KING FOOK GOLD & JEWELLERY (KOWLOON) CO LTD v. HU ZHAN FANG & PAN A-XING

HCA 1440/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1440 OF 1999

____________

____________

Dates of Hearing:  31 March and 1 April 2009

_______________

J U D G M E N T

_______________

1.  The Plaintiff is suing the 1^st and 2^nd named Defendants as partners of a firm for prices of goods sold and delivered in the sum of $1,138,707.

2.  Summary judgement was entered against the 1^st named Defendant (“Mr. Hu”) for $1,123,045 and unconditional leave was given to defend the remaining $15,662.  Mr. Hu was made bankrupt and took no part in the trial.

3.  Default judgment was entered against the 2^nd named Defendant (“Mr. Pan”), but was set aside on irregular service as he was outside jurisdiction at the time.

Background

4.  The Plaintiff is a jewellery and watch merchant.

5.  Mr. Hu and Mr. Pan founded Hu Shen Silk Woven Fabric Co. (“Hu Shen”) and Hu Zhou Silk Ltd (“Hu Zhou”) in Hong Kong in 1990.

6.  By a Chinese agreement dated 12 January 1998, Hu Shen was dissolved.  The dissolution was registered with the Business Registration Office on 14 January 1998.

7.  Mr. Hu patronized the Plaintiff’s shop first.  He presented his business card stating he was Managing Director of Hu Shen and Hu Zhou.  Mr. Hu then introduced Mr. Pan to the Plaintiff, as a partner of Hu Shen.

8.  A credit account was opened in the name of “Hu Shen Silk Woven Fabric Co. – Mr. Hu Zhan Fang” (i.e. Mr. Hu) since 1994.  Purchases on credit made by both Mr. Hu and Mr. Pan were put through this account.  All account statements were addressed to Hu Shen – Mr. Hu.

9.  The document for credit purchase is also called Cash Memo.  If goods were bought at the shop or delivery without payment, the customer would sign or chop on the Cash Memo for acknowledgment. 

10.  The Cash Memos (on credit) were posted to the Plaintiff’s accounts receivable ledgers periodically.  The name of customer included Hu shen, Hu Shen – Mr. Hu, Hu Shen – Mr. Pan or simply Mr. Hu.

11.  The present claim comprises 16 Cash Memos (on credit) dated between 28 May 2007 to 9 February 2008.  They were addressed either to Hu Shen, Hu Shen – Mr. Hu, “Mr. Hu Shen” (a non-existing entity) or blank.  Most of them were signed by Mr. Hu, 2 with the Hu Shen chop, 1 with the Hu Zhou chop, and 3 without signature or chop.  There is no suggestion that Mr. Pan had made any of the purchases in this period.

12.  Earlier between 1994 and 1997, Mr. Pan had signed 5 Cash Memos addressed to Hu Shen, Hu Shen – Mr. Hu or Hu Shen – Mr. Pan.

13.  Two account statements respectively dated 31 March 1998 and 31 August 1998 for the claimed amount of $1,138,707 were addressed to Hu Shen – Mr. Hu, but a demand letter dated 24 August 1998 for the same amount was addressed to Hu Zhou instead of Hu Shen.

14.  Mr. Hu had filed affidavit in the Order 14 proceedings that the amount claimed was partnership debt.  The lesser amount of $1,123,045 was entered against him because of the Cash Memo dated 9 February 1998 for $15,662 was bore chop of Hu Zhou instead of Hu Shen.  That amount was deducted from the amount claimed.

Issues

15.  (1)     Whether the relevant transactions were transactions of the partnership or Mr. Hu personally;

(2)     Whether the goods under the 4 Cash Memos with either Hu Zhou’s chop or left blank have been delivered.

16.  The point that Mr. Pan was not liable by reason of resignation was no longer pursued as the Plaintiff had no notice of his resignation.

Relevant principles

17.  The Partnership Ordinance (Cap. 38) provides as follows:

“S. 7      Power of partner to bind firm

Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership; and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member bind the firm and his partners, unless the partner so acting has in fact no authority to act for the firm in the particular matter, and the person with whom he is dealing either knows that he has no authority or does not know or believe him to be a partner.”

“S. 17    Admissions and representations of partner

An admission or representation made by any partner concerning the partnership affairs, and in the ordinary course of its business, is evidence against the firm.”

“S. 38    Rights of persons dealing with firm against apparent members of firm

(1)     Where a person deals with a firm after a change in its constitution, he is entitled to treat all apparent members of the old firm as still being members of the firm until he has notice of the change.”

18.  There is common ground between the parties on the following propositions of law:

(1)     An act done by a partner on behalf of the firm and within the scope of his actual authority will bind the firm, whether or not the act was done in carrying on the partnership business in the usual way (see Lindley & Banks on Partnership (18^th Ed. 2002 para. 12-10).

(2)     An act done by a partner on behalf of the firm in the course of carrying on the partnership business in the usual way will prima facie bind the firm even if the partner acted without authority, unless the third party with whom he dealt knew of the lack of authority or did not know or believe him to be a partner (idem).

(3)     An act done by a partner on behalf of the firm otherwise than in the course of carrying on the partnership business in the usual way will prima facie not bind the firm, in the absence of express authority or subsequent ratification by the other partners (idem).

(4)     The implied authority of a partner to purchase goods on the firm’s behalf is not open to question, even in the case of non-trading partnership.  Every member of an ordinary trading partnership has implied power to purchase on the credit of the firm such goods as are or may be necessary for carrying its business in the usual way (see Lindley & Banks para. 12-85).

Plaintiff’s case

19.  Mr. Bernard Man, for the Plaintiff, submitted that:

(1)     Express authority by Mr. Hu can be inferred from the course of dealings between the Plaintiff, Mr. Hu and Mr. Pan;

(2)     Implied authority can also be inferred from those dealings;

(3)     Alternatively, even if (which is not admitted) Mr. Pan had orally resigned in early May 1997 just before the first of the 16 transactions in question, Mr. Hu must ipso facto be in actual authority qua the reconstituted firm but Mr. Pan continued to be liable as partner of the old firm by reason of lack of notice on the part of the Plaintiff.

Defence case

20.  Ms Phoebe Man, for Mr. Pan, submitted that:

(1)     The actual customer was the one under the name of customer for the individual entry in the accounts receivable ledger;

(2)     The customer is Mr. Hu for the 16 transactions and the name of Hu Shen in the account statements is for identification only;

(3)     The Plaintiff’s manager as well the counter staff who handled the individual transactions were all confused as to who the real customer was;

(4)     Past purchases by Mr. Pan were made by him personally regardless of to whom the Cash Memos were addressed.

(5)     None of the 16 Cash Memos in question was signed by Mr. Pan.

Discussion

21.  I shall first deal with the credibility of the witnesses.

22.  I do not find Mr. Pan a credible witness at all.  He could just say anything with a smirk on his face.  He did not mean it.  Examples are:

(1)     Mr. Pan said he had only made one purchase ever at the Plaintiff’s shop in February 1997 (both in statement and in Court), but admittedly he had signed on 5 Cash Memos before;

(2)     He first said his purchases were either by cash or credit card, and later said they could have been on credit and he settled them by setting off against his share of profits in the firm;

(3)     He said he orally resigned in early May 1997 just before the impugned transactions, yet he awaited until January 1998 to dealt with the partnership property (including various landed property) notwithstanding he no longer trusted Mr. Hu.

23.  I do not accept Mr. Pan’s evidence that both Mr. Hu and himself had made purchases in their personal capacities in the past.  I also reject his evidence that he orally resigned in early may 1997. 

24.  No doubt Mr. Francis Yip (PW3), the Plaintiff’s manager was a muddled person, and the Plaintiff’s accounting system was muddled: 

(1)     Credit purchases were put through on Cash Memos;

(2)     Some Cash Memos (on credit) bore no signature or chop;

(3)     He once said the customer was Mr. Hu but later corrected it to Hu Shen.

25.  Be that as it may, I accept Mr. Yip’s evidence that the Plaintiff regarded Hu Shen as the customer, and Mr. Pan as a partner of the firm.  I also accept his explanation that the account was made in the name of Hu Shen – Mr. Hu because Mr. Hu was the handling person for the firm.

26.  Mr. Luk Kwing-yung (PW2), the Plaintiff’s Deputy General Manager who signed the demand letter addressed to Hu Zhou said it was a mistake.  He just signed the letter prepared by his staff.  Mr. Suen Chun-wan (PW1) who prepared the demand letter said he just copied the name of Hu Zhou from Mr. Hu’s business card as it was the first headed entity.  I find that Hu Zhou was a mere mistake.  It never appeared in any of the Plaintiff’s sales and/or accounting documents.  It only appearance was the chop in the last Cash Memo was at the instance of the Defendant as opposed to the Plaintiff.

27.  It is quite clear that the customer was the firm and Mr. Hu was the handling person.  Regardless of the various combination of nomenclatures as appearing in the Cash Memos and posted to the ledger, they were all included in the account statements of Hu Shen – Mr. Hu.  There were no separate credit account. 

28.  Mr. Pan had no account with the Plaintiff, and how else could he have put through his purchases on credit?  In any case, all past credit purchases by Mr. Pan were settled by the firm.  Now that he has enjoyed the credit facilities, he cannot have the cake and eat it as well and deny liability as an partner or apparent partner.

29.  I find there is ample evidence to infer actual authority.  Even on implied authority, I find the purchase were within partnership business.  Mr. Pan said their business were silk and not jewellery and watches.  I query how purchases amounting to several millions of dollars over 8 years on partnership account could otherwise than for the partnership business?  Mr. Pan said their main business amounted to $1 billion.  As such, I find Mr. Man’s suggestion that the watches are premium goods to cement business ties with customers a reasonable explanation.  Even if Mr. Pan’s explanation that he bought the items for his customers and they would pay him back, it would have been in the partnership business by sheer volume and repetitions of transaction.

30.  Mr. Pan queried the deliveries under the unacknowledged Cash Memos.  Mr. Yip suggested that perhaps the chop appearing on the Cash Memo at the bottom of the photocopies covered the one on top, but he admitted to have no knowledge on the matter.  The documents with the original signatures are no longer available.  Ms Man pointed out earlier versions of photocopies show the memos on separate pages.

31.  Be that as it may, Mr. Hu had admitted that they were all partnership debts.  Although Mr. Hu may have an interest to serve in attaching liability on Mr. Pan, there is certainly no interest in admitting any larger quantum as against the Plaintiff.  Mr. Yip also said there was no reason why the Plaintiff would have claimed for any undelivered goods.  I accept his evidence on this point.  The Hu Zhou chop is neither here nor there as it is also a cooperate joint venture of the same partners.

Conclusion

32.  In the premises, I enter judgment for $1,138,707 against the 2^nd named Defendant.

33.  I await submissions on interest, if any, to explain the apparent delay from the issuance of the Writ to trial.

Costs

34.  I made an order nisi that subject to any previous order(s), the 2^nd named Defendant do pay the cost of the action to the Plaintiff.

35.  Lastly, I thank counsel for both parties for their efforts and efficiency in conducting the trial with skill, relevance and expedition.