KWOK CHI PIN RICKY v. LIN SUK HAN

 DCCJ 1290/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1290 OF 2008

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JUDGMENT

1.  The Plaintiff, Mr. Kwok, is a hair stylist and a partner of the business known as “Hair Key’s Salon” (“the Business”), owning 45% share of the Business.  It is not in dispute that the Defendant, Madam Lin, was the other partner of the Business, owning 55% share of the Business.  Further, it is not in dispute that the Business commenced from 1 June 2007.

2.  Mr. Kwok claims that since November 2007, Madam Lin had been acting in breach of the partnership agreement in various ways.  Amongst other things, Mr. Kwok alleges that Madam Lin failed to deposit cash received from the Business into the partnership bank account, failed to account for partnership income, failed to use the partnership proceeds to pay rent due and failed to keep business records since November 2007.  By letter dated 28 December 2007, Mr. Kwok demanded Madam Lin to produce the business records of the partnership to him and to give full account of the business income.  On 11 January 2008, Mr. Kwok served on Madam Lin a notice of dissolution of the partnership with effect from 11 January 2008, on the ground of Madam Lin's failure to comply with his demand of 28 December 2007. 

3.  On 27 March 2008, Mr. Kwok instituted proceedings to seek a declaration that the Business has been dissolved with effect from 11 January 2008 upon the service of the notice of dissolution; in the alternative, an order that the partnership be dissolved; an order that inquiries and a partnership account be taken; an order for the payment by Madam Lin to Mr. Kwok of all money found due to him; and further or other relief. Application for summary judgment for such relief was sought by Mr. Kwok's Order 14 Summons issued on 19 June 2008.

4.    Madam Lin resisted the application for summary judgment.  She filed evidence to deny that she had acted in breach of the partnership agreement.  Although she disputes the extent of Mr. Kwok's contribution to the capital and assets of the Business, she does not dispute that Mr. Kwok is a partner.  She claims that it was Mr. Kwok who had been in breach of the partnership agreement by failing to sign withdrawal slips and cheques for payment of the partnership expenses, by his failure or refusal to carry out his duties as a partner in the administration and management of partnership affairs, by failing to attend work, and by behaving in a manner disruptive of the Business, such as threatening and provoking staff, clients and Madam Lin herself to the extent of assaulting Madam Lin.

5.   Madam Lin also claims that the partnership was agreed to be for a minimum period of 3 years from 1 June 2007, such that she claims that Mr. Kwok was not entitled to serve notice of dissolution of the partnership on 11 January 2008.  According to Madam Lin, it was agreed that should any party wish to retire from the partnership before the expiration of 3 years, such party has to compensate the other's loss and damages including the investment amount, the efforts incurred and spent, and the profits expected to be earned.  Madam Lin further alleges that in serving the notice of dissolution of partnership, Mr. Kwok's ulterior motive is to evict her from the business premises of the partnership such that Mr. Kwok could continue to operate a business on the newly renovated premises and take the benefits, because Mr. Kwok and his mother are the joint owners of the premises at which the Business was conducted.

6.  Madam Lin's allegations are in turn all denied by Mr. Kwok.

7.  As I have indicated to the parties in the course of the hearing of the application for summary judgment, it is abundantly clear from the evidence filed on behalf of Mr. Kwok and Madam Lin that there is a complete breakdown of the trust and confidence between the 2 partners of the Business.  Bitter allegations have been made by each partner, accusing the other of various kinds of unsavoury conduct, dishonesty, assault, and untrustworthiness.  Reports have been made to the police by Madam Lin.  Arrests have been made as a result.  Mr. Kwok was charged for common assault and perverting the course of justice, and Madam Lin testified as a witness against him.  He was acquitted, but one does not require a great deal of imagination to realize that the entire incident must have caused substantial resentment and sourness between Mr. Kwok and Madam Lin.  Mr. Kwok claims that Madam Lin's acts and conduct demonstrated that she was oppressive and hostile towards him, that she has no trust and respect for him, and was not willing to cooperate or work with him as partners.  He claims in the Amended Statement of Claim that it would be just and equitable for the partnership to be dissolved.

8.  Madam Lin initially denied in her affirmation filed in opposition to summary judgment that she had been oppressive and hostile to Mr. Kwok.  However, her Counsel had to finally concede in Court that the parties could no longer be forced to work together in view of the entire background of this acrimonious dispute and the circumstances of the case as made so very obvious from the evidence filed.  However, Madam Lin’s Counsel maintained that an order should not be made for the partnership to be dissolved, as it would be tantamount to finding that Mr. Kwok was entitled to serve the notice of dissolution of the partnership and that Madam Lin is liable to Mr. Kwok for payment of damages.

9.  As I have endeavored to make clear in the course of the hearing, the court has the power, in the exercise of its discretion, to order that the partnership be dissolved on the just and equitable ground if it is made out, after taking into account all relevant factors.  Irrespective of whether Mr. Kwok, or Madam Lin, was at fault or in breach of the partnership agreement, the evidence manifestly shows a complete breakdown in their relationship as partners, in that they have totally lost trust and confidence in each other.  In the circumstances of this case, I consider that it is indeed only just and equitable that the partnership be dissolved.  From the evidence, I fail to see that there is any other issue for trial, or that there is any other reason for trial.  On the evidence of loss of trust and confidence which is now not even disputed, it is neither necessary for there to be a trial of the allegations of breach of partnership agreement, nor appropriate for there to be a trial of whether any partner is liable to the other for damages or amounts due (as Counsel for Madam Lin submits) before accounts are taken of the partnership and settled between the partners.  Until an account has been taken, the true position between the partners cannot be seen.  At the hearing, I have referred counsel to the approach of the Courts towards indebtedness between partners, as can be seen, for example, from the judgment of the Court of Appeal in Heybridge Ltd. & Others v. Chan Sze Sze Gabrielle, CACV 172/2007. (See also Halsbury’s Laws of England, Vol 35, para 147.)

10.  I do not accept, as Counsel for Madam Lin argued, that an order for an account is premised on the determination of liability of either of the partners.  Whether or not Madam Lin is in breach or at fault, Mr. Kwok as partner is entitled to an account.

11.  As I have also endeavored to make clear at the hearing, the order of dissolution on the just and equitable ground can be, and is, made without any finding on whether Mr. Kwok is entitled to serve notice of dissolution of the partnership on 11 January 2008 on the purported ground of Madam Lin's breach of the partnership agreement.  However, having regard to the evidence, I will order that the dissolution takes effect from 11 January 2008, by which date it is clear not only that there was complete breakdown of trust and confidence but also of both parties’ acceptance of such break- down and their inability to work together as partners.

12.  Accordingly, I will make an order that the partnership between Mr. Kwok and Madam Lin, under the business name of "Hair Key's Salon" and carried on at 1/F, No.  509 Nathan Rd, Kowloon ("the Partnership") be dissolved on the ground that circumstances have arisen which render it just and equitable that it be dissolved.  I will further order that the dissolution of the Partnership be effective from 11 January 2008, and that inquiries and an account be made of the Partnership from 1 June 2007 to 11 January 2008.  I will give general liberty to the parties to apply for further directions and orders, including directions on the scope of the accounts to be taken and the manner of taking such accounts, if such directions cannot otherwise be agreed.

13.  On the question of costs, I accept the submissions made by Counsel for Madam Lin that Mr. Kwok has failed to obtain all the orders sought in his Order 14 Summons, and that he should not he entitled to all the costs.  However, it is also clear that at no time did Madam Lin or those advising her ever indicate that Madam Lin accepted that there should be a dissolution of the partnership.  This was disputed even at the hearing.  In all the circumstances, I will order that the costs of the action and of the Order 14 Summons should be borne by Mr. Kwok and Madam Lin in equal shares, with certificate for counsel.