LEE KWOK WING v. CHUNG CHUEN HEI

HCA 809/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 809 OF 2008

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JUDGMENT

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1. In this action, the Plaintiff, Mr Lee Kwok Wing, claims against the Defendant, Mr Chung Chuen Hei, for various accounts in respect of their joint venture business and for an order for payment of the sums found to be due on the taking of such accounts.

Background facts

2. The Plaintiff and the Defendant, through their respective corporate vehicles, carried on the business of providing electrical wiring installations.  They had both done work for China Light and Power Company Limited (“CLP”) and various other companies.

3. In the course of working together on some projects, in around late 2000, the Plaintiff and the Defendant entered into an oral agreement to set up a joint venture company for the purpose of bidding for projects from Genco Engineering Limited (“Genco”), a sub-contractor of CLP, to erect aerials and cables for CLP at various locations in Hong Kong (“the Agreement”).

4. Interway Engineering Ltd (“Interway”) was incorporated pursuant to the Agreement in October 2000.

5. The material terms of the Agreement, which were subsequently confirmed in writing in a Chinese memorandum dated 27 May 2003 (“the Chinese Memorandum”), may be summarised as follows:-

(i)  Clause 1: The Plaintiff shall, through a company registered in the British Virgin Islands, hold 49% of the shares of Interway. The remaining 51% shall be held by the Defendant.

(ii)   Clause 2: Interway shall enter into contracts with Genco for the erection of aerials and cables for CLP during the period from 1 January 2001 to 31 December 2003.  Interway shall sub-contract the work to the Defendant, and retain 13% of the contract sums received from Genco as the company’s (gross) profit.  

(iii)  Clause 3: Interway shall be responsible for paying Genco’s insurance premium, which is equivalent to 1% of the contract sums paid by Genco.[1]

(iv)  Clause 4: Interway shall pay the Defendant HK$18,000 per month to cover his costs of employing a foreman and other workers and other miscellaneous expenses.

(v)   Clause 5: Any net profits of Interway shall be divided equally between the Plaintiff and the Defendant.

(vi)  Clause 8: The Plaintiff lent HK$400,000 to Interway to serve as its working capital (“the Company Loan”).  Such sum was transferred from Interway to the Defendant, and the Defendant shall at a later date repay Interway and Interway shall in turn repay the Plaintiff.

(vii)  Clause 9: The Defendant shall have the duty of liaising with Genco and managing the day-to-day operations of Interway, including receiving payments from Genco.  The Plaintiff shall have the duty of monitoring the contract sums received from Genco.

(viii)   Clause 10: The Plaintiff and the Defendant acknowledged that during the first few months of Interway’s operations, Genco made payment for contract sums by issuing cheques in favour of Interway.  But thereafter, Genco began issuing cheques payable to the Defendant.  The Defendant received those payments as “trustee” for Interway.

(ix)  Clause 11: In respect of the period from 1 January 2001 to 31 December 2003, all contract sums received from Genco, regardless of whether they took the form of cheques drawn in favour of Interway or the Defendant, shall be applied in accordance with Clauses 2, 3, 4 and 5 of the Chinese Memorandum.

6. The Plaintiff’s case as to why the parties had signed the Chinese Memorandum on 27 May 2003 was set out in paragraphs 4-8 of the Statement of Claim.  In a nutshell, the Plaintiff claimed that:

(i)  Genco had initially settled contract sums by issuing cheques to Interway and the relevant sums were deposited into Interway’s bank account maintained with Wing Hang Bank Limited.  However, since around November 2001, Genco began to settle contract sums by issuing cheques that were made payable to the Defendant instead of Interway because the Defendant had, “wrongfully and in breach of the Agreement”, instructed Genco to do so. 

(ii)   The Defendant only provided him with monthly statements in relation to the income and expenditure of Interway for the period from January to October 2001,[2] and had thereafter evaded his repeated requests for further updated statements and accounts of Interway. 

(iii)  In around May 2003, the Defendant suggested deregistering Interway and continuing the parties’ joint venture business in the Defendant’s own name to save business expenses.  The Plaintiff agreed but sought to protect his own position by requesting the Defendant to sign the Chinese Memorandum to confirm the terms of the Agreement.

7. In the Amended Defence, the Defendant denied the Plaintiff’s version of events in this regard.  In particular, the Defendant contended that the Plaintiff had knowledge of and consented to the arrangement of Genco settling contract sums by issuing cheques to the Defendant.

8. I note at this junction that although the Plaintiff had, as stated above, alleged at paragraph 6 of the Statement of Claim that the Defendant’s instruction to Genco to settle contract sums by issuing cheques to the Defendant was in breach of the Agreement, the Plaintiff did not in fact seek any relief in respect of such alleged breach.  Therefore, this is not an issue on which I would have to make any finding.  In any event, it seems to me to be clear that any initial dispute between the parties on this point had already been settled by Clauses 10 and 11 of the Chinese Memorandum, whereby the Plaintiff and the Defendant expressly agreed that all contract sums received from Genco, regardless of whether they were paid by cheques issued to Interway or the Defendant, shall be applied in the same way in accordance with Clauses 2 to 5. 

9. Turning back to the facts of the case, on 27 May 2003, i.e. the same day on which the Chinese Memorandum was signed, the Plaintiff and the Defendant also entered into a Chinese supplemental joint venture agreement (“the Supplemental Agreement”), the terms of which may be summarised as follows:-

(i)  Clause 1: Interway shall be deregistered.  The Defendant shall be responsible for filing tax return on behalf of Interway, and any expenses in connection therewith shall be paid out from 12% of the contract sums received from Genco.

(ii)   Clause 2: The joint venture business between the Plaintiff and the Defendant shall thereafter be operated under the Defendant’s name.  The Defendant shall undertake contracts with Genco in his own name but for the benefit of both the Plaintiff and himself.

(iii)  Clause 3: The Defendant, having received 12% of the contract sums from Genco, shall: (a) be responsible for paying Genco’s insurance premium (being 1% of the contract sums from Genco); (b) pay a sum of HK$18,000 per month to himself for the employment of a foreman and other workers and for the discharge of other miscellaneous expenses; and (c) distribute half of the net profits to the Plaintiff after deducting all operating expenses.

(iv)  Clause 4: The Defendant shall be responsible for repaying in full to the Plaintiff all sums previously lent by the Plaintiff to Interway.

10. Pursuant to the Supplemental Agreement, Interway was deregistered on 9 January 2004. 

11. The term of the sub-contract with Genco had in the meantime been extended for 1 year to 31 December 2004.

Overview of claim and defence

12. The Plaintiff’s claim is that the Defendant had, wrongfully and in breach of the Agreement and the Supplemental Agreement, failed to account to the Plaintiff the profit of the joint venture business operated pursuant to those agreements since 1 November 2001.  By the specially indorsed Writ of Summons issued herein on 9 May 2008, the Plaintiff seeks:-

(i)  an account in relation to all contract sums received from Genco and all expenditure of the joint venture business of the Plaintiff and the Defendant from 1 November 2001 till the present;

(ii)   an account report of the joint venture business;

(iii)  an account of all sums due from the Defendant to the Plaintiff in respect of the joint venture business; and

(iv)  an order for payment by the Defendant to the Plaintiff of all such sums found to be due and interest thereon.

13. By paragraph 1 of a draft Judgment handed up by Mr Chase Pun, Counsel for the Plaintiff, at the end of his closing submissions, the Plaintiff streamlined his claim for multiple accounts into one for single account of (1) all the money received by Interway and the Defendant from Genco in relation to the sub-contract between Interway and/or the Defendant on the one part and Genco on the other part and (2) all expenditure in relation thereto.  Counsel added that such account should start from 1 November 2001 as the Plaintiff did not take issue with the monthly statements provided by the Defendant to him for the period from January to October 2001.

14. Despite having filed his Defence on 10 July 2008 (and subsequently amending it) and his Witness Statement on 12 May 2009, the Defendant did not appear or instruct any legal representative to appear on his behalf at trial.  Be that as it may, the Defendant does not dispute the existence and terms of the Agreement (as evidenced in the Chinese Memorandum) and the Supplemental Agreement.  However, by paragraphs 15A, 15B and 16 of the Amended Defence, the Defendant contended that:-

(i)  his liability to the Plaintiff under the Agreement and the Supplemental Agreement has already been discharged by virtue of an oral agreement reached between himself and the Plaintiff in around June 2002 and May 2003 (“the Alleged Oral Agreement”) and his subsequent payment of a total sum of HK$771,280 to the Plaintiff;

(ii)   further or in the alternative, the Plaintiff is not entitled to seek an account in respect of the period prior to 10 May 2002 by reason of section 4(2) of the Limitation Ordinance (Cap 347) (“LO”), which provides that an action for an account shall not be brought in respect of any matter which arose more than 6 years before the commencement of the action. Such limitation defence, if upheld, would deprive the Plaintiff of any account for the 7 odd months from 1 November 2001 to 9 May 2002 and of his half share of the net profits of the joint venture business during that period.

15. I shall consider these 2 lines of defence in turn to determine whether they are capable of defeating, in whole or in part, the claim by the Plaintiff against the Defendant.

The Alleged Oral Agreement

16. On the Defendant’s case as pleaded at paragraph 15A of the Amended Defence, the Alleged Oral Agreement was entered into by the Plaintiff and the Defendant in June 2002 and May 2003 with the following terms:-

(i)  the Defendant shall pay the Plaintiff a sum of around HK$770,000 on or before June 2006;

(ii)   such sum shall represent the Plaintiff’s entitlement to the profits derived from Interway and all loans owed by the Defendant to the Plaintiff; and

(iii)  upon the Plaintiff’s receipt of such sum, both the Plaintiff and the Defendant shall be wholly discharged from all outstanding liabilities arising out of and incidental to the business of Interway.

17. The Defendant further claimed that pursuant to the Alleged Oral Agreement, he had on various dates, either by himself or through a company called New Rise Engineering Limited (of which the Defendant was a shareholder and director) paid the Plaintiff a total sum of HK$771,280.

18. In his Answers to the Plaintiff’s Request for Further and Better Particulars filed on 19 September 2008, the Defendant specified that the said sum of HK$771,280 was paid to the Plaintiff by the following cheques:-

#	Drawer	Amount	Date
(1)	Defendant	$8,800	18/10/2001
(2)	Interway	$36,400	25/10/2002
(3)	New Rise	$150,000	16/01/2004
(4)	Defendant	$50,000	25/5/2005
(5)	Defendant	$80,000	22/06/2005
(6)	Defendant	$50,000	08/07/2005
(7)	Defendant	$60,000	23/08/2005
(8)	Defendant	$100,000	22/11/2005
(9)	Defendant	$60,000	30/12/2005
(10)	Defendant	$176,000	31/06/2006

19. The Plaintiff denied that he had ever entered into the Alleged Oral Agreement with the Defendant.  He admitted to having received all the above cheque payments but he contended that they were made to him for reasons entirely unrelated to his entitlement to a half share of the net profits of his joint venture business with the Defendant:-

(i)  Cheque #1 was for repayment of the interest for the Company Loan.  The Plaintiff explained that the figure of $8,880 was agreed upon by him and the Defendant in around September 2001 on the basis that the number “8880” sounded auspicious in Chinese.

(ii)   The Plaintiff said that he had, in addition to granting Interway the Company Loan (in the amount of HK$400,000 which was in turn lent by Interway to the Defendant), loaned a further sum of HK$600,000 to the Defendant personally on about 15 October 2001 (“the Personal Loan”). 

(iii)  In January 2002, the Plaintiff and Defendant agreed to distribute dividends out of the profits of Interway for the year 2001.  It was agreed that the Plaintiff and the Defendant would each be distributed HK$180,000.  The Plaintiff duly received his HK$180,000 by a cheque dated 14 January 2002 drawn on Interway’s account with Wing Hang Bank.  As for the Defendant’s HK$180,000, he paid the same over to the Plaintiff as partial repayment of the Company Loan / Personal Loan. 

(iv)  In October 2002, the Plaintiff and the Defendant again agreed to distribute dividends from the profits of Interway.  On this occasion, it was agreed that the Plaintiff and the Defendant would each be distributed HK$18,200.  The Defendant again paid over his HK$18,200 to the Plaintiff as partial repayment of the Company Loan / Personal Loan.  Cheque #2, which was for the amount of HK$36,400, therefore represents payment to the Plaintiff of his own share of dividends and the Defendant’s partial repayment.

(v)   On 16 January 2004, the Plaintiff received Cheque #3 for HK$150,000 and applied such sum towards partial repayment of the Company Loan / Personal Loan.

(vi)  By early 2005, he had for numerous times requested the Defendant to provide him with updated accounts of the joint venture business and further repayment of the Company Loan / Personal Loan.  The Defendant continually evaded his requests, and the Plaintiff therefore began to lose trust in the Defendant and proceeded to engage debt collectors to obtain repayment from the Defendant. 

(vii)  That resulted in the Plaintiff being able to obtain from the Defendant 7 post-dated cheques (i.e. Cheques #4-10) for repayment of the Company Loan / Personal Loan. 

20. I find the Defendant’s allegations as to the Alleged Oral Agreement incredible.  Quite apart from the fact that he did not turn up at the trial to give evidence to substantiate such allegations, they are entirely unsupported by any of the contemporaneous documents disclosed by the parties, and the Defendant has also failed to produce any evidence whatsoever in respect of the circumstances in which such agreement was entered into by the parties.

21. I accept the Plaintiff’s evidence in this regard and find that save for the sum of HK$18,200 included in Cheque #2, Cheques #1-10 represented payments made to the Plaintiff for purposes unrelated to his entitlement to a half share of the net profits of his joint venture business with the Defendant. 

22. In particular, I find that the Plaintiff has proved that he had granted the Company Loan to Interway and the Personal Loan to the Defendant.  Both these loans were evidenced in the signed monthly statements of Interway for September and October 2001, where it was recorded in the footnotes that the Plaintiff had lent HK$400,000 to Interway (“英緯工程借李國榮HK$400,000”) and HK$600,000 to the Defendant personally (“鐘傳喜私人借李國榮HK$600,000”).  It is also clear from the evidence that the Company Loan was on-lent by Interway to the Defendant, and the Defendant was obliged to repay the Plaintiff: see Clause 8 of the Chinese Memorandum and Clause 4 of the Supplemental Agreement. 

23. Further, the total amount which the Plaintiff said he had received from the Defendant for the purpose of repayment of the Company Loan and the Personal Loan (HK$924,200[3] plus HK$8,880 interest) corresponds roughly with the total sum of the 2 loans (HK$1,000,000). 

24. For all the above reasons, I find that save for the sum of HK$18,200 included in Cheque #2, Cheques #1-10 represented the Defendant’s repayment of the Company Loan and the Personal Loan.

25. I therefore rule against the Defendant in respect of his alleged defence based on the Alleged Oral Agreement.

26. I further find that save for the signed monthly statements of Interway’s business for the period from 1 January to 31 October 2001 and save for the sums of HK$180,000 and HK$18,200 received by the Plaintiff on 14 January and 25 October 2002 as set out in paragraphs 19(iii) and (iv) above, the Defendant had failed to give the Plaintiff any further account of the joint venture business between the Plaintiff and the Defendant or make any further distribution of profits from such business to the Plaintiff.

The limitation defence

27. Mr Pun relies on 3 arguments founded upon other provisions of the LO to counter the Defendant’s contention that by virtue of s 4(2), the Plaintiff is not entitled to seek an account against him for the period prior to 10 May 2002:- 

(i)  that the limitation period prescribed under section 4(2) does not apply because the present case falls within sections 4(7) and 20(1) in that the Defendant was a trustee for the Plaintiff in respect of 50% of the net profits generated from the contract sums received from Genco;

(ii)   in the alternative, that the Chinese Memorandum and the Supplemental Agreement, both dated 27 May 2003, constituted acknowledgment of a liquidated pecuniary debt for the purpose of s 23(3) so that there was a fresh accrual of the Plaintiff’s cause of action on 27 May 2003 such that the present claim is not time-barred;

(iii)  in the further alternative, that the interim distribution of Interway’s profits in the sum of HK$18,200 to the Plaintiff on 25 October 2002 constituted part payment in respect of a liquidated pecuniary debt under s 23(3) so that there was a fresh accrual of the Plaintiff’s cause of action on 25 October 2002 such that the present claim is not time-barred.

28. I shall consider the merits of these 3 arguments in turn.

Applicability of sections 4(7) and 20(1)

29. Mr Pun relied on sections 4(7) and 20(1) to argue that no period of limitation is applicable to the present claim.  I shall consider each of those provisions in turn, beginning with section 20(1).

30. Section 20(1) provides:-

“No period of limitation prescribed by this Ordinance shall apply to an action by a beneficiary under a trust, being an action –

(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b)   to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use…”

31. In the present case, it is plain from the Plaintiff’s Statement of Claim that his claim against the Defendant is founded simply in contract pursuant to the Agreement (the terms of which were confirmed in the Chinese Memorandum) and the Supplemental Agreement.  The Plaintiff has not pleaded the existence of any trust or fiduciary duty or the breach thereof by the Defendant.

32. Mr Pun’s argument that the Defendant acted as trustee for the Plaintiff amounts to raising a claim in trust which is fundamentally different from the Plaintiff’s pleaded contractual claim.  This is not an argument which may legitimately be raised by the Plaintiff at trial without having pleaded a claim in trust in the first place. 

33. Further, apart from the lack of pleading, the Plaintiff’s argument in this regard is, in my judgment, substantively unsound.

34. The facts of the present case simply do not support the allegation that the Defendant acted as trustee for the Plaintiff in respect of half of the net profits generated by the parties’ joint venture business. 

35. Although the Agreement and the Supplemental Agreement provides for an equal division of net profits between the Plaintiff and the Defendant, there is no indication from the facts whatsoever that the parties had intended that the Defendant shall hold such half share of the net profits on trust for the Plaintiff.  To the contrary, it appears to me that the parties fully contemplated that the Defendant, having received contract sums from Genco, was entitled to pay such receipts into his own account, mix them with his own money and use it for his own cash flow (albeit subject to a contractual obligation to pay half of the net profits to the Plaintiff).  This arrangement is entirely inconsistent with the existence of a trust. 

36. As stated by Millett LJ (as he then was) in Paragon Finance plc v D B Thakerar & Co [1999] 1 All ER 400 at 416c:-

“It is fundamental to the existence of a trust that the trustee is bound to keep the trust property separate from his own and apply it exclusively for the benefit of his beneficiary. Any right on the part of the defendant to mix the money which he received with his own and use it for his own cash flow would be inconsistent with the existence of a trust.”

37. On that basis, I cannot see the relationship between the Plaintiff and the Defendant as anything other than a contractual relationship based on the rights and obligations created under the Agreement and the Supplement Agreement.  There is simply no trust – whether express, implied, constructive or otherwise – in the present case. 

38. The only hint of a trust obligation which I could distill from the facts of this case is that when Interway was still in existence, the Defendant as its director would have been regarded as a trustee in respect of the company’s property.  Indeed, Clause 10 of the Chinese Memorandum expressly confirmed and stated that the Defendant shall collect contract sums from Genco in the capacity of trustee for Interway (“甲方以信託人的身份代表“英緯”收取該等工程費用。”). However, this trust relationship is entirely irrelevant for the purpose of these proceedings, as the Plaintiff has no locus to rely on any trust obligation owed by the Defendant to Interway, which was a legal entity separate and distinct from its members.   

39. I should mention that Mr Pun had in respect of his argument in this regard cited and relied on Sears J’s decision in Carrian Investments Ltd (In Liquidation) v Wong Chong-po [1986] HKLR 945.  In that case, the liquidators of the plaintiff company brought an action against the defendants (who had been the Plaintiff’s directors) seeking an account of profits in respect of an alleged breach of fiduciary duty involving the wrongful utilisation of confidential information acquired by the defendants in the course of serving the plaintiff to speculate in the plaintiff’s shares. Sears J held that the 6-year limitation period for actions of account was not applicable on the basis that the case fell within section 20(1) of the LO.  His Lordship stated at 950I-951B:-

“In my judgment this matter falls squarely within s. 20. This action indeed is to recover trust property or the proceeds which represented that trust property. The position here is that these defendants are fiduciaries and are in the nature of constructive trustees, and all that is happening here is that an action is being taken to recover that trust property. Therefore, in my judgment, the period of limitation prescribed by the Ordinance does not apply in this instant case and all that the account is doing is the machinery by which the beneficiaries discover what trust property should be accounted for to them. The provision which is found in s. 4(2) of the Ordinance "An action for an account shall not be brought in respect of any matter which arose more than 6 years" is dealing with a contractual position, or a legal position of an accounting party. What is being dealt with in this case essentially is equitable relief which falls squarely within s. 4(7). In my judgment therefore there is no period of limitation prescribed in the Ordinance for this action.”

40. Carrian Investments does not, in my view, assist the Plaintiff in the present case as it concerned a claim for an account arising from a breach of fiduciary duty.  It is clear from the passage quoted above that Sears J acknowledged that where there is a mere contractual claim for an account, section 4(2) would apply to impose a 6-year limitation period.

41. Further, I note that Carrian Investments pre-dates and appears to be inconsistent with the Court of Final Appeal’s decision in Peconic Industrial Development Ltd v Lau Kwok Fai (2009) 12 HKCFAR 139, where the legal principles pertaining to the application of section 20(1) of the LO was comprehensively and authoritatively reviewed in the context of a claim for dishonest assistance in a fraudulent breach of trust.  At paragraphs 17-26, Lord Hoffman NPJ, with whom the other Judges agreed, drew a distinction (echoing that drawn by Millett LJ in Paragon Finance, supra) between two kinds of constructive trustees:-

(1)   “fiduciaries”, i.e. those who without any express trust assumed fiduciary obligations in relation to trust property, and who were treated in the same way as express trustees and in respect of whose fraudulent breaches of trust are not subject to any limitation period; and

(2)   “non-fiduciaries”, i.e. those who were strangers to the trust who had not assumed any prior fiduciary liability but made themselves liable by dishonest acts of interferences, and who are only “constructive trustees” for the purpose of applying a fictional formula for equitable relief but for the purpose of the law of limitation and the application of section 20(1) of the LO.

42. The holding in Carrian Investments that the plaintiff’s claim for an account of unauthorised profits by the defendant directors amounted to an action to recover trust property for the purpose of section 20(1) appears to me to run directly contrary to the principles enunciated in Peconic.  This point is not directly relevant to the issues in the present case (because the Plaintiff here, as I have held, does not have any claim for breach of trust or fiduciary duty against the Defendant whatsoever), but I felt that I ought to address it given Mr Pun’s reliance on Carrian Investments for the purpose of his submissions.

43. Based on the above, I hold that section 20(1) of the LO has no application to the Plaintiff’s claim.

44. I now turn to the question of whether the Plaintiff is entitled by virtue of section 4(7) to argue that no period of limitation applies to his present claim against the Defendant.

45. Insofar as it is material, section 4 provides:-

“(1) The following actions shall not be brought after the expiration of 6 years from the date on which the cause of action accrued, that is to say –

(a) actions founded on simple contract or tort;…

(2) An action for an account shall not be brought in respect of any matter which arose more than 6 years before the commencement of the action.

…

(7)  This section shall not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief, except in so far as any provision thereof may be applied by the court by analogy in like manner as the corresponding enactment contained in the Limitation Act 1980 (1980 c. 58 U.K.) is applied in the English Courts.”

46. As already noted above, section 4(2) provides that an action for an account shall not be brought in respect of any matter which arose more than 6 years before the commencement of the action.  The present claim by the Plaintiff is one for an account and therefore it would appear, prima facie, that it is governed by section 4(2) and therefore time-barred insofar as matters occurring on or before 9 May 2002 are concerned (as the Writ was issued on 9 May 2008).

47. However, section 4(7) then goes on to provide that section 4 shall not apply to any claim for, inter alia, “other equitable relief”, except insofar as any statutory limitation provision may be applied by the court “by analogy” in a like manner as the corresponding enactment in the Limitation Act 1980 is applied in the English courts. 

48. This provision is one which has led to vexed judicial discussion in past cases, and its relevance to these proceedings is that it raises the questions of:-

(1)   whether the Plaintiff’s claim for an account falls within the phrase “any claim… for other equitable relief” (in which case the limitation period prescribed by section 4(2) would be disapplied); and

(2)   if so, whether the Court would in any event apply a limitation period to the Plaintiff’s claim “by analogy” (in which case the claim would become subject to such limitation period).

49. It seems to me that the Plaintiff’s present claim for an account does fall within the phrase “any claim… for other equitable relief”, since it is generally accepted that an action for an account at common law, although recognised at one time, had fallen into disuse and become obsolete.  The equitable remedy of an account, with its greater flexibility and ease of use, superseded its common law counterpart and may now be granted by the courts to enforce both equitable and legal rights: Snell’s Equity, 32^nd ed, §20-003.  Therefore, the Plaintiff’s present claim for an account is a claim for equitable relief. 

50. On that basis, the first part of section 4(7) would suggest that the limitation periods prescribed in section 4 (including that in section 4(2)) shall not apply to the Plaintiff’s claim. 

51. However, this is not the end of the matter.  To stop here would be to ignore the proviso in the latter part of section 4(7), which provides that statutory periods of limitation applicable to common law claims may be applied by the court “by analogy” to claims for equitable remedies (“the Proviso”). 

52. The doctrine of applying statutory limitation periods to equitable remedies by analogy was developed to prevent plaintiffs disguising their claims under the cloak of equity in order to bypass a statutory limitation period.  Thus, a plaintiff whose claim at law has been time barred will not be allowed to proceed even if he has a concurrent claim in equity.

53. By reason of the Proviso, it is necessary to consider whether the present case is one where this court should apply a limitation period by analogy. 

54. In considering this question, I would begin by referring to Sir Robert Megarry VC’s obiter discussion of the English equivalent of sections 4(2) and 4(7) of the LO in the now repealed^[4] Limitation Act 1939 in Tito v Waddell (No.2) [1977] Ch 106 at 250-251:-

“(3) Account . The law of limitation in relation to actions for an account seems to be in a curious state. An action for an account lay at common law, and section 3 of the Limitation Act 1623 laid down a six years' period of limitation for “actions of account.” However, the procedure in Chancery, and in particular the machinery for taking accounts, was so superior that by the 18th century the common law action for an account had come to be superseded by equitable proceedings for an account. Bills in Chancery for an account did not directly fall within the term “actions of account” in section 3 of the Act of 1623, and so any application of the six years' period to them had to be by way of analogy.

In that state of affairs the Limitation Act 1939 came into force. Section 2(2) provided that “An action for an account shall not be brought in respect of any matter which arose more than six years before the commencement of the action.” If that had stood alone, the matter would have been simple. There would have been nothing to prevent the six years’ period from applying both to an equitable action for an account (for by section 31(1) “action” has a very wide meaning) and also, if anyone sought to revive it, to a common law claim. However, there is also section 2(7) of the Act:

   “This section shall not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief, except in so far as any provision thereof may be applied by the court by analogy in like manner as the corresponding enactment repealed by this Act has heretofore been applied.”

If the effect of section 2(7) is that an equitable claim for an account, being a “claim... for other equitable relief,” is excluded from section 2(2), the result is that section 2(2) is left to apply the six years’ period only to the obsolete common law claim for an account. However, it may then be said that the second limb of subsection (7) allows the six years’ period of subsection (2) to be applied by analogy to equitable claims for an account; for prior to the Limitation Act 1939 this is what equity did: see, e.g. Knox v. Gye (1872) L.R. 5 H.L. 656, 674, per Lord Westbury. On that footing, Parliament’s scheme for dealing with equitable claims for an account seems to be first, to appear by subsection (2) to subject them to the express six years’ period; then to appear to exclude them from that period by the first limb of subsection (7); and finally, by the second limb of subsection (7), to subject them to a six years’ period by analogy, despite their exclusion from the express six years' period.

This tortuous scheme of indirection is one that I should be reluctant to attribute to Parliament. After all, subsection (2) is a subsection which deals solely and expressly with actions for an account. If the intention was to make it apply to both legal and equitable actions for an account, it would have been simple enough to say so, with perhaps the addition of a few words to subsection (7) to make the word “equitable” in subsection (2) prevail over it.

My reluctance to attribute to Parliament an intention to legislate expressly for the obsolete and only circuitously for the effective is increased by the way in which the court dealt with section 2 (7) in Poole Corporation v. Moody [1945] K.B. 350. There, in relation to a power of sale, the subsection was treated by the Court of Appeal solely as a provision which excluded the operation of section 2 in claims for equitable relief, without any mention of the possibility of it applying the section by analogy. The omission is pointed: indeed, the quotation of section 2 (7) that is set out in the footnote on p. 351 gives only the first half of the subsection and omits altogether the second half, which deals with application by analogy. This is done despite the mention in argument on p. 353 of equitable applications of the statute by analogy in the same breath as a reference to subsection (7). I may add that I do not see any grounds for escape by saying that “other equitable relief” does not include an equitable action for an account.

I find this matter indeed puzzling. My difficulty is increased by the consideration that if, as I have held, no six years’ period applies to the claim for equitable compensation, and there is no plea of laches which bars the claim, there may be items of claim beyond the six years which are not barred but to which the six years’ period for an account would apply. However, I think the answer may be along the following lines. In so far as the claim to an account is ancillary to the claim for equitable compensation, the application of the Act and the doctrine of laches to the ancillary claim ought to be the same as its application to the substantive claim. Thus it seems clear that where a claim against a person in a fiduciary position is not barred by lapse of time, he must account without limit of time: see Halsbury's Laws of England , 3^rd ed., vol. 24 (1958), p. 282. If, contrary to what I have held, there is a time limit in the present case, I would hold that neither directly nor by analogy does section 2 of the Act of 1939 impose any time limit on the claim to an account that is not imposed on the substantive claim for equitable compensation.

The upshot is that if the plaintiffs' claim were otherwise valid, I would hold that it is not barred by any statutory period of limitation, either directly or by analogy. Though subject to the equitable doctrine of laches, it is not barred by laches either, since laches has not been pleaded.

  I should add that this discussion of the subject has been of regrettable length; I can only say that it became longer in the execution than I foresaw when I first embarked upon it. I do not think that I need deal with the further plea by the plaintiffs that if any period of limitation would otherwise apply, section 19(1)(b) of the Act of 1939 would exclude it on the footing of trust property or its proceeds being still in possession of the trustee or converted to the use of the trustee.”

55. Megarry VC’s comments above were approved by Harman J in AG v Cocke [1988] Ch 414 at 421:-

“I had cited to me by Mr Heath most interesting authorities under the Act of 1939. He particularly took me to Sir Robert Megarry VC’s judgment in Tito v Waddell (No.2) [1977] Ch 106, 250B-251B; but, although that was upon a somewhat different section to the present form of section 23 of the Act of 1980, the Vice-Chancellor, at p 251E-G, comes to a conclusion, which I think is the same as the conclusion I have come to, that a claim to an account simpliciter based upon a fiduciary relationship and nothing more is not barred by any period of limitation. The observation in that case was obiter because he had held there was no fiduciary relationship arising.”

56. The analysis of Megarry VC and Harman J above not only illustrates the conceptually tortuous relationship of the sub-sections in section 4 of the LO, but also makes it clear that a claim to an account based upon equitable rights, such as those flowing from a trust or otherwise fiduciary relationship, and nothing more is not subject to any statutory limitation period, whether by direct or analogous application of the limitation legislation. 

57. On the other hand, where a claim to an account is based upon the assertion of legal rights alone, or concurrent legal and equitable rights, the statutory limitation period would be applied.  This principle is established in a long line of cases beginning with Knox v Gye (1872) LR 2 HL 656.

58. In Knox v Gye, the plaintiff filed a bill in equity claiming, as personal representative of T, for an account of profits of a partnership alleged to have been entered into between the defendant and T.  The bill was filed almost 10 years after T’s death.  A claim for such an account could be made either at law or in equity, but the plaintiff deliberately opted to proceed in equity since an action at law for an account was subject to a 6-year limitation period under the Limitation Act 1623. 

59. The House of Lords held that equity would apply the statutory limitation period and therefore the claim was time-barred.  The reason for this was explained by Lord Westbury at 673-674:-

“That a Court of Equity will not, after the lapse of six years without acknowledgment, decree an account between a surviving partner and the estate of a deceased partner has been long settled by various decisions. The rule, of course, must be the same where the parties are reversed, and the representative of the deceased partner is the Plaintiff. The general principle was laid down as early as the case of Lockey v. Lockey, where it was held that where a Court of Equity assumes a concurrent jurisdiction with Courts of Law no account will be given after the legal limit of six years, if the statute be pleaded. If it could be doubted whether the executor of a deceased partner can, at Common Law, have an action of account against the surviving partner, the result will still be the same, because a Court of Equity, in affording such a remedy and giving such an account, would act by analogy to the Statute of Limitations. For where the remedy in Equity is correspondent to the remedy at Law, and the latter is subject to a limit in point of time by the Statute of Limitations, a Court of Equity acts by analogy to the statute, and imposes on the remedy it affords the same limitation. This is the meaning of the common phrase, that a Court of Equity acts by analogy to the Statute of Limitations, the meaning being, that where the suit in Equity corresponds with an action at Law which is included in the words of the statute, a Court of Equity adopts the enactment of the statute as its own rule of procedure. But if any proceeding in Equity be included within the words of the statute, there a Court of Equity, like a Court of Law, acts in obedience to the statute. I have no doubt, therefore, of the Statute of Limitations being a bar to the whole of the relief sought by the Appellant as executor of Thistlethwayte.”

60. In Paragon Finance, supra, Millett LJ discussed the case of Nelson v Rye [1996] 1 WLR 1378, which concerned a claim by a musician against his manager for an account of fees, royalties and expenses.  During such discussion, his Lordship said at 415h:-

“The law on this subject has been settled for more than a hundred years. An action for an account brought by a principal against his agent is barred by the statutes of limitation unless the agent is more than a mere agent but is a trustee of the money which he received: see Burdick v Garrick (1870) LR 5 Ch App 233, Knox v Gye (1872) LR 5 HL 656 and Re Sharpe, Re Bennett, Masonic and General Life Assurance Co v Sharpe [1892] 1 Ch 154. A claim for an account in equity, absent any trust, has no equitable element; it is based on legal, not equitable rights: see How v Earl Winterton [1896] 2 Ch 626 at 639 per Lindley LJ. Where the agent's liability to account was contractual equity acted in obedience to the statute: see Hovenden v Lord Annesley (1806) 2 Sch & Lef 607 at 631 per Lord Redesdale. Where, as in Knox v Gye, there was no contractual relationship between the parties, so that the liability was exclusively equitable, the court acted by analogy with the statute. Its power to do so is implicitly preserved by s 36 of the 1980 Act (re-enacting in simpler terms the tortuous provisions of s 2(2) and (7) which were subject to critical analysis by Megarry V-C in Tito v Waddell (No 2), Tito v A-G [1977] 3 All ER 129 at 248-250, [1977] Ch 106 at 250-252.”

61. More recently, in P&O Nedlloyd BV v Arab Metals Co and Others [2007] 1 WLR 2288, the English Court of Appeal extensively reviewed the existing authorities on the application of limitation periods by analogy, and held at paragraph 38, per Moore-Bick LJ, that even if a limitation period does not apply because the claim is for an exclusively equitable remedy, the court will nonetheless apply it by analogy if the remedy in equity is “correspondent to the remedy at law”.  Moore-Bick LJ went on to observe at paragraph 43 that:-

“It is not surprising that equity should apply by analogy the limitation periods applicable to claims at law for an account and for damages for breach of duty, whether in contract or tort, to claims for an account and for equitable compensation. In each case the same facts give rise to a claim, whether at law or in equity, and the same kind of relief is obtainable.”

62. Therefore, in my judgment, even though the Plaintiff’s present claim for an account falls within the phrase “any claim… for other equitable relief” in section 4(7), the court shall apply a 6-year limitation period pursuant to the Proviso.  That is because, as I have repeatedly noted, the Plaintiff’s present claim against the Defendant for an account is based purely on contract.  Therefore, applying the words of Millett LJ in Paragon Finance as cited above (“A claim for an account in equity, absent any trust, has no equitable element; it is based on legal, not equitable rights… Where the agent’s liability to account was contractual, equity acted in obedience to the statute…”), this court should apply in this case the statutory limitation period of 6 years applicable to claims in contract.

63. For the above reasons, I hold that the Defendant is entitled to assert a 6-year limitation defence. 

Whether there has been a fresh accrual by acknowledgment and/or part payment

64. Turning then to the Plaintiff’s alternative argument that the Defendant has acknowledged and/or made part payment of the Plaintiff’s claim, thereby giving rise to a fresh accrual of the cause of action under section 23(3), the relevant parts of sections 23 and 24 provide as follows:-

“23. Fresh accrual of action on acknowledgment or part payment

…

(3) Where any right of action has accrued to recover any debt or other liquidated pecuniary claim, …, and the person liable or accountable therefor acknowledges the claim or makes any payment in respect thereof, the right shall be deemed to have accrued on and not before the date of the acknowledgment or the last payment:

Provided that a payment of a part of the rent or interest due at any time shall not extend the period for claiming the remainder then due, but any payment of interest shall be treated as a payment in respect of the principal debt.

24. Formal provisions as to acknowledgments and part payments

(1) Every such acknowledgment as aforesaid shall be in writing and signed by the person making the acknowledgment.

(2)  Any such acknowledgment or payment as aforesaid may be made by the agent of the person by whom it is required to be made under section 23, and shall be made to the person, or to an agent of the person, whose title or claim is being acknowledged or, as the case may be, in respect of whose claim the payment is being made.”

65. Based on these provisions, Mr Pun took 2 points:-

(i)  the Chinese Memorandum and the Supplemental Agreement, both dated 27 May 2003, constituted acknowledgment of a liquidated pecuniary debt; and

(ii)   the payment of dividends to the Plaintiff in the amount of HK$18,200 on 25 October 2002 constituted part payment of a liquidated pecuniary debt.

66. In order to succeed in either argument, the Plaintiff must, as a first step, demonstrate that his right of action against the Defendant is to recover a “liquidated pecuniary claim”.  There are other additional requirements and considerations specific to the acknowledgment and part payment arguments respectively, but I shall first consider the common issue of whether the Plaintiff’s claim is liquidated before moving on to examine those specific issues.

67. In deciding whether the Plaintiff’s claim against the Defendant is for “any debt or other liquidated pecuniary claim”, a convenient starting point is the definition of a “debt or liquidated demand” set out in Hong Kong Civil Procedure 2012, volume 1, paragraph 6/2/4:-

“Debt or liquidated demand”—A liquidated demand is in the nature of a debt, i.e. a specific sum of money due and payable under or by virtue of a contract. Its amount must either be already ascertained or capable of being ascertained as a mere matter of arithmetic. If the ascertainment of a sum of money, even though it be specified or named as a definite figure, requires investigation beyond mere calculation, then the sum is not a “debt or liquidated demand”, but constitutes “damages” (see Bright Islands Corp. v. Chao [2002] 2 H.K.L.R.D. 97 (CA)).

The words “debt or liquidated demand” do not extend to unliquidated damages, whether in tort or in contract, even though the amount of such damages be named at a definite figure…”

68. In short, a claim is liquidated when it is a specific sum of money due under a contract which is either already ascertained or capable of being ascertained as a matter of arithmetic.

69. The meaning of a “liquidated pecuniary claim” in the context of section 23(3) of the LO was considered by Deputy High Court Judge Carlson in Onway Engineering Limited v Shun Wing Construction & Engineering Company Limited, HCA 88/2008, unreported, 18 November 2008.  In that case, the plaintiff claimed against the defendant under a sub-contract which contained a rates schedule for calculating the amount of payment for the works done by the plaintiff for the defendant.  The plaintiff had specifically restricted itself to claiming the value of all works done at the contract rates and waived any claim it might have had in respect of loss of profits from the defendant’s alleged repudiation. 

70. Deputy Judge Carlson found the plaintiff’s claim to be a liquidated pecuniary claim and said at paragraphs 23-24:-

“23. In my judgment, one needs to be careful not to confuse the nature of a claim, liquidated or unliquidated, with the means by which the claim will need to be proved at the trial. Even with a liquidated claim the Plaintiff may, depending on the type of case that it is, have to call evidence in support of how the claim is computed. Unquestionably, this will be the case if this action is permitted to proceed to trial. As at the trial before Deputy Judge Muttrie, when the parties called expert evidence on the quantum of the claim, the same course will need to be taken in this case. In order to determine whether a claim is liquidated or not one needs to look at the basis of the claim. In many cases, where for instance, the amount sued for is based on a clearly quantified debt there will be no difficulty. Where the matter is not so clear cut, in the sense that the arithmetic needs to be done, the nature or character of the claim will still remain that of a liquidated claim.

24. The basis of this claim is readily calculable by doing the necessary sums. The Plaintiff says, ‘I did so much work chargeable at this unit price. To arrive at the amount owing you will need to add up the total of the work done and multiply that by the unit price’. The fact that a Defendant may defend on the basis that less work was done than has been claimed for or that the work was done defectively as a whole or in part will not convert a liquidated claim into an unliquidated one. It seems to me that this claim is liquidated and that Mr Ng’s analysis is the correct one. This being so the Plaintiff has survived the first examination.”

71. Deputy Judge Carlson’s decision in Onway was affirmed in CACV 357/2008, but the question of whether the claim was liquidated was not argued in the Court of Appeal.  The learned Judge’s analysis highlights the fact that a claim may be liquidated even though extrinsic evidence (the veracity of which may be disputed by the parties) has to be adduced for the purpose of ascertaining the amount of the claim with reference to the agreed formula under the contract. 

72. This accords with the classic formulations of the definition of a liquidated claim in oft-cited cases such as Good v Parry [1963] QB 418 at 423, which suggest that a claim is liquidated if it is “capable of ascertainment by calculation, or by extrinsic evidence, without further agreement of the parties”.  To this it may be added that the claim must also be capable of being ascertained without any process of assessment by the court.  By “assessment” I am referring to the process by which the court decides, in accordance with legal principles, the amount of damages or compensation which should be paid by a plaintiff to a defendant to redress any wrong done by the defendant’s breach. 

73. Applying the above principles to the present case, I am of the view that the Plaintiff’s claim against the Defendant is a liquidated claim.  That is so because, as long as the relevant extrinsic evidence (i.e. the amounts of all contract sums received and expenses paid out) is available, the Plaintiff’s claim for half of the net profits of the joint venture is readily ascertainable with reference to the following formula which was set out in the Chinese Memorandum and the Supplemental Agreement:-

(i)  for all contract sums received from Genco, 13% thereof shall be regarded as the profit of the joint venture;

(ii)   out of that 13%, deductions shall be made of (a) 1% of the total value of the contract sums received from Genco to reflect the payment of Genco’s insurance premium, and (b) HK$18,000 per month for the duration of the operation of the joint venture to reflect the payment of the wages of a foreman and other workers and other miscellaneous expenses; and

(iii)  the Plaintiff shall be entitled to 50% of the net amount arrived at by virtue of the above.

74. The Plaintiff’s claim in the present case is therefore no different in nature to the claims in Onway, supra, or New World Development Co Ltd v Sun Hung Kai Securities Ltd (2006) 9 HKCFAR 403.  In all cases, the claim is readily ascertainable by calculation with reference to a contractual formula and the relevant extrinsic evidence, without the need for further agreement by the parties or assessment by the court.

75. The only difference between the present case on one hand and Onway and New World Development on the other is that the Plaintiff in the present case is not currently in possession of the extrinsic evidence which would enable him to ascertain the amount due to him. Those facts are within the exclusive knowledge of the Defendant who had all along been in charge of operating the joint venture business, receiving the contract sums from Genco and making disbursements from such receipts.  This is precisely why the Plaintiff, in addition to seeking an order for payment of the sum due to him by the Defendant, also seeks an account from the Defendant.

76. In my judgment, this does not affect the liquidated nature of the Plaintiff’s claim.  The fact that the Plaintiff has to seek ancillary relief in the form of an account for the purpose of ascertaining the sum due to him from the Defendant does not turn the Plaintiff’s claim for his 50% share of the net profits of the joint venture business into an unliquidated claim.  Such claim is clearly capable of being ascertained as a matter of calculation once the Defendant makes available the relevant extrinsic evidence by providing an account.

77. Having decided that the Plaintiff is making a liquidated pecuniary claim against the Defendant, I now turn to consider the additional requirements for the arguments that the Defendant has acknowledged and made part payment of the Plaintiff’s claim.

78. I shall begin with the argument that the Defendant has, by virtue of the Chinese Memorandum and the Supplemental Agreement, acknowledged the Plaintiff’s claim for the purpose of section 23(3).  To succeed in this argument, the Plaintiff has to show that the Defendant had sufficiently “acknowledged” the Plaintiff’s claim by virtue of those documents.

79. What constitutes an acknowledgment, for the purposes of sections 23(3) and 24 has been considered by the Court of Final Appeal in New World Development Co Ltd v Sun Hung Kai Securities Ltd, supra. Ribeiro PJ discussed the requirements for a valid acknowledgment at paragraphs 89-93:-

“89. The question which therefore calls for determination is whether the Dew letter is a sufficient acknowledgment for the purposes of s 23(3), a question on which there is guidance in the case-law.

90. First, it is clear that the question is one of construction. As Lord Goddard CJ put it in Jones v Bellgrove Properties Ltd [1949] 2 KB 700 at 704:

Whether a document is or is not an acknowledgment must depend on what the document states...

It follows that arguments based on the words used in particular reported cases are of little relevance. In Spencer v Hemmerde [1922] 2 AC 507 at 517, Viscount Cave (while dealing with the pre-1939 position in England, which does not differ for present purposes) suggested that the proper approach was:

... to deal with the letters relied upon according to their terms, and without reference to the countless decisions upon the meaning of other documents couched in different terms.

91. Secondly, it is clear that in construing the document relied on, the court will look at connected documents (not necessarily expressly referred to in the document relied on) to ascertain its proper meaning, as where, for instance, an acknowledgment emerges from reading together two or more letters written by the debtor in response to letters from the creditor: McGuffie v Burleigh (1898) 78 LT 264; and see Spencer v Hemmerde [1922] 2 AC 507 at pp. 516 and 518.

92. Thirdly, the object of the construction exercise is to decide whether, fairly read, the document relied on constitutes an acknowledgment by the debtor of a liability to pay outstanding amounts to the creditor. There is no need for the document to specify the amount of the debt so long as it can be ascertained by other means, including resort to extrinsic evidence, without requiring the parties’ further agreement.

(a) Thus, in Good v Parry [1963] 2 QB 418 at 423 – 424, Lord Denning MR articulated the principle as follows:

... there must be an admission that there is a debt or other liquidated amount outstanding and unpaid. ... In order to be an acknowledgment, however, the debt must be quantified in figures or, at all events, it must be liquidated in this sense that it is capable of ascertainment by calculation, or by extrinsic evidence, without further agreement of the parties. ... But if the debt is not quantified and is not ascertainable without further agreement, then there is no acknowledgment sufficient to satisfy the statute.

No doubt a promise in writing by a debtor to pay whatever sum is found due on taking an account is a good acknowledgment today just as it was before the Act, provided always that the amount is a mere matter of calculation from vouchers, or can be ascertained by extrinsic evidence, and is not dependent on the further agreement of the debtor.’

(b) In Dungate v Dungate [1965] 1 WLR 1477 at 1487, Diplock LJ stated the principle thus:

There is clear authority that an acknowledgment under this Act need not identify the amount of the debt and may acknowledge a general indebtedness, provided that the amount of the debt can be ascertained by extraneous evidence.

(c) Jones v Bellgrove Properties Ltd [1949] 2 KB 700 provides a good illustration. In that case, the document held to constitute an acknowledgment was a company’s balance sheet signed by the company’s accountants and by two directors and communicated at a meeting attended by the plaintiff. The balance sheet acknowledged debts to “sundry creditors” amounting to £7,638 6s 10d without either identifying the plaintiff as one of the creditors or stating the amount of his debt. However, he was able to call the accountants to testify that a debt of £1,807 0s 0d was owed to him and was included in the sum stated in the balance sheet.

93.  Finally, even if the document relied on acknowledges a debt, it is not a sufficient acknowledgment for the purposes of the section if it is accompanied by words which nullify or materially qualify that acknowledgment, for instance by confessing and avoiding the debt or asserting a set-off or cross-claim which renders the document in effect a denial of liability: see, eg, Surrendra Overseas Ltd v Government of Sri Lanka [1977] 1 WLR 565 at 575.”

80. Applying the above principles to the present case, the question which this court should ask is whether the Chinese Memorandum and the Supplemental Agreement, properly construed, constitutes an acknowledgment by the Defendant of a liability to pay outstanding amounts to the Plaintiff. 

81. In my judgment, there is no sufficient acknowledgment in the present case.  The Chinese Memorandum and the Supplemental Agreement merely set out the premise and terms on which the Plaintiff and Defendant agreed to operate the joint venture business.  Although it was stated in those documents that the Plaintiff was entitled to one half of the net profits of the business, there was no acknowledgment by the Defendant that there was in fact any amount outstanding at the time.  

82. I should emphasise that in reaching this conclusion, I am fully aware (as stated by the Court of Final Appeal in New World Development) that for the purpose of section 23(3), there is no need for the debtor to specify the amount of indebtedness, and an acknowledgment of a general indebtedness is sufficient as long as the amount of the debt is ascertainable.  However, that principle does not assist the Plaintiff, because the problem in the present case is that the Chinese Memorandum and the Supplemental Agreement simply did not contain any acknowledgment of any indebtedness at all.  Those documents only expressed the agreement of the parties to share any net profits of the joint venture business, and did not suggest whether there was in fact any such distributable net profit at the time. 

83. For the above reasons, I find that the Chinese Memorandum and the Supplemental Agreement do not constitute sufficient acknowledgment for the purpose of section 23(3) of the LO.

84. I now turn to consider the Plaintiff’s argument that the payment of dividends to the Plaintiff in the amount of HK$18,200 on 25 October 2002 constituted part payment for the purpose of section 23(3).

85. As stated above, the Plaintiff was paid HK$36,400 from the funds of Interway via a cheque dated 25 October 2002 (Cheque #2).  I have already found that such amount represented: (i) the Plaintiff’s share of dividends from the net profits of the joint venture business (HK$18,200) and (ii) the Defendant’s partial repayment of the Company Loan / Personal Loan (HK$18,200).  The latter element is irrelevant for present purposes.  The question is whether the payment of dividends in the amount of HK$18,200 constituted an effective part payment for the purpose of section 23(3).

86. Under section 23(3), a part payment of a debt is taken as an admission by a debtor that the balance of the debt remains due. Therefore, in determining whether a payment constitutes part payment of a debt for the purpose of section 23(3), one must look at the act of payment and the intention of the debtor to see whether the payment was made in respect of the debt in question.

87. I am of the view that the payment of dividends to the Plaintiff was a part payment of the indebtedness owed by the Defendant to the Plaintiff under the Agreement in respect of the Plaintiff’s entitlement to a half share of the net profits of the joint venture business.

88. The Defendant’s indebtedness to the Plaintiff at any time is the amount of half of the net profits of the joint venture business (calculated by reference to the contractual formula) then accumulated.  This means that Plaintiff’s claim against the Defendant is based on a running account of the net profits of the business, and that raises the question of which precise debt should one allocate the payment of the dividends on 25 October 2002 to.

89. Where payments are made in respect of a running account debt, the position is that the outstanding balance at any given time will be regarded as a single debt, in which case, regular payments into that account may be regarded as payments in respect of the amount then owed. 

90. Thus, in Re Footman Bower & Co Ltd [1961] 2 All ER 161, the applicant, a timber merchant, supplied goods to a firm of cabinet makers and debited their running account as and when goods were supplied.  The latter made a number of payments on account, none of which was made in respect of any particular debt.  Subsequently, the firm of cabinet makers went into receivership in 1953, the last payments into the account having been made in July 1953 at a time when the firm’s indebtedness was £595.  The applicants lodged a proof in the winding-up proceedings in April 1959 and the question arose as to whether the payments that had been made by the firm could be regarded as payments in respect of the debt claimed by the applicants.

91. Buckley J (as he then was) stated at 450-453:-

“In the case of a current account, where the debtor-creditor relationship of the parties is recorded in one entire account, into which all liabilities and payments are carried in order of date as a course of dealing extending over a considerable period, the true nature of the debtor's liability is, in my judgment, a single and undivided debt for the amount of the balance due on the account for the time being, without regard to the several items which, as a matter of history, contribute to that balance. This was, I think, the view of Sir William Grant M.E. in Clayton’s case…

When, as in the present case, there is an account running between the parties which to the knowledge of both parties is of that kind and kept in that way, then, if the debtor makes a payment ‘generally on account’, it appears to me that he must be taken to be making it on account generally of whatever is owing on the balance of the account. A payment ‘on account’ imports an acknowledgment of a liability for a larger sum: see Friend v. Young, per Stirling J…”

92. On that basis, Buckley J held that by making a payment generally on account the debtor makes it on account of the entire balance outstanding and due at the date of the payment.  Therefore, for the purpose of section 23(4) of the Limitation Act 1939 (equivalent to section 23(3) of the LO), on the occasion of each of the payments into the account, time started to run afresh in respect of the balance then left outstanding.

93. In the same way, in the present case, the payment of dividends of HK$18,200 on 25 October 2002 was a part payment of the amount of net profits outstanding to the Plaintiff as at that date.  It was therefore an effective part payment for the purpose of section 23(3).

94. That part payment takes effect as follows.  This action was commenced on 9 May 2008.  Had there been no such part payment under section 23(3), the Plaintiff would have been barred from seeking any net profits due to him for the period from 1 November 2001 to 9 May 2002 or any account thereof.  However, the payment of HK$18,200 on 25 October 2002 operated as a part payment of the share of net profits that had accrued to the Plaintiff as at that date so that the Plaintiff’s right to claim the share of net profits outstanding as at 25 October 2002 (which would necessarily include an account without which the Plaintiff would not know the amount due) is deemed by section 23(3) to have accrued on 25 October 2002 and would not become time-barred until 25 October 2008.   

95. The Plaintiff is also entitled to an account from the Defendant for the period from 1 November 2001 to 9 May 2002 and to payment of what is due to him for that period.

Interim payment

96. By paragraph 3 of the draft Judgment handed up by Mr Pun, the Plaintiff also sought an order for interim payment. 

97. In support, Counsel referred to a table entitled “List of payments from Genco Engineering Ltd to Chung Chuen Hei from February 2001 to February 2005” at pages 431 to 437 of the Trial Bundles prepared by Messrs. Lily Fenn & Partners, solicitors for the Plaintiff, from documents of the joint venture business available to the Plaintiff, which documents have also been reproduced in the Trial Bundles.  The Plaintiff asked for HK$2 million which is roughly half of 12% of the total amount of HK$34,740,718.23 shown at the end of this list.

98. It does appear from the documents in the Trial Bundles that the Defendant did continue to receive contract sums from Genco (sometimes in advance as “借糧”) in respect of the project that was the subject-matter of the joint venture business between the Plaintiff and the Defendant after 1 November 2001 right up to 3 February 2005.

99. However, the sums totalling HK$3,183,368.23 shown on the said list as having been received by the Defendant before 1 November 2001 should be ignored.  On the Plaintiff’s own case, the Defendant had satisfactorily accounted for Interway’s income and expenditure before 1 November 2001.

100. Second, as per Clause 4 of the Chinese Memorandum and Clause 3(a) of the Supplemental Agreement, the Defendant was entitled to pay to himself a monthly sum of HK$18,000 to cover the wages of a foreman and other workers and other miscellaneous expenses.  Clause 5 of the Chinese Memorandum and Clause 3(b) of the Supplemental Agreement further provided for the deduction of all operating expenses of Interway and, after its deregistration, of the joint venture business carried on under the Defendant’s name but for the benefit of both the Plaintiff and the Defendant.

101. By way of reference, I note that sums totalling HK$3,183,368.23 were shown by the Plaintiff’s said list to have been received by Interway before 1 November 2001 and that the signed monthly statements for the period from 1 January to 31 October 2001 recorded an aggregate net profit of just over HK$350,000.   

102. Pending a full account by the Defendant, doing the best I can on the materials presently available to me, I consider an interim payment of HK$1.5 million to be appropriate.  

Order for account and directions

103. For the above reasons, I hereby order:

(i)  that the Defendant do within 28 days from the date of service of this Order lodge with the Registrar of the High Court an account of (1) all the money received by Interway and the Defendant from Genco in relation to the sub-contract between Interway and/or the Defendant on the one part and Genco on the other part and (2) all expenditure in relation thereto from 1 November 2001, which account shall be verified by affidavit to which all related invoices, vouchers, receipts and other supporting documents must be exhibited;

(ii)   that the Defendant do within 7 days thereafter serve copies of such account and affidavit with exhibits on the Plaintiff who shall be at liberty within 28 days thereafter to serve a notice of objections to such account;

(iii)  that such account be taken before a Master of the High Court; and

(iv)  that the Defendant do within 21 days from the date of service of this Order pay to the Plaintiff the sum of HK$1,500,000 by way of interim payment on account of the sum for which the Defendant has been ordered to account; and

(v)   that the Defendant do pay to the Plaintiff the amount certified due on the taking of the said account, less the amount paid under sub-paragraph (iv) hereof, together with interest thereon to be assessed before the Master.

104. I also make an order nisi that the Defendant should pay the Plaintiff’s costs of this action, including all costs previously reserved, to be taxed if not agreed.