Ip Man Sun and Another v. Hui Cheong and Another

CACV 199/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 199 OF 2011

(ON APPEAL FROM HCA NO. 2370 of 2002)

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Before: Hon Cheung, Yuen and Kwan JJA in Court

Date of Hearing: 12 December 2012

Date of Judgment: 19 December 2012

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JUDGMENT

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Hon Cheung JA:

1.I agree with the judgment of Yuen JA.

Hon Yuen JA:

2.This is an appeal from a judgment of Recorder Anthony Chan SC (now Anthony Chan J) ordering the defendants to pay to the plaintiffs a sum of $1,200,847.33 together with interest and costs, and dismissing the major part of the plaintiffs’ counterclaim.

The plaintiffs’ claim

3.The plaintiffs (“the Ips”) who are brothers, claimed that they were in partnership with the defendants (“the Huis”) who are uncle and nephew, from 1986 to the time when the writ was issued in 2002. Pausing there, at the commencement of the appeal, the court expressed its surprise that the action took 9 years to go to trial, but neither party offered an explanation as to why that was so, and neither has complained of the time taken.  We shall therefore say no more about the delay, save to remark that litigants who permit the trial to be delayed for such a length of time run a substantial risk of witnesses giving incomplete and unsatisfactory evidence by reason of their actual or alleged inability to recall past events, and that is not conducive to the court’s objective to provide a fair, just and efficient disposal of litigation.

4.The plaintiffs claimed that in about 1986 there was an oral agreement between the parties to operate a business in the trading of jade stones.  Jade stones would be purchased on the mainland, in Myanmar and Thailand, for resale as soon as possible.  The Ips would put up 1/3 of the cost and the Huis, 2/3.  Profits from resale would be distributed according to the same proportion.  If some jade stones could not be resold, they would be cut and processed into ornaments to be sold at shops operated by the Huis or at a shop operated by another brother of the Ips together with one of the Huis.  

5.The plaintiffs claimed that thereafter, on a number of buying trips from 1986 to 1994, the parties duly purchased jade stones for the purpose of immediate resale.  However even after resale of some stones and the sale of ornaments processed from stones which could not be resold, there still remained some stones which were called at trial “the Remaining Stones”.  The parties tried to settle accounts but they were unable to agree, and a year later, the plaintiffs brought proceedings. 

6.The plaintiffs’ claim was for a declaration that the partnership had been dissolved by the issue of the writ, an order for the winding up of partnership affairs, the taking of an account, and an order that the defendants pay to the plaintiffs 1/3 of the profits found to have been made on the taking of the account.

The defence

7.The defence was that there was no partnership agreement between the parties as alleged by the plaintiffs, but only a series of occasional “joint purchases” of jade stones over a number of years.  Accordingly the plaintiffs’ claims were time barred. 

8.The defendants further challenged the plaintiffs’ records, and alleged that all accounts between them had been settled some years previously.  However they also counterclaimed for overpayment which they said they only discovered in 2001 when they checked certain records, for commission for the sale of goods at one of the shops which the Huis operated, and for expenses in cutting and processing some of the stones into ornaments.

Judgment after trial

9.The trial lasted 6 days.  One of the plaintiffs MS Ip gave evidence for 3 days, and both the Huis, as well as the daughter of CS Hui, also gave evidence.

10.The judge accepted MS Ip’s evidence that there had been an oral agreement at the beginning, establishing a relationship of partnership which lasted a number of years (para. 17).  The judge found the defendants’ argument that there were simply repeated joint purchases artificial and not reflective of the reality of the situation (para. 19).  At this point I should mention that on appeal, leading counsel for the defendants (who did not appear at the trial) accepted that there might have been individual partnerships formed on each buying trip, but this argument was not raised in the defence. 

11.The judge considered the criticisms put forward by the defendants of the reliability of the plaintiffs’ records.  With the aid of a Scott Schedule (“Scott Schedule 1"), the judge went through the items in the plaintiff’s records and the defendants’ challenges to them. 

12.As for the defendants’ counterclaim, the judge found no evidence substantiating the alleged overpayment, and he also rejected the counterclaim for commission as there was no reason why commission was payable on goods sold at only one of the Huis’ shop and not the other.  As for the expenses of cutting and processing some of the stones, the judge found the evidence from the defendants inadequate but he was prepared to award a sum of $100,000.

13.As the judge had gone through the records in the course of the trial, counsel for the plaintiffs did not pursue a separate taking of an account, and the judge having indicated which of the items claimed should be rejected, it was ordered that the parties should quantify the net sum payable, for which the judge gave judgment.

Appeal

14.On appeal, the defendants’ main challenge was to the judge’s finding that the parties had entered into a partnership.  This was obviously because the defendants wished to mount a limitation defence.  The judge was alert to the significance of this argument (para. 4) and he was aware of the parties’ respective arguments on s.3 and s.4 of the Partnership Ordinance (para.20).

15.The issue whether the parties had entered into a partnership is one of mixed fact and law.

15.1As far as the facts were concerned, the judge had the benefit of seeing and hearing MS Ip for the plaintiffs as well as both defendants.  It is well-established that in these circumstances an appellate court would not lightly interfere with a trial judge’s findings of fact. 

15.2The judge found MS Ip to be a “difficult” witness who had difficulties understanding questions put to him in cross-examination, but after having paid close attention to his evidence, the judge found that he was not a dishonest witness (para. 24). The judge accepted his evidence that there had been an oral agreement to enter into partnership (para. 17).   Pursuant to that agreement, the parties went on buying trips from 1986 to 1994 and purchased stones for resale.  Thereafter the partnership was dormant in the sense that there were no further buying trips, but the ornaments processed from stones which could not be resold were offered for sale at the shops pursuant to the agreement, and in the years that followed the parties got together to sort out accounts, the last exercise taking place a year before the issue of the writ.   

15.3The judge rejected the defendants’ suggestion that there was simply a series of ad hoc joint purchases mainly on the ground that the parties did not purchase the stones for investment or collection.  It was common ground that they purchased the stones for the purpose of resale at a profit, and indeed their mode of operation was to assess the resale value of the stones at the point of purchase, and then offer all the stones for resale as soon as possible.  In my view, this makes the case very different from French v Styring (1857) 2 CB (NS) 357, where there were more complicated arrangements for the ownership and management of a racehorse. 

15.4As far as the law was concerned, it is trite law that no single factor is determinative of the question whether there was a partnership.  The judge was aware of the factors advanced by the defendants in support of their argument that there was no partnership, and the weight a judge puts on each factor is a matter for him having considered the individual circumstances of each case.

15.5The judge was impressed by the fact that the parties had, over a long period of time, purchased on many occasions a large number of goods, this exercise having been undertaken with a view to profit on resale, with the parties dividing cost and profits according to a ratio that both sides understood would be applied without the need for further agreement (although there was one occasion when they varied from that ratio: para. 17).  The parties carried on this practice, not because each person individually did not have the funds to purchase stones on his own, but for the sensible commercial purpose of spreading the risk.  To these relevant factors may be added the fact that MS Ip was given the sole responsibility of keeping records of purchases and disposal, an unlikely scenario if the parties were mere co-owners, each in business in his own right in the acquisition of the stones. 

15.6There were of course other factors which the defendants put forward as supporting the defence, such as the absence of a firm name, or a firm bank account, or evidence of a party holding out the others as agents of the partnership, or evidence that a party accepted liability in respect of debts or engagements of the others.  However, it is important to bear in mind that this was an unsophisticated arrangement started some two decades ago, apparently following traditions that were established even further back in time. There was no evidence that purchases were made on credit terms with sellers, or that there were any outside creditors at all.  Records were handwritten simply in children’s notebooks.  In these circumstances, the judge cannot be faulted for not placing much weight on the above factors.

15.7As for the point advanced on appeal based on the parties’ freedom to enter into other arrangements with other traders, this argument had not been raised at trial, and so there was no evidence called on this aspect. It is therefore not open to the defendants to argue this point now.

16.In their written submissions the defendants’ counsel also argued that the plaintiffs’ records were unreliable. As I have mentioned earlier, the judge had gone through them, rejecting specific items for reasons set out in his judgment.  In the absence of any clear instances of errors made by the judge in that exercise, this is not a matter on which an appellate court should interfere.

17.Finally I should mention that at the start of the appeal, leading counsel for the defendants also complained that the judge should not have given a judgment for a quantified sum but should have ordered the taking of an account.  This was not developed in the written or oral submissions.  Since there were no grounds supporting this complaint, I need say no more about it.

Order

18.I would therefore dismiss the appeal. The parties having agreed that the costs of the appeal should follow the event, I would order that the defendants pay the plaintiffs’ costs of the appeal, to be taxed if not agreed.

Hon Kwan JA:

19.I agree with the judgment of Yuen JA.

Mr Charles Manzoni SC and Mr Ernest Koo, instructed by Lee & Chow, for the 1^st and 2^nd Defendants/Appellants

Mr Julian Chan, instructed by Ma Tang & Co., for the 1^st and 2^nd Plaintiffs/Respondents