WU CHIU TING v. NG SUN WAH AND ANOTHER

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This is a partnership dispute involving the plaintiff and two defendants. The plaintiff sought judgment on admissions against the 1st defendant before the master. The 2nd defendant made no appearance. The plaintiff's application for judgment on admissions was resisted by the 1st defendant. His application was denied, hence the instant appeal. The 2nd defendant is absent to-day. The consensus is that the attendance of the 2nd defendant before the master and this court was and is quite unnecessary.

2. Counsel for the 1st defendant argues that the plaintiff's summons is as misconceived as it is premature. The plaintiff sought, in the main, declarations. The master was conscious of possible third party interests and disallowed the application. After all, "a declaration can only be made after proper argument, and cannot be made merely on admissions by the parties whether in pleadings or otherwise" per Megarry V.C. in Metzger v. Department of Health and Social Security, [1978]1 W.L.R. 1046. It is perhaps understandable why the 1st defendant was less than enthusiastic to embrace this line of argument; evidently the 1st defendant would be the last to wish to suggest any more substantial creditors, even if they do exist, in addition to the ones who had lodged claims with the Receivers appointed.

3. It is necessary to give a brief account of the partnership dispute. One of the allegations of the plaintiff against the defendants is that two sums, one with the Overseas Trust Bank and another with Hong Kong Bank, are both partnership assets. According to the 1st defendant, these sums are not and have never been assets of the partnership and that if they were or could in any way be taken as such partnership assets, he would ultimately be credited with the same amount in terms of a partnership debt.

4. Despite this belated stance of the 1st defendant, the defendants have nevertheless admitted, on pleading, these two sums with the banks as partnership assets.

5. Mr Wong submits that 1st defendant cannot detract from the force of these binding admissions made in the Defence. On behalf of the 1st defendant, Miss Eu relies on what is now regarded by the 1st defendant as the truth, the real situation on proper accounting. Admissions on pleadings, counsel says, are not irreversible. Matters are now being investigated and in the hands of the Receivers. These two sums, whatever the accounting method used, would be eventually vested in the 1st defendant as the beneficiary. The truth should therefore prevail.

6. Mr Wong, counsel of the plaintiff, seems disturbed by the inaction on the part of 1st defendant to actually retract these admissions and he is buzzled by the defendants' previous withdrawal of their then application to amend their Defence.

7. On the pleadings as they now stand, the 1st defendant seems to be bound by the admissions. However, in considering the granting of declarations the Court cannot, in the light of the disclosure presently made, wholly ignore the likely consequences which are being actively investigated by the Receivers.

8. Whatever the state of the pleadings is, the beneficial entitlement to these sums in question in the banks, the Overseas Trust and Hong Kong, has now been made an issue between the plaintiff and the 1st defendant. It would also appear that no less than four possible dates of dissolution are canvassed, the 8th, 9th, 10th and 12th December 1988. By his summons for judgment on admissions, the plaintiff sought, as an alternative, an order from the master that the partnership was dissolved from the date of the order he was invited to make. Five in all are, therefore, real possibilities for what Mr Wong for the plaintiff calls the cutting-off date, the date of partnership dissolution.

9. On these issues of fact, Miss Eu for the 1st defendant argues that the plaintiff's summons is premature and misconceived as the precise date of dissolution and beneficial entitlement to the two sums I have mentioned are yet to be finalised. In sum, with the fluid dissolution date and the obscure entitlement to the bank funds, liability need be fully and exhaustively examined by the Court or at least by the Receivers.

10. Before the master, it was not suggested to the 1st defendant that his Defence ought to be differently formulated nor was there any outstanding application for amending the Defence. The master did not find it necessary to consider the effect of alleged admissions. He focused his attention on possible involvement of third party interests. I find myself in the same happy position. If I had to decide on the effect of the pleadings, which are said to amount to admissions, I would be drawn to the counter arguments based on the varying partnership dissolution dates and the true beneficial interest in the two sums and, if need be, would offer the 1st defendant an opportunity to consider amending his Defence provided any retraction to be made, particularly on the two sums is not inconsistent with the Receivers' investigation.

11. Finally, I turn to the ground principles upon which the determination of the master was founded. The master proceeded on the basis that the plaintiff's claim was wholly admitted. It is trite law that the court may grant declaratory judgment in Chambers. It is also well established that a residual judicial discretion lies in the exercise of that jurisdiction.

12. Counsel reads some passages with the marginal reference 15/16/2 at p.225 Volume 1, 1988 White Book :

                "The power to make binding declaration of right is a discretionary power"

"It is however not the practice of the court to make a declaration of right in default of defence or on admissions or by consent of the parties, but where relief is to be granted without trial or evidence, the right course for the court is not to make a declaration but to state on what footing the relief is to be granted."

 

"A declaration can only be made after proper argument and cannot be made merely on admissions by the parties whether in pleadings or otherwise."

13. The excerpt last quoted is important enough for a verbatim re-print at p.228 of the same volume of the Annual Practice, bearing the marginal reference 15/16/7. In addition, two further passages at p.228 are read:

"A declaration may be made on interlocutory application but not as against the Crown."

 

"It is not made by consent, at all events where the rights of any persons other than the parties may be involved, e.g. where any parties are in a representative capacity."

14. For a better illustration of the court's discretion in granting declaratory judgment, counsel turns to Wallersteiner v. Moir,[1974]1 W.L.R. 991, where Lord Justice Scarman, as he then was, discharged declarations of fraud, misfeasance and breach of trust made without trial by Lane J., also as he then was, at p.1030 Letters C-H with these observations :

"Take the instant case . though I entertain grave doubts as to the bona fides and honesty of Dr. Wallersteiner both in the financial dealings the court is now considering and in the conduct of this litigation, injustice might well be done to him if without the benefit of trial the court should declare him fraudulent, guilty of misfeasance and of breach of trust. For the very reason that the case reeks of the odour of suspicion, it is, I believe, the duty of the court to exercise caution before committing itself to sweeping declarations: to look specifically at each claim, and to refrain from making declarations, unless justice to the claimant can only be met by so doing. Generally speaking, the court should leave until after trial the decision whether or not to grant declaratory relief, and if so, in what terms : see Williams v. Powell [1984] W.N. 141."

 

"Different considerations, however, apply when what is sought is a money or property judgment. When a defendant fails to plead, it is ordinarily in the interests of justice that the plaintiff should be able without more ado to obtain judgment for the money or property for which he is suing; the defendant is not without remedy after judgment in default, for, if he can show a bona fide defence, he can get it set aside before it is enforced. But, when what is sought is a declaration, there is the risk of irremediable injustice : the court has spoken and words cannot be recalled, even though later they be negatived; 'nescit vox missa reverti,' Horace, Ars Poetica, line 390. The power of the court to give declaratory relief upon a default of pleading, of course, exists, but, for the reason crystallised by Horace in those four words of his, should be exercised only in cases in which to deny it would be to impose injustice upon the claimant."

 

"This approach leads me to the conclusion that the declaratory relief contained in the minute of judgment annexed to the order of Geoffrey Lane J. should be disallowed at this stage."

 

"Justice can be done to Mr Moir and the minority shareholders of the two companies by giving at this stage the money judgments, final or interlocutory, to which Mr Moir and the companies appear entitled upon the counterclaim, while leaving until after trial the decision whether or not, and in relation to what transactions, to declare Dr. Wallersteiner guilty of fraud, misfeasance or breach fo trust."

15. Wallersteiner v. Moir is concerned with likely injustice that might be caused to a litigant. In this case, third party interests are liable to be affected. Not only are unpaid creditors interested in the partnership assets in terms of, inter alia, the two sums in question, but different considerations may apply as a result of its dissolution date.

16. Counsel for the plaintiff himself directed my attention to Appendix 1 to the Interim Report of the Receivers. with a warning note that the list of creditors given therein may not be exhaustive and their claims as filed have yet to be verified. That is a realistic acknowledgment of possibly more claims from known and additional creditors against the partnership with perhaps controversial accrual dates.

17. Receivers have been appointed. Investigation has been conducted. It still continues and the Final Report of the Receivers is not expected to be ready for submission until sometime in April.

18. The dissolution date of the partnership and the beneficial entitlement to, inter alia, the two sums in question in the respective accounts with the overseas Trust Bank and the Hong Kong Bank could materially affect third party interests. There is much to be said against granting declaratory judgment on these matters before trial.

19. The Court invites Mr Wong, counsel for the plaintiff to give some examples of injustices which may be caused to the plaintiff by a postponement of these declarations to the trial. Mr Wong can suggest no real prejudice. However, counsel submits that the Receivers would need to be supplied the dissolution date in the discharge of their functions and duties. There is no evidence of the Receivers ever experiencing any difficulty in implementing the order appointing them. Moreover, the order appointing these Receivers carries a proviso for general liberty to apply. I am not advised that this has been invoked. The so called "cutting-off date" for the subsistence of the partnership relationship does not seem to be a matter necessary for assisting the Receivers to properly discharge their duties and functions.

20. Counsel for the plaintiff further submits that beneficial entitlement to, inter alia, the sums in question, whether or not they form part of the partnership assets, ought to be delineated for the benefit of the Receivers. It is said that the Receivers would welcome such guideline in administering the partnership estate and that the plaintiff, as a litigant, would in turn stand to gain by an early winding-up.

21. These cannot be matters which would impose any injustice upon the plaintiff. As I have said, no explanation comes from the plaintiff through his counsel as to how delay in obtaining these declarations can cause him real Prejudice. There is no indication, as I have earlier stated, that the Receivers would require such information of compiling their Final Report. I should mention in passing that when the partnership affairs are more settled after the Final Report, different considerations may apply.

22. The 1st defendant himself did not specifically claim to be prejudicially affected merely by the advanced making of these declarations before trial. He still does not. The 1st defendant maintains that the making of these declarations before trial was totally unwarranted by reason of the unresolved dissolution date and nature of the two sums in an otherwise active on-going investigation. Resistence was and is thus mounted from a different front. To the master, possible material third party interests were not to be ignored. I share his view. When the case proceeds to trial, at the hearing, members of the public including any interested party would be entitled to come here to listen to the evidence and observe the proceedings. There would be an opportunity for learning the scope and extent of the allegations and counter allegations made by one partner against the others of them and the nature of the relief claimed against the partnership. In attendance, it would be open to them to apply to intervene, if necessary. If not, they would be entitled to the added safeguard of having matters formally proved by evidence on oath. The material declarations sought by the plaintiff in Chambers would have at least deprived interested parties of these advantages as the law allows them in a public trial.

23. In the circumstances, the principles embraced by the master seem to be sound for application, and the discretion he exercised in refusing to accede to the material declarations cannot, in my view, be faulted. The other prayers in the summons for winding-up the affairs of partnership, necessary account and enquiries, formal confirmation of the interim appointment of the Receivers are all incidental and should best be also stood over to the trial together with the prayers for the material declarations.

24. In conclusion, the appeal must be dismissed and the order made by the master affirmed. Costs of this appeal, subject to what counsel have to say, be costs for the 1st defendant against the plaintiff.

(Submissions)

25. I order that the appeal do stand dismissed with costs to the 1st defendant in any event and that the master's order be affirmed.