Yau Wah Hing and Another v. Yuen Kay Ming

CACV 46/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 46 OF 2012

(ON APPEAL FROM HCA NO. 4252 OF 2003)

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BETWEEN

Before : Hon Yeung VP, Kwan and Lam JJA in Court

Date of Hearing : 7 March 2013

Date of Judgment : 7 March 2013

Date of Reasons for Judgment : 19 March 2013

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REASONS FOR JUDGMENT

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Hon Lam JA (giving the Reasons for Judgment of the Court):

1.This is an appeal against the judgment of Yam J [“the Judge”] of 3 February 2012 as supplemented by a Corrigendum of 2 March 2012. By that judgment, the Judge granted relief to the Plaintiff concerning the affairs of a business run under a Passenger Service Licence [“PSL”] No 1260C (later changed to 18633C) issued by the Transport Department. On 7 March 2013, we dismissed the appeal on the main points advanced before us but set aside two paragraphs in the order of the Judge. The following are the reasons for our judgment.

2.The relief (granted in Chinese as the trial was conducted in Chinese) were set out in English in the Amended Notice of Appeal as follows,

“(1) A declaration was granted that the 1^st Plaintiff (and also in the name of the 2^nd Plaintiff) were in partnership with the Defendant (“the partnership”) in respect of public light bus Passenger Service Licence No. 1260C issued by the Transport Department (“the 1^st Order”);

(2) A declaration was granted that the public light bus Passenger Service Licence No. 1260C issued by the Transport Department formerly held in the name of the Defendant, and the public light bus Passenger Service Licence No. 18633C subsequently issued by the Transport Department, as well as the business operated under the said licences, are held on constructive trust for the partnership (“the 2^nd Order”);

(3) A declaration was granted that the 1^st Plaintiff (and also in the name of the 2^nd Plaintiff) holds a 2/9 share in the partnership (“the 3^rd Order”);

(3) (4) It was order that the Plaintiffs be compensated with the value of the partnership assets in accordance with their his entitlement under the partnership at the time of its termination (“the 4^th 3^rd Order”);

(4) (5) A costs order nisi was made that the Defendant shall bear the costs of the Plaintiffs on an indemnity basis (“the Costs Order nisi”);”

3.However, it is necessary to set out the order in Chinese because, as shall be explained below, the English translation in the Amended Notice of Appeal is not entirely accurate and there are implications flowing from such discrepancies.

“法官現判定並宣佈：

1． 第一原告人（及以第二原告人名義）和被告人是有關 運輸署發出的客運營業證編號1260C公共小型巴士（專線）服務的合夥經營者。

2． 根據客運營業證編號1260C及其後變更的客運營業證編號18633C的公共小型巴士（專線）服務的專營權利及其生意是以信託方式為該合夥經營持有。

3． 第一原告人（及以第二原告人名義）擁有該合夥經營的9份之2股權。

4． 原告人可依終止合夥經營生意時的權益獲得相等於合夥資產價值的賠償。

5． 訟費暫准命令為被告人須支付懲罰性訟費給原告人。此暫准訟費在頒下命令14天後成為絕對命令。”

4.The discrepancies are,

(a) Regarding para 1, the declaration in the Chinese order refers to the public light bus services operated under PSL No 1260C as the subject matter of the partnership whereas in the English translation PSL No 1260C is the subject matter of the partnership;

(b) Regarding para 2, the declaration in the Chinese order refers to the exclusive rights under PSL Nos 1260C and 18633C and the public light bus service business thereunder as being held on trust for the partnership whereas in the English translation the things that were declared to be held on trust are: (i) PSL No 1260C; (ii) PSL No 18633C; and (iii) the businesses operated under these licences;

(c) Further, regarding para 2, there is a reference to “constructive trust” in the English translation but not in the Chinese order.

5.Since the Judge gave his judgment and had his order sealed in Chinese, the Chinese version should prevail.

6.It can be observed at the outset that the relief granted by the Judge, particularly the order for payment of damages under para 4 of the Chinese order, is a rather unusual form of relief in a partnership dispute. We shall examine later whether such an order can be made in the present case. The relief he ordered were, to a large extent, taken from the prayers in the Re-amended Statement of Claim, which are:

“AND THE 1^ST PLAINTIFF AND THE 2^ND PLAINTIFF CLAIM AGAINST THE DEFENDANT FOR

（1） A Declaration that the 1^st Plaintiff and the 2^nd Plaintiff is or are a partner and/or parties to a joint venture agreement to the business of operating a public light bus service under Passenger Service Licence No. 1260C granted by the Transport Department;

（2） An injunction to restain the Defendant himself, his servant or agent or any of them to prevent the 1^st Plaintiff and the 2^nd Plaintiff from operating with their public light buses on all the routes permitted under the Passenger Service Licence No. 1260C granted by the Transport Departmenty;

（3） Damages to be assessed;

(3A) Alternative, a Declaration that the partnership and/or joint venture to which the 1^st Plaintiff, the 2^nd Plaintiff and the Defendant were parties of have come to an end;

(3B) An Order that the Defendant do surrender the Licence to the Transport Department;

(3C) Alternatively, the Defendant do pay damages to the 1^st Plaintiff and the 2^nd Plaintiff representing the value of their share in the partnership and/or joint venture and such amount to be assessed;

（4） An Order that the Defendant do pay the 1^st Plaintiff and 2^nd Plaintiff damages after the assessment aforesaid;

（5） Interests;

（6） Costs; and

（7） Further and/or other relief.”

7.In the Re-amended Statement of Claim, the Plaintiffs advanced an alternative case based on a relationship of joint venture parties.  As it turned out, the Judge found for the Plaintiffs on the basis of partnership. There is no respondent notice by the Plaintiffs seeking to uphold the orders on the basis of joint venture agreement.   

8.The order nisi for costs was made absolute by To J on 1 March 2012.

9.The 1^st Plaintiff and the Defendant had been partners since 1984 in a public light bus business run under Passenger Service Licence No 1260C [“the Licence”].  Though the Licence was granted to the Defendant on 25 August 1984, the Judge found that it was applied by the Plaintiff on behalf of a partnership business called Hung Kei Maxicab Company [“HKMC”].  The Judge set out the circumstances under which the business came into existence and how the Licence was applied at paras 5 to 21 of the judgment.

10.Given that there is no longer any dispute in this appeal as to the running of the business as a partnership prior to 1992, it is not necessary to go into such details.  For our purposes, it suffices to quote from para 22 of the judgment to give a general picture of the business operation from 1984 to 1992,

“22． 故此，原告人的說法，即由開始經營65 號線至1992年(其後事情的發展在以下判詞再作討論)，毫無疑問14位車主都是以17輛小巴作為一合夥生意，並以鴻基公司的名義經營，這個說法是有以下種種文件及證據支持的：

(1) 鴻基公司在1984年10月17日註冊成為一合夥公司，當時只有8位合夥人在名單上，及後在9月則加上另外6 位合夥人；

(2) 被告人簽署投線的文件丙欄內列出9 輛小巴及其車主；

(3) 運輸署文件顯示該署知悉被告人投線申請乃是代表一家名為鴻基公司的合夥公司。因此，該署在收到該公司的商業登記證之副本後，要求警務處查證所有合夥人背後，有沒有黑社會背景及刑事紀錄；

(4) 投線成功之後，袁祺明在申請客運牌照時只列出當時需要的5輛車輛，但及後每年車輛數目都有遞增，最終便是14位車主的17輛小巴；及

(5)        就鴻基公司的運作而言，無論是賬目還是報稅表均顯示鴻基公司是一合夥人生意：公司的支出包括車主租車費、司機每月薪金、其他行政人員的薪金、購買辦公室物業及其他維修工具、氣油及維修的開支等。在撇除所有開支後，以每輛車一股計算，分享盈利。[1]”

11.The Judge found that the Plaintiff was able to successfully bid for the Licence because of the capital and vehicles contributed by all the partners, see para 40 of the judgment. There is no appeal against such finding.

12.As far as interest in the partnership business is concerned, the Judge found that initially there were altogether 17 shares of which the 1^st Plaintiff held 1 share and the Defendant and his wife held 2 shares each, see para 5 of the judgment.  Subsequently, there were changes in the holding of the interests as set out at paras 27 and 28 of the judgment.

13.In 1992, there were further changes in the holding of interests which was recited by the Judge at para 31 of the judgment. The end position was set out in a table at para 31(6).  The interest of the 1^st Plaintiff had been transferred to the 2^nd Plaintiff and it had 3 shares out a total of 17 shares. The Defendant and his wife held 8 shares.

14.Apart from such changes, the business model also changed, see paras 30 to 33 of the judgment. In view of the arguments advanced in this appeal, it is necessary to set out paras 30 and 33,

“30. 在1991年初，刁瑞榮及麥少芬也將他們的2 份及1 份股權出讓，但就保留他們的3 輛小巴。同時，在91年至92年間，各合夥人一致同意作出重要轉變，把鴻基公司經營65 號線的模式由公司制改變為分賬制(後或稱車主制)，即各車主自負盈虧，與其司機分享車資收入，以提升司機的積極性。辦法是各車主每日收集各自名下的小巴錢箱，點算收入，而車主與司機會把每日錢箱車資收入以65%和35%分賬。…

33. 如前所述，約自1992年6月開始，鴻基公司由“公司制”轉為“分賬制”或“車主制”，其安排如下：

(1) 所有司機轉為由各車主聘請；

(2) 核心4人組同意以540,000元將鴻基公司擁有的寫字樓賣給袁祺明以籌集資金，支付所有司機的遣散費。寫字樓出賣後則繼續由鴻基公司以每月5,000元租金租用；

(3) 鴻基公司名下3輛小巴則以每輛1,280,000元分別賣給袁祺明、葉基超及游華興，其中葉基超是以利信投資有限公司購買，而游華興則用天暉有限公司購買；

(4) 至於刁瑞榮的兩股及麥少芬的一股則轉售給袁祺明、葉基超的利信公司及游華興的天暉公司。三人亦自行購買一輛小巴填補他們小巴的空缺；

(5) 至於賜滿公司4 份股權及4輛小巴則分別轉售給袁祺明、葉基超的利信公司、游華興的天暉公司以及曾仁；

(6) 每輛小巴的每月行政/管理費，由1,600元至2,100元不等，以“多除少補”的形式向鴻基公司繳交，換句話說，鴻基公司的收入由公司制下的車資(carfares)變為分賬制下的管理費(management fee)；

(7)   在轉制後，鴻基公司旗下的65 號線有25輛小巴，而股權則仍然維持在17 份。”

15.Despite such changes, the Judge held that the partnership continued.  The Judge further held that the Licence was a partnership asset and the Defendant held it on constructive trust.

16.After 1992, the business was run on the new model. The Plaintiffs said the Defendant, as manager of the business, had run it in manners which were prejudicial to their interest.  The Judge recited the relevant incidents at paras 53 to 72 of the judgment.  It culminated in the Plaintiffs refused to pay management fees to the Defendant in 2010 whilst the Defendant claimed that he was the sole and beneficial owner of the Licence.  Finally, the parties fell out with each other with the Plaintiffs withdrawing from the operation under the Licence on 24 February 2010 and reserving the right to claim for damages.

17.By then, the other partners had already left the operation. The Defendant became the only person owning all the vehicles operating under the Licence.  In 2010, he applied for the transfer of the Licence to a limited company formed by him, Hung Kei Maxicab Company Limited [“HKMCL”].

18.On 20 July 2010, the Defendant wrote to the Commissioner for Transport requesting for the transfer of the Licence to HKMCL[2]. An application for PSL was made by the Defendant on behalf of HKMCL on 23 July 2010[3].  On 19 January 2011, the Commissioner approved of the “transfer” with effect from 1 February 2011[4].  A new licence number was given, viz No 18633C. It was for the operation of the same route as that permitted under the Licence.

19.It transpired that the Defendant was not the only shareholder of HKMCL.  The other shareholder was his son who owned more share in that company.

20.At the trial, the “transfer” was revealed from answers by a staff of the Transport Department given to questions by the Judge. There was no claim for relief with regard to the business operated under the new licence in the pleadings.  After the revelation, the Plaintiffs did not apply for any amendment of the pleadings to include any claim to assert an interest in the business operated by HKMCL under licence No.18633C. Had that been done, HKMCL would have to be joined as a necessary party. The Defendant had not been given any forewarning that the Plaintiffs would seek relief in respect of the business operated under licence No.18633C.       

21.The Defendant contended that the Judge erred in his substantive decision on the following points,

(a)  the continuation of the partnership after 1992;

(b)  the Licence as a partnership asset;

(c)  the extent of interest in the partnership owned by the Plaintiffs.

22.The Defendant also challenged the decision on costs. He contended that the Judge should not have ordered indemnity costs against him in any event.

Can the Licence be a partnership asset?

23.Like the Judge did in his judgment, we would first deal with this issue.   Mr Vaughan appearing on behalf of the Defendant repeated his argument before the Judge.  He submitted that the Licence was not a property and as such could not be a partnership asset.  Counsel referred to s27(7) of the Road Traffic Ordinance Cap 374 [“RTO”] which prohibited the transfer of PSL.  With reference to Re Celtic Extraction Ltd [1999] 4 All ER 684, he contended that three criteria had to be satisfied before something can be regarded as property: (a) statutory framework conferring an entitlement on the licence holder; (b) transferability; and (c) value. Because of s27(7), Mr Vaughan submitted that (b) cannot be satisfied. Further, he submitted that there was no evidence as to the value of the Licence.

24.Though the Judge referred to Re Celtic Extraction Ltd, supra., he found two local authorities to be more relevant for determining whether a PSL could be a partnership asset and held by the licence holder as trustee. The local authorities are Cheung Yau Bor v Wong Fook HCMP 263 of 1987, 10 Feb 1988 (Rhind J) and Leung Chiu Kwong v Wong Hin Woon HCMP 1748 of 1982, 17 July 1985 (Deputy Judge Nazareth QC, as he then was).

25.However, as rightly pointed out by Mr Vaughan, the question as to whether a PSL could be regarded as a property was not raised in those local authorities.

26.In our view, strictly speaking, whether the Licence could be regarded as a property on which a trust was created in favour of the partnership is not a crucial question in this case.  Even if the Licence could not be a property which forms the subject matter of a trust, on the findings of the Judge, there cannot be any dispute that the Licence was applied by the Defendant on behalf of the partnership business.  The partners were able to enjoy the exclusive right to operate public light bus services on the route because of the Licence.  That exclusive right had to be held by the Defendant for the benefit of the partnership, see Lindley & Banks on Partnership 19^th Edn para10-51.  Whether it is to be legally described as a trust or a mere fiduciary obligation owed by the Defendant to the other partners to account, the end result is the same: the Defendant was not entitled to exploit such right to the exclusion of the other partners.

27.With this preamble, we turn to examine the argument on the Licence as a property.  Re Celtic Extraction Ltd was a case decided in the context insolvency.  The court had to decide whether a waste management licence fell within the concept of property in the context of insolvency legislation so that a liquidator could disclaim it as an onerous property. After reviewing the relevant cases, including those decided in other contexts like AG of Hong Kong v Nai-Keung [1987] 1 WLR 1339 (theft of export quotas); Commonwealth of Australia v WMC Resources [1998] 152 ALR 1 (compensation for compulsory acquisition with regard to permit for exploration of petroleum), Morritt LJ held at para 33,

“33. It appears to me that these cases indicate the salient features which are likely to be found if there is to be conferred on an exemption from some wider statutory prohibition the status of property. First, there must be a statutory framework conferring an entitlement on one who satisfies certain conditions even though there is some element of discretion exercisable within that framework (A-G of Hong Kong v Nai-Keung, Re Rae and Commonwealth of Australia v WMC Resources Ltd). This condition is satisfied by the provisions of ss 35(2), 36(3) and 43 of the 1990 Act. Second, the exemption must be transferable (National Provincial Bank Ltd v Ainsworth, A-G of Hong Kong v Nai-Keung, Commonwealth of Australia v WMC Resources Ltd and De Rothschild’s case). This is satisfied by the terms of s 40(1). The requirement that the transferor and transferee should join in the application demonstrates the transferability of the waste management licence even though it takes the form of a surrender and regrant by the agency. Third, the exemption or licence will have value (A-G of Hong Kong v Nai-Keung, Re Rae and Commonwealth of Australia v WMC Resources Ltd). …”

28.In the subsequent case of Swift v Dairywise Farms Ltd [2000] 1 All ER 320, though there was a reference to the judgment of Morritt LJ, Jacob J also said at p. 326h and 327b,

“… Quota has commercial value and a legal effect. Merely because there are limitations on how it may be held or conveyed is not a reason for equity to refuse to impose a trust where conscience so requires. …

There are other species of ‘property’ in respect of which the law may put fetters or specific rules preventing or controlling assignment or transfer. It does not follow that the law cannot impose a trust. Lightman J held in Don King Productions Inc v Warren [1998] 2 All ER 608 at 634, [1999] 3 WLR 276 at 304;

‘… in principle I can see no objection to a party to contracts involving skill and confidence or containing non-assignment provisions from becoming trustee of the benefit of being the contracting party as well as the benefit of the rights conferred. I can see no reason why the law should limit the parties’ freedom of contract to creating trusts of the fruits of such contracts received by the assignor or to creating an accounting relationship between the parties in respect of the fruits.’

It seems to me that a trust of quota or the fruits of quota is a complete analogy with a trust of non-assignable contracts.  Lightman J’s decision was upheld in the Court of Appeal ([1999] 2 All ER 218, [1999] 3 WLR 276).  It is noticeable that Morritt LJ explained the decision in Faulks’ case as depending on the terms of the partnership.”

29.Thus the view of Jacob J (as he then was) appeared to be not on all four with that of Morritt LJ as far as transferability is concerned.

30.Mr Shum, appearing together with Ms Ng for the Plaintiffs, drew our attention to Don King Productions Inc v Warren [2000] Ch 291. In that case, Morritt LJ held in the context of partnership law, by reason of s 20 of the Partnership Act 1890 (which defined partnership property in wide terms), property which is not assignable may, nevertheless, be partnership property, see p.335. At p.335 F, His Lordship said,

“The reason is quite simply that partnership property … includes that to which a partner is entitled and which all the partners expressly or by implication agree should, as between themselves, be treated as partnership property. It is immaterial, as between the partners, whether it can be assigned by the partner in whose name it stands to the partners jointly.”

See also the discussion by Lightman J at p.321-322.   

31.The property in question in Don King Productions was non-assignable contracts made with some professional boxers.  The partnership business was the promotion and management of professional boxers in Europe.

32.We have the same provision like s 20 in s 22 of the Partnership Ordinance Cap 38. S 22(1) reads,

“All property and rights and interests in property originally brought into the partnership stock or acquired, whether by purchase or otherwise, on account of the firm, or for the purposes and in the course of the partnership business, are called in this Ordinance partnership property, and must be held and applied by the partners exclusively for the purposes of the partnership and in accordance with the partnership agreement …”

33.We do not see any reason why Don King Productions should not be followed in Hong Kong. Though the Licence is not a contract, it can equally come within the wide description of partnership property in s 22(1).  We hold it is not necessary for the Plaintiffs to show that the Licence was transferrable as a matter of law before it can be regarded as being held by the Defendant on trust for the partnership.

34.Further, even assuming for the purpose of discussion that some form of transferability is required, we are of the view that such requirement is satisfied in the present case.

35.Whilst Mr Vaughan is correct to point out that a PSL is non-transferrable as a matter of law (because of s27(7) of the RTO), on the facts there is clear evidence before the court that the Commissioner for Transport would entertain a request for “transfer” as in the case of the “transfer” from the Defendant to HKMCL in 2011.  As a matter of form, it was implemented by a surrender and grant of a new PSL.  However, as a matter of substance, it was a transfer of the exclusive right to operate the route from the Defendant to HKMCL.

36.Mr Vaughan submitted that the 2011 “transfer” was only a transfer to a limited company of the Defendant and it cannot be regarded as evidence of general transferability.  We accept that the Commissioner may have different considerations if it is a transfer to a transferee wholly unassociated with the original licence holder.  However, it does not appear that the transferee must be the alter ego of the original licence holder: the Defendant was not even the majority shareholder in HKMCL and there is no restriction on the transfer of shareholding in that company after the grant of the licence in its favour.  There was evidence before Yam J that the Commissioner was aware that the Defendant applied for the Licence on behalf of a group of persons and their vehicles had been identified in the application form.  We do not see why these practical means to achieve in effect a “transfer” should not be taken into account for the purpose of deciding whether the exclusive right to operate the public light bus service in the route under the Licence can be regarded as a partnership asset.

37.In this connection, there might be a distinction between the transfer of the Licence and the transfer of the exclusive right to operate the route.  Whilst s 27(7) prohibits the transfer of a PSL, it  does not prohibit the transfer of exclusive right to operate the service with the approval of the Commissioner by means of a surrender and new grant. The event in 2011 shows that it was not imperative that there should be a public tender for a PSL surrendered. 

38.As regards the value of the right, we agree with Mr Shum’s submission that as a matter of common sense, the exclusive right to operate a pubic light bus service is something of value.  We do not see any merit in Mr Vaughan’s attack in this regard.

39.Yam J was correct in holding that the exclusive right under the Licence was a partnership asset.

Did the partnership continue after 1992?

40.Mr Vaughan referred to the change of the business model in 1992 and the distribution of partnership assets and termination of employment of the drivers by HKMC.  He emphasized that under the new model, each car owner could retain the profit of his own operation and had to bear his own operating loss. Each of them paid a management fee to HKMC (and later to the Defendant) to defray for the costs of maintaining the bus station (including the salary of a station master) and some office and other common expenses.  HKMC did not make any profit out of the arrangement. Counsel submitted that there was no longer any carrying on business in common with a view of profit, therefore there can no longer be any partnership with reference to s 3(1) of the Partnership Ordinance Cap 38 [“the PO”].  Counsel also referred to s 4 of that ordinance, in particular s 4(c) which emphasizes the significance of sharing of profit as an indicia of partnership.

41.With respect, the question is not whether the parties had carried on business as partners. As found by the Judge, they plainly had carried on the business of HKMC as a partnership since 1984.  The question is whether that partnership had been dissolved in 1992.  It is not disputed that none of the mode of dissolution provided under Section 34 of the PO is applicable.  Instead, counsel argued that there had been a dissolution by agreement.

42.The Judge did not make any finding as to dissolution by agreement.  By holding that the partnership continued, the Judge implicitly rejected any suggestion that there had been a dissolution by agreement in 1992.

43.Mr Vaughan relied on the change of business model to contend that the partnership had been dissolved. However, it is difficult to see how that must be so.  Obviously, HKMC continued to have an operation as the manager.  Though its business operation had changed, and it might not have generated much profit under the new business model, it cannot be denied that it still carried on business.  As far as the partnership interest in the Licence is concerned, the exclusive right to operate the route was maintained and at para 48 of the judgment the Judge rightly had regard to each partner operator’s obvious interest in maintaining the Licence as an indicia of the continuation of the partnership.  Stripped of the status as a partner, the 1^st Plaintiff (and the other partners except the Defendant) could not continue to enjoy the benefit of the Licence.  Thus, the change of business model per se does not point irresistibly to an inference of dissolution by agreement.

44.We have no difficulty in rejecting Mr Vaughan’s submission that the 1^st Plaintiff and the Defendant ceased to be a partner because of a dissolution of the old partnership in 1992.

45.Without any dissolution, the partnership continued to subsist even though its business did not generate much profit.

46.However, para (4) of the relief granted by the Judge seems to be premised upon the dissolution of the partnership at some point in time (see also para 87 of the judgment).  There was no averment in the Plaintiffs’ pleadings with regard to the dissolution of the partnership business and the Judge did not spell out in his judgment when and how the dissolution came about.  We shall need to examine para (4) more carefully below.

47.As mentioned, there was also no averment in the Plaintiffs’ pleadings in respect of the business of HKMCL under the new licence and there was no suggestion at the trial that relief would be sought in that regard.  Perhaps it was not the fault of the Plaintiffs as this fact was, as the Judge said in his judgment, only disclosed in the course of evidence. However, in such circumstances, whilst we agree with the Judge in respect of the declaration of trust over the exclusive right under the Licence and the business operated thereunder, we do not consider it right to include a reference to licence No.18633C in the declaration under para (2) of the sealed order.  In our view, that declaration should be amended by deleting that reference.  In so holding, we do not seek to pre-empt the Plaintiffs from arguing in future proceedings that HKMCL and the Defendant are accountable for the business operated under licence No.18633C and the exclusive right acquired pursuant thereto. But the Defendant and HKMCL should be given a fair opportunity to contest such a claim which has to be properly formulated in pleadings.     

The extent of the Plaintiffs’ interest in the partnership

48.The declaration as to the Plaintiffs’ interest in the partnership was not granted when the Judge handed down his judgment.  It came about in this manner.  After judgment had been handed down, solicitors for the Plaintiffs wrote to the clerk of the Judge on 13 February 2012 inviting the Judge to grant further relief in terms of the extent of the Plaintiffs’ interest in the partnership.  The request was made on the basis of seeking clarification of para 67 of the judgment. That paragraph reads,

“67. 在2003 年11 月17 日，曾裕娥退出65 號線。自此，在65 號線的合夥經營只剩袁祺明及其妻子吳觀娣一方及游華興的天暉公司一方，即合共兩方合夥人。在27 輛小巴車隊中，游華興有五輛而袁祺明有22 輛。至於合夥權益則仍為17 股，袁祺明及其太太佔14 股而游華興佔三股。”

49.With respect, the request had nothing to do with clarification of that paragraph.  It was nothing other than a belated application for a relief which the Plaintiffs did not even deem fit to set out in the prayers of the Re-amended Statement of Claim.  As far as we can see, this relief was not asked for at the trial, whether in the course of evidence or in closing submissions.  There was no forewarning given to the Defendant that the Plaintiffs would be asking for such declaration.

50.Not surprisingly, solicitors for the Defendant objected to the proposed course in a letter of 22 February 2012.  It was pointed out in that letter that the request of the Plaintiffs was, in substance, not a matter of clarification, and instead was a request for additional relief which had substantial implications on the quantum of compensation.  It was therefore not a case within the scope of Order 20 Rule 11.  The Defendant’s solicitor also made it clear that the Defendant had not agreed with the analysis of extent of the Plaintiffs’ interest as set out in a table placed by the Plaintiffs before the Judge.

51.After the reply of the Plaintiffs’ solicitors of 1 March 2012, the Judge acceded to the request on 2 March without holding any further hearing.  Relying his own decision in Hong Jing Co Ltd v Zhuhai Kwok Yuen Investment Co Ltd HCA 156 of 2006, 23 Feb 2012, the Judge considered he had jurisdiction to deal with the matter by way of the slip rule. He granted the additional declaration (viz para 3 in the formal order) by way of corrigendum.

52.In our view, it is necessary to distinguish between the power of the court to correct errors under the slip rule and Order 20 Rule 11, the power of the court to clarify its order and the power of the court to re-open a case after handing down judgment (but before the perfection of the formal order) to entertain further contentions which had not been considered in the judgment.  The jurisdiction under the slip rule and Order 20 Rule 11 should be confined to cases which are truly inadvertent or accidental errors or omissions.  As stated at para 20/11/1 of Hong Kong Civil Procedure 2013 the error or omission must be an error in expressing the manifest intention of the court: the court cannot correct a mistake of its own in law or otherwise, even though apparent on the face of the order. Though it may also cover accidental omission on the part of counsel or solicitor (see Man Ping Nam v Man Fong Hang (No 2) [2007] 10 HKCFAR 140 para 20), it cannot be relied upon to claim a relief which had not been canvassed in pleadings or evidence.  It is obvious to us that the present case did not come within its scope.

53.Apart from the slip rule jurisdiction, the court does have jurisdiction to clarify an ambiguous order by reference to the manifest intention of the court set out in the body of the judgment: see Man Ping Nam v Man Fong Hang (No 2) [2007] 10 HKCFAR 140.  This can be done even after the order has been sealed.

54.Further, the court has jurisdiction to re-open a case even after a judgment has been handed down, see Stewart v Engel [2000] 1 WLR 2268; Charlesworth v Relay Roads [2000] 1 WLR 230.  This power can only be exercised before an order has been sealed. As explained by Neuberger J (as he then was) in Charlesworth at p.238G, this power should only be exercised in exceptional circumstances because,

“… it is inherently contrary to the public interest and unfair on the other side that an unsuccessful party should be able to raise new points or call fresh evidence after a full and final judgment has been given against him …”

See also Stewart v Engel [2000] 1 WLR 2268 at p.2275G to 2276D, p.2285D to E and p.2293G to 2294B on the discussion as to the need for exceptional circumstances being shown.

55.As His Lordship observed in his proposition (2) at p.238F, the discretion must be exercised in a way best designed to achieve justice.  Thus, even if the court is minded to re-open the case, a fair opportunity must be given to the parties to canvass submissions and, if necessary, to adduce further evidence, before a decision can properly be made on a new aspect of the case.

56.We do not think the authorities cited by the Judge in his earlier decision of Hong Jing Co Ltd v Zhuhai Kwok Yuen Investment Co Ltd HCA 156 of 2006, 23 Feb 2012 suggest otherwise.     

57.As we held above, the request of the solicitors on 13 February was not a clarification of an ambiguity in the judgment.  The proper course to take was for the Plaintiffs to issue an application to re-open the case. Even assuming that the Judge was satisfied there were exceptional circumstances justifying the re-opening of the case, he should have allowed the Defendant to advance further submissions and, if proper grounds were advanced to support it, allowed the Defendant to put in further evidence which might be relevant on the determination of the extent of the Plaintiffs’ interest in the partnership.

58.As it happened, the Judge simply gave a decision by way of Corrigendum.

59.We are of the view that such a course is inherently unfair to the Defendant.  We understand from Mr Vaughan that the Defendant would have substantial arguments against the declaration as per para (3) of the final order.  As the question of extent of interest had not been explored at the trial, those arguments cannot be resolved by this court.

60.In the circumstances, that declaration has to be set aside. What order should this court make upon the setting aside of para (3) is the next question we should consider.  Apparently, solicitors for the Plaintiffs requested for such a declaration to facilitate the assessment of damages under para (4).  We therefore needed to examine how para (4) should operate in the overall scheme of the relief granted.

The award of compensation under para 4

61.Para (4) gave the Plaintiffs compensation for the value in the partnership asset in accordance with their entitlement in the partnership at the time of its termination.  However, the Judge did not pinpoint the date when the partnership was dissolved.  Actually, there was no finding in his judgment that the partnership had been dissolved and how it was dissolved. The Judge also did not set out the basis for awarding such compensation.

62.As mentioned at the beginning, an award of damages is not the usual kind of relief granted in a partnership dispute.  In general, there has to be an order for dissolution and the taking of partnership account, see Chan Sau-kut v Gray & Iron Construction [1986] HKLR 84 p.87B to C and p.90E to F; Leung Wing Yiu v Siu King Yuen [2003] 2 HKLRD 21 at paras 10 to 13.

63.It would appear that the Plaintiffs had not properly thought through what relief would be appropriate in the event that the court found for them on their case as to partnership.  It may be due to the fact that a split trial had been ordered and the Judge was only concerned with the trial on liability.  Thus, questions relating to the proper form of relief had not been adequately canvassed at the trial.  However, the Judge had gone beyond making findings on liability in the relief granted.  Paras (3) and (4) of the sealed order dealt with questions relating to the remedies to be granted. For reasons set out above, there are serious problems with these paragraphs.

64.In the circumstances, the proper course this court should take was to set aside those two paragraphs.  Parties should go back to the court below for directions on the second part of the trial in connection with the question of remedies.  Whether the Plaintiffs shall deem it advisable to pursue claims in respect of the business of HKMCL under licence No.18633C and if so how such claims are to be pursue are matters for them and their lawyers.

Appeal against indemnity costs

65.The Judge set out his reasons for ordering indemnity costs against the Defendant at para 89 of the judgment.  He considered that the Defendant was untruthful in giving evidence which unnecessarily increased the time spent on trial.  Though the Plaintiffs failed in establishing breach of agreement on the part of the Defendant, the Judge said that claim only represented a small part of the overall dispute.

66.The order of indemnity costs was made absolute by To J.  To J did not give any additional reason for so ordering.

67.Mr Vaughan submitted that the mere giving of untruthful evidence did not warrant an order for costs on indemnity basis.  However, it is plain from the judgment that the Judge took a very dim view of the Defendant, both in terms of his obvious attempts to mislead the court by giving false evidence and in terms of his conducts over the affairs of the partnership.  The Judge found the way in which the Defendant conducted his case had led to costs being incurred unnecessarily.  It is also apparent from the judgment as a whole that the Judge found the contest as to whether there had been a partnership and whether it continued to subsist after 1992 as utterly unmeritorious. Such conducts can be relevant considerations in the exercise of the discretion as to costs, see Order 62 Rule 5(2).  Though indemnity costs should only be ordered when it is appropriate, in this instance we are not prepared to interfere with the exercise of discretion of the Judge except in respect of the costs of and incidental to the application by the Plaintiffs for additional relief, viz the series of correspondence leading to the making of the Corrigendum by the Judge.  In respect of such correspondence, the Plaintiffs should pay the costs of the Defendant on a party to party basis.

68.Therefore, save as regards the costs pertaining to the Corrigendum, we did not disturb the order of To J as to costs.

Disposition

69.For these reasons, we dismissed the appeal against paras (1) and (2) of the sealed order of Yam J except we amended para (2) by deleting from it the reference to licence No.18633C.

70.We set aside paras (3) and (4) of the sealed order and remitted the case back to the Court of First Instance for trial on remedies in light of the declarations granted in paras (1) and (2) as amended.  We directed the Plaintiffs to take out a summons returnable before a judge of the Court of First Instance within 21 days from the handing down of this judgment for directions for the future conduct of such trial.

71.Subject to the variation as regards the costs of the correspondence leading to the Corrigendum (on which we ordered the Plaintiffs to pay the costs of the Defendant, to be taxed on a party to party basis) we also dismissed the appeal against the order of To J.

72.As regards the costs of the appeal, though the Defendant did not fail entirely before us, he has failed on the major points taken and the setting aside of paras (3) and (4) was mostly attributable to points raised by this court. We ordered the Defendant to pay 80% of the Plaintiffs’ costs of this appeal with certificate for two counsels, such costs to be taxed if not agreed.

Mr Erik Shum and Ms Queenie Ng, instructed by Stephen Lo & P Y Tse, for the 1^st & 2^nd Plaintiffs (Respondents).

Mr Vaughan Joseph, instructed by Adrian Yeung & Cheng, for the Defendant (Appellant).