of the signed acknowledgement in full, and it reads as follows:

"I, the undersigned, Yau Shuk Ying hereby acknowledge that I have taken into partnership Madam Poon Yau Cheong in the business of Kwok Fu Restaurant conducted at Shop Nos. 1, 2, 3 and 4 on the ground floor of Hung Hom Bay Centre, Hong Kong and that the capital of the partnership is $1.2 million in respect whereof Poon Yau Cheong's contribution is $800,000 and mine is $400,000. Poon Yau Cheong therefore has a 2/3 share and I have a 1/3 share and in that proportion we shall share profits and their losses. I further hereby acknowledge that I have received payment of the sum of $800,000 from Poon Yau Cheong being her contribution towards capital, and this document is to be handed to Poon Yau Cheong as evidence of such receipt."

It was a clear acknowledgement of the subsistence of a partnership between Madam Poon and Madam Yau. Messrs. D'Almada Remedios were then acting for, I am told, both ladies.

6. I come next to a month later, on the 17th July, 1981 when Mr. Robertson acting as interim Receiver in another matter concerning Madam Yau visited the restaurant premises with his Assistant Registrar Mr. Cheng. Representations were made to Mr. Robertson by Madam Poon that she was a two-thirds owner of the restaurant business in partnership. According to Mr. Robertson, he was not prepared to accept the bare assertion of Madam Poon and thereupon Madam Poon produced the acknowledgement as proof and further took Mr. Robertson and his assistant to a bank whereby payments totalling $800,000 were vouched. Thus Madam Poon sought, obtained and accepted this signed, acknowledgement; she also acted on it and used it for official purposes. But according to Mr. Robertson and Mr. Cheng, thereafter during investigations and enquiries Madam Poon had made admissions to them to the effect that she was a two-thirds owner of the restaurant business in partnership. Up to this stage, the partnership relationship between Madam Yau and Madam Poon was not questioned, and as a matter of fact for some time thereafter when the prospect of a sale of the restaurant business was in the forefront, Madam Poon's present solicitors prepared for approval a draft agreement in November 1981 with a view to disposing off the restaurant business. I need comment no further save for repeating the first recital and Clause 6 of this draft which speak for themselves. The first recital reads as follows:

"Madam Yau and Madam Poon had been partners holding respective 1/3 (Madam Yau) and 2/3 (Madam Poon) shares and interests of and in a Chinese restaurant business hereinafter called the said business in style and the firm name of Kwok Fu Chinese Restaurant situated at Shop Nos. 1, 2, 3 and 4 on the Ground floor of Hung Hom Bay Centre, Kowloon (hereinafter called "the said premises")."

Clause 6 of the draft agreement reads as follows:

"To all intents and purposes this deed is also for the desolution of the partnership between Madam Yau and Madam Poon."

7. No evidence emerged from person or persons responsible for this document, and it must be assumed that it was drafted by solicitors with clear instructions from Madam Poon.

8. Subsequently, when the story unfolded further, an allegation was raised on behalf of and by Madam Poon herself that in fact that she was not and had never been a partner of the restaurant business. She intended to form a limited company, a share of which she was to acquire for $800,000. It was claimed that prior to incorporation of the intended limited company, Madam Poon was to be a caretaker in the capacity of a trustee of the restaurant business for Madam Yau.

9. The terms in the said signed acknowledgement dated the 29th June, 1981 and the provisions in the draft agreement circulated some time in September 1981 reflected the true intention of Madam Poon and Madam Yau in the transaction involving the former's investment of $800,000 in the restaurant business. The intention was so blatently clear that in my view, the matter is almost beyond any sensible argument.

10. Insofar as the evidence of Madam Poon which seeks to contradict the evidence given by Mr. Robertson, Mr. Cheng and also Mr. Wong Sai Ching, suffice it for me to say that I unhesitatingly prefer the evidence of these three men. I also accept the evidence of Chau Tak Tong, the other plaintiff, whose field of operation seemed to be restricted more to the restaurant kitchen and his coverage in evidence was not as extensive as that given by the evidence of Mr. Wong. I find as a fact that Madam Poon intended to and did enter into a partnership relationship with Madam Yau despite her initial notion of forming a limited company, and I consequently further find that Madam Poon did become a parther of Madam Yau in the restaurant business under consideration between about the 2nd December, 1980 to the cessation of the partnership restaurant business on or about the 6th September, 1981. She was no trustee.

11. It is not necessary in the circumstances to consider the question of holding out, but if it had to be determined, on Mr. Wong Sai Ching's narration of the restaurant meeting held on the 17th November, 1980 with the staff, in particular the announcement made by Madam Yau in the presence of Madam Poon and her husband and also the address of Madam Poon's husband, according to Mr. Wong Sai Ching, to the effect that he, Mr. Ng had taken over the restaurant and he would co-operate and co-ordinate with Madam Yau with a view to improving and promoting the business, is, in conjunction with the surrounding circumstances including the participation and activities of Madam Poon thereafter in the running of the restaurant business, congent evidence that Madam Poon, who must have accepted these statements, did hold herself out as a partner of the restaurant partnership business to the staff.

12. Madam Poon cut a poor figure in the witness box, and in view of the unambiguous terms in the acknowledgement dated the 29th June, 1981 and the draft agreement prepared by her solicitors in September 1981, understandably little credible explanation was or could have been advanced.

13. This is a case of a deliberate attempt to mislead the Court, and subject to what Mr. Hung has to say the Court's displeasure must at least be registered in the order for costs. I propose to award costs against the defendant in favour of both plaintiffs on a common-fund basis.

(Further submissions received).

14. I have been further assisted by Mr. Hung on the question of costs. It is, in my view, just and equitable for the costs reserved and costs for today to be costs for the plaintiffs against the defendant. Obviously, the two earlier hearings were necessitated by the allegations made by Madam Poon and on her behalf. That leaves the remaining question of the scale of taxation. In the circumstances, the Court's indignation should at least be reflected in a high scale of costs awarded in favour of the petitioners. Mr. Johnston indicated that an order for costs on the high scale might eventually have the effect of prejudicing the general creditors. Mr. Wills, acting for the plaintiffs, whilst welcomes the favourable award as regards costs, shares the anxiety expressed by Mr. Johnston. However, Mr. Wills assures the Court a suitable arrangement can be made in future between the Official Receiver's office and the Director of Legal Aid as to whether the common-fund basis should be adhered to or otherwise modified by way of waiver or concession. In the circumstances, I order costs of the trial of this issue and those reserved on the 30th October, 1981 and 13th November, 1981 be costs for the plaintiffs against the defendant on a common-fund basis.

Representation:

Mr. R. Wills for Director of Legal Aid for Petitioner.

Mr. Johnston for Official Receiver.

Mr. S. Hung (Spencer Hung & Co.) for Opposing debtor.