Ding Li Hua and Another v. Ng So Kau
Read the full judgment text of HCA 20823/1998 on BabelCite. This High Court CFI judgment was delivered on 12 July 2013.
1. This is a partnership dispute.
Cites 3 cases
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HCA 20823/1998 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 20823 OF 1998 ____________ BETWEEN
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_____________ D E C I S I O N _____________ Introduction 1.This is a partnership dispute. 2.By way of Summons dated 21 March 2013 (“the Summons”), the Plaintiffs apply for:
B. Background facts 3.The Plaintiffs and the Defendant were partners of a partnership business known as “Cheung Wah Piece Goods Company” (祥華疋頭公司) (“the Partnership”). 4.By an Order dated 27 September 2001, Master M Yuen declared that the Partnership had been dissolved on 7 December 1998. 5.By an Order dated 6 January 2010, Chu J (as she then was) directed the parties to exchange a list of accountant firms “proposed to prepare the audited accounts of the partnership”, so that they could endeavour to agree on the firm to “undertake the preparation of the audited accounts of the partnership”. 6.On 25 January 2010, Chu J further directed, inter alia, as follows:
7.The parties having failed to agree on the firm to be appointed, on 3 March 2010 Chu J directed that KL CPA Limited (“the Accountant”) be jointly appointed by the parties to undertake the work as indicated by the Court on 25 January 2010. 8.On 1 June 2010, Chu J directed that the deadline for the parties to provide the Accountant with the “invoices, records, books and account and other relevant papers of the partnership” was to be 15 June 2010, and, thereafter, the Accountant
9.On 15 June 2010, the Defendant, through his solicitors, sent to the Accountant
10.The Accountant duly prepared a document called “Financial Statements for the period 1 January 1996 to 31 August 1998” of the Partnership (“the Financial Statements”). In the Financial Statements, it is assumed that:
11.It is further assumed in the Financial Statements that 廣州祥华 (“GZCW”), an entity set up in Guangzhou in the Mainland in about April 1997, was controlled by a related party of the Defendant. 12.On the basis of inter alia the assumptions referred to in §§10 and 11 above, the Accountant states in the Financial Statements that the Defendant was indebted to the Partnership as at 31 August 1998 for HK$4,126,949 or HK$4,824,676 or HK$4,394,188. There are three different sums because of three different scenarios under which the Accountant worked. In calculating each of these sums, the Accountant proceeded on the basis that GZCW owed to the Partnership a sum of HK$8,772,712 (being sales of HK$9,104,712 less HK$332,000 received), and that the Defendant was liable to the Partnership for this sum of HK$8,772,712. 13.On 5 November 2012, L Chan J directed the parties to appear before him to advise the Court on how to proceed with this action in the light of the common view of the parties that the Partnership had been dissolved. In particular, the parties were:
14.On 12 November 2012, after hearing the parties, L Chan J ordered that:
15.On 11 January 2013, the Defendant filed his eighth affirmation as directed by L Chan J on 12 November 2012. A number of transactions, and documents purportedly in support of the Defendant’s case on those transactions, are referred to and exhibited. In particular, the Defendant says that the true state of affairs between GZCW and the Partnership, by reference to some books and records and business documents of GZCW, is that GZCW owes to the Partnership a sum of HK$1,222,894.65 only and not HK$8,772,712 as stated in the Financial Statements. The Defendant says that by reason of those transactions, he does not owe the Partnership any money. It will be necessary to refer to this issue of the state of affairs between the Partnership and GZCW below. 16.On 8 February 2013, Mr Poon, an assistant solicitor in the firm acting for the Plaintiffs, filed an affirmation in opposition. In the affirmation, Mr Poon does not deal with any of the transactions or documents referred to by the Defendant in his eighth affirmation. Rather, after setting out what the Plaintiffs suggest happened in the preparation of the Financial Statements, and saying that the Defendant had had ample opportunities to submit the documents exhibited to his eighth affirmation when the Accountant drafted and finalised the Financial Statements and did not raise any objections and comments to the Accountant when the latter gave the Financial Statements to the parties in December 2011, it is already time-barred for the Defendant to adduce the said documents. It is said that it was unfair and unjust, an abuse of the process of the Court and the fair disposal of the matter would be prejudiced, embarrassed and delayed, if the Defendant is allowed to adduce the said documents so as to further comment on, or request the re-calculations of, the Financial Statements. 17.On 8 March 2013, the Defendant filed his tenth affirmation explaining, inter alia, why by mistake he did not disclose to the Accountant the documents of GZCW he had produced under his eighth affirmation. 18.On 21 March 2013, the Plaintiffs issued the Summons. 19.At the hearing on 5 June 2013, I was informed by counsel that no dates had been fixed for the trial of this action which would, inter alia, decide on the true state of the financial affairs between the partners regarding the Partnership. Further, I was informed that the Plaintiffs would be seeking to amend the Statement of Claim to take into account the Financial Statements. C. The real issue before the Court 20.In my judgment, the real issue before me is whether I should order payment in of HK$4,394,188, as applied for by the Plaintiffs by way of the Summons. The question of the striking out of the eighth and the tenth affirmations of the Defendant is only, as I shall explain below, a side issue. 21.As stated at §23-92 of Lindley & Banks on Partnership (19th ed, 2010):
22.Lindley & Banks referred to, inter alia, Wanklyn v Wilson (1887) 35 Ch D 180, where, after referring to a number of authorities including the judgment of Jessel MR in London Syndicate v Lord (1878) 8 Ch D 84, Stirling J said at 185-186:
23.In London Syndicate v Lord at 88-89, Jessel MR gave guidance as what is meant by “sufficiently ascertained”, ie a “sufficient probability” that the account will result in at least a certain sum being found due from a defendant. The question is whether the Court is satisfied that
24.Thus, the question is whether the, or a minimum, amount owed by the Defendant (if any) to the Partnership can be sufficiently ascertained by me now with reasonable certainty so that a payment in of that amount can (and should) be ordered.[1] Unless I am so satisfied, taking into account any evidence properly adduced by the Defendant, no order for payment in should be made. It is not for me at this stage to make any finding as to what is the true amount owed by the Defendant to the Partnership. 25.The eighth affirmation of the Defendant was filed pursuant to the order of L Chan J in an attempt to adduce evidence to show why payment in should not be ordered against the Defendant, and the real purpose of the Plaintiffs in seeking to strike out that affirmation is to defeat this attempt by the Defendant so that, if that affirmation is struck out, there is arguably no basis for me to refuse to order payment in by the Defendant. 26.The grounds for striking out relied upon by the Plaintiffs, as stated in their skeleton submissions and confirmed by their counsel Mr Wong, are that the matters referred to in the eighth affirmation of the Defendant are irrelevant, and that it is an abuse of the process of the Court for the Defendant now to seek to adduce further documents and thereby seeking to re-open the question of the state of the accounts which had been dealt with by the Accountant based on documents which had been adduced to him as directed by Chu J. 27.However, as explained by Barma J (as he then was) in Chan Woon Fui v Chan Wing Suen (HCCW 350/2004; 11 July 2005) at §4, even if one or more of the grounds for striking out is/are established, I still have a discretion not to strike out the affirmation or the offending parts, on the basis that I can simply exclude the offending materials from my mind when deciding the issues which arise for decision. Thus, the crucial point is whether the objections of the Plaintiffs to the eighth and tenth affirmations of the Defendant have any substance. D. Abuse of process of the Court 28.I shall deal with the question of the alleged abuse of process first. 29.It is important to bear in mind the purpose and status of the Financial Statements prepared by the Accountant. They are in the nature of a report of a single joint expert prepared for the assistance of the Court at the trial of this action, when the Court is to decide, inter alia, on the final accounts of the Partnership and the rights and liabilities of the Plaintiffs and the Defendant inter se. By its very nature, a joint expert report such as the Financial Statements are not binding on the Court (see, for example, Armstrong v First York Ltd [2005] 1 WLR 2751) or the parties as such. The directions of Chu J did not say so, and by making the orders on 12 November 2012 allowing the Defendant to show why he should not be ordered to make payment in, obviously L Chan J did not think so either. Further, as Mr Wong accepts, correctly in my view, the parties are not bound by the Financial Statements as such at the trial, and the Defendant is not barred from adducing the same evidence (which he is now adducing by way of his eighth affirmation) at the trial so as to contest the question of how much he owes the Partnership (if at all). 30.On this basis, I fail to see how it can be said that it is an abuse of the process of the Court for the Defendant now to seek to adduce evidence of further transactions which he says affects the question of his indebtedness to the Partnership, when he can do so at the trial. 31.The Plaintiffs argue that the parties, having had a chance to comment on the Financial Statements before they were finalised, should not be allowed to “re-open” the same by seeking to adduce evidence of further transactions. There has to be an end, it is argued, to this process. 32.I do not accept this argument:
33.As for the tenth affirmation, it is an affirmation filed in response to the criticism made by the Plaintiffs on the eighth affirmation of the Defendant through the affirmation of Mr Poon. In no way its filing can be described as an abuse of the process of the Court. 34.I further do not see how these proceedings will be delayed (to any substantial extent, if at all) by what the Defendant is doing here, as there are no trial dates yet, and the Plaintiffs themselves are intending to amend the Statement of Claim. E. Relevance and merits 35.The Plaintiffs also argue that the eighth affirmation should be struck out as irrelevant. Mr Wong took me to the evidence and made submissions as to why the documents produced by the Defendant do not support his case regarding the relevant transactions or the sums in question. In my judgment, and with respect, it is incorrect to describe the evidence in question as “irrelevant”. They are evidence which, if accepted, would affect the existence and amount of the indebtedness owed by the Defendant to the Partnership, and on this basis they must surely be relevant. Mr Wong criticises the evidence and argues that it does not show what the Defendant alleges, and thus the real attack of Mr Wong is rather on the quality of the evidence, to which I now turn. 36.As stated above (at §12), in calculating the sums owed by the Defendant to the Partnership, the Accountant proceeded on the basis that GZCW owed to the Partnership a sum of HK$8,772,712 (being sales of HK$9,104,712 less HK$332,000 received), and that the Defendant was liable to the Partnership for this sum of HK$8,772,712. The assumption is that GZCW was owned and controlled by the Defendant or his related party. 37.The Defendant disputes the assumption that he owned and controlled GZCW. He says that GZCW was a subsidiary of Partnership (which owned 90% of it, the other 10% being owned by the Defendant’s younger sister) and he should not be responsible for any debts GZCW owed to the Partnership. 38.Further, the Defendant says, the total amount of goods sold by the Partnership to GZCW was in the amount of HK$6,204,479.61, and GZCW had made payments to suppliers on behalf of the Partnership for a total of HK$4,981,584.96. Thus, GZCW only owes the Partnership HK$1,222,894.65 (instead of HK$8,772,712 as stated in the Financial Statements). If so, and even if the Defendant is responsible for this debt owed by GZCW, on this point alone the overall net position is that the Defendant does not owe the Partnership any sum. 39.In support of his case, the Defendant exhibits the relevant pages of the sales record book and the cash book of GZCW to his eighth affirmation.[2] He says that both books were contemporaneous records prepared by him. 40.Mr Wong very fairly accepts that he cannot, at least at this stage, challenge the authenticity of the sales record book and the cash book adduced by the Defendant. His case is that if the transactions recorded in those books did take place, there would have been other documents (such as invoices and financial records of the Partnership) which reflect these transactions, and any such transactions supported by documents would have been taken into account by the Accountant when he came up with the figures of HK$9,104,712 and HK$332,000. Transactions not so supported should not be accepted. 41.In so far as the sales are concerned, it must be borne in mind that in the Financial Statements the Accountant states that the sales to GZCW was HK$9,104,712 in total (up to 31 August 1998), whereas the Defendant’s case is that sales to GZCW between 16 April 1997 (when GZCW was formed) and 13 January 1999 was only HK$6,204,479.61, ie there was in fact less sales than the Accountant thought. 42.There is, however, no evidence before me as to the basis and materials on which the Accountant came up with the figure of HK$9,104,712, or the particulars of each sale transaction which together made up that total, and how do they compare with the particulars shown in the sales record book now produced by the Defendant. To seek to reconcile the two figures, or to decide which one is the correct figure, one needs to compare the particulars of each transaction making up the respective figures, and to consider the evidence (if any) regarding the sales which appear on one list but not the other. This must be a matter for the trial (with evidence from the Accountant if necessary including evidence on the basis on which he came to the figure of HK$9,104,712) unless I can now be satisfied, on a summary basis on affidavit evidence alone, that there is a reasonable certainty that the sales figure relied upon by the Accountant is correct notwithstanding the evidence adduced by the Defendant. I do not see how I can do so. 43.The absence of evidence before me now regarding how, and with what materials, the Accountant came up with the sales to GZCW cannot be blamed on the Defendant. And even if there is such evidence before me it is not appropriate for me to conduct a mini-trial to resolve this issue. It must be a matter to be canvassed fully at the trial. On the other hand, as countless cases on summary judgment tell us, contemporaneous documents are of real significance in testing the credibility of a party’s case as alleged on affidavit. The authenticity of the sales record book is not challenged before me for the purpose of this application and I do not see any reason or basis for me not to accept its authenticity. Given the existence of the apparently complete and contemporaneous record of sales between the Partnership and GZCW which the Defendant affirmed was prepared by him, despite the present lack of other documents supporting the existence of the transactions recorded in the sales record book before me, I cannot come to the view that there is a reasonable certainty that the sales from the Partnership to GZCW were in the total sum of HK$9,104,712 and not HK$6,204,479.61. To do so would mean that I will be rejecting the Defendant’s evidence (in particular a contemporaneous and authentic sales record book) summarily at this stage, and in my judgment I cannot do so. 44.I also note that the Plaintiffs have filed no evidence to answer the Defendant’s case on this point, although the burden is, in my judgment, on the Plaintiffs to show the required reasonable certainty of the amount supposedly owed by the Defendant, since it is their application for a payment in. 45.As for the alleged payment by GZCW to suppliers on behalf of the Partnership totalling HK$4,981,584.96, the Plaintiffs again criticise the lack of any documents or accounting entries or bank statements in support. Further, the Plaintiffs argue that if these payments were in fact made, there would have been some record of them in the books of the Partnership, and the Accountant would have taken them into account in his calculations. 46.However, these submissions beg the question of whether such payments were recorded in any documents or records of the Partnership because, on the Defendant’s case, the cash book of GZCW shows the amount of cash taken away by the 1st Plaintiff, and a Mr Tsui Kin Ming, to pay off the suppliers. If so, it is probable that the accounting documents or bank statements of the Partnership would not have records of these transactions. Rather, as in the case of the sales to GZCW:
I therefore am not satisfied that there is a reasonable certainty that the total amount that GZCW had paid the Partnership (by whatever means, including paying off creditors of the Partnership directly) was only HK$332,000 and not HK$4,981,584.96. 47.If the Defendant’s figures are accepted, then the amount owed by GZCW is only HK$1,222,894.65 and not HK$8,772,712, with the result that, if other figures in the Financial Statements are not disturbed, the Defendant does not owe the Partnership anything (even if he is responsible for the HK$1,222,894.65 owed by GZCW). Rather, the Partnership owes him money. 48.With the evidence before me now, in particular the contemporaneous and (for the purpose of this application) authentic sales record book and cash book, I cannot say with reasonable certainty that the Defendant will be found to be liable to the Partnership for any particular amount. F. Disposal 49.My conclusion above on the alleged sales to, and alleged payments by, GZCW is sufficient to dispose of the Summons in favour of the Defendant. While the Defendant has also sought to resist an order for payment in by raising issues regarding other alleged payments and transactions, as well as the issue of whether he should be responsible for any debts owed by GZCW to the Partnership, it is not necessary or desirable for me to deal with them given that they will all be live issues between the parties at the trial. If I may refer to the position regarding applications for summary judgment as an analogy in this respect, once I conclude that there is no reasonable certainty as to how much (if any sum at all) is owed by the Defendant to the Partnership, all that I should do is to say shortly why I think so. It is neither necessary nor desirable for me to express any view, on affidavit evidence, as to the other points raised. See Man Earn Ltd v Wing Ting Fong [1996] 1 HKC 225 at 229D-F per Godfrey JA and at 230D per Litton VP (as he then was), and Far East Consortium Ltd v Full Wealthy International Ltd (HCA 2080/2005; 2 June 2006) at §35 per Sakhrani J. 50.For reasons stated above, no basis has been made out for the eighth or the tenth affirmations of the Defendant to be struck out. 51.The Plaintiffs’ application by way of the Summons dated 21 March 2013 is dismissed with an order nisi that the costs of the application be paid by the Plaintiffs to the Defendant, to be taxed if not agreed. 52.Lastly, I thank counsel for their assistance.
Mr Patrick Wong, instructed by Louis KY Pau & Co, for the Plaintiffs Mr Samson Hung, instructed by SM Chiu & Co, for the Defendant [1] This is a relaxation of the much stricter rule in the older cases that no payment in could be ordered unless there was an admission by the defendant: see for example Richardson v The Bank of England (1838) 4 My & Cr 165 at 171 per Lord Cottenham LC. [2] I observe here that these books are not records or books of the Partnership, but of GZCW, and thus strictly they do not fall within the direction of Chu J of 1 June 2010 in any event (see §8 above). | ||||||||||||||||||||||