LEUNG SHIU CHONG TOMMY v. WU KAM SING and Another

1995, No. A1933

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. The first-named Defendant Wu Kam Sing (WKS) and the second-named Defendant Woo Kam Kin (WKK) are brothers.

2. Their mother Madam Szeto King was at the material time the registered sole proprietress of the business known as the Hop Shing Garment Factory (Hop Shing), a business started by the defendants' father and inherited by Madam Szeto as the registered owner in 1985 upon the death of the defendants' father.

3. The Plaintiff Leung Shiu Chong came to know the defendants in or about 1986 through the introduction of a mutual friend. Initially the Plaintiff placed orders with Hop Shing for certain processing work. Such business relationship lasted for about two years only because the Plaintiff did not find the performance of Hop Shing satisfactory.

4. However the Plaintiff retained his friendships with the defendants as they were about the same age and had similar hobbies. They would meet regularly to have tea, barbecue and mah-jong games. The Plaintiff described the defendants as his good friends.

5. WKS had always been known to the Plaintiff as the person in charge of Hop Shing. In a name card given to the Plaintiff, WKS was described as the manager of Hop Shing. WKK was responsible for the finance side of the factory, in charge of the account, the day to day office operation as well as the daily production progress of the factory.

6. The defendants had another brother Woo Kam Cheong (WKC) also working in Hop Shing. But WKS had warned the Plaintiff not to trust WKC in connection with the business dealings with Hop Shing as WKC was a heavy gambler and had gambled away funds belonging to Hop Shing in the past. The Plaintiff was told that if WKC could not be contacted, he should contact WKK in connection with business of Hop Shing.

7. The Plaintiff had also been introduced to Madam Szeto by WKS as his mother. But the Plaintiff never had any business dealing with Madam Szeto. He was never told that Madam Szeto had any responsibility in Hop Shing. Indeed when the Plaintiff visited the factory premises of Hop Shing, he seldom saw Madam Szeto at all.

8. According to the Plaintiff, from late 1989 onwards after he had ceased business dealing with Hop Shing, the defendants had asked him for loans. Initially the amounts were small, ranging from $10,000.00 to $20,000.00. or $30,000.00. The Plaintiff said he agreed to lend money to the defendants as he could afford them and the defendants were good friends. He also hoped that the loans would assist the defendants in their business in Hop Shing so that earlier loans could be repaid to him. He also said WKS and WKK told him that if the worse came to the worse, they could sell their factory premises on the 2/F., or the 7/F., where Hop Shing was to repay him.

9. Apart from a cash loan of $2,900.00 in March/April 1991, the loans were all paid by cheques between February 1990 and February 1991 and there were a total of 14 loans as follows:

1. $15,000.00 by cheque No. 582211 payable to Hop Shing;

2. $50,000.00 by cheque No. 909213 payable to Hop Shing;

3. $10,000.00 by cheque No. 909240 payable to WKK;

4. $40,000.00 by cheque No. 909249 payable to Hop Shing;

5. $20,000.00 by cheque No. 909080 payable to WKS;

6. $25,000.00 by cheque No. 227543 payable to Hop Shing;

7. $20,000.00 by cheque No. 227746 payable to Hop Shing;

8. $20,000.00 by cheque No. 227285 which was a cash cheque;

9. $30,000.00 by cheque No. 227573 payable to Hop Shing;

10. $50,000.00 by cheque No. 227485 payable to Hop Shing;

11. $37,000.00 by cheque No. 227516 which was a cash cheque;

12. 43,500.00 by cheque No. 227690 payable to Hop Shing;

13. $50,000.00 by cheque No. 227435 which cheque had not be retraced;

14. $100,000.00 by cheque No. 227436 payable to WKS.

10. None of the above cheques had been crossed and all were bearer cheques. It was not dispute that in respect of all of them cash payments were made. The total amount of the loans was $513,000.00

11. In connection with each of the above loans, when WKS or WKK borrowed the money from the Plaintiff, they would invariably present a cheque of Hop Shing drawn upon its account with the Bank of East Asia as security.

12. However in early 1991 after two of the security cheques had been dishonoured which cheques were drawn upon Hop Shing's account with the Bank of East Asia, the Plaintiff requested that cheques from the other bank accounts of Hop Shing should be exchanged. As a result and after calculation, WKK wrote out 10 cheques drawn upon the account of Hop Shing in exchange for the security cheques earlier given to the Plaintiff. According to the Plaintiff, WKK had books of cheques all pre-signed by Madam Szeto and he wrote out the amounts on the cheques without filling in the payee and the date. The repayment cheques were as follows:-

1. $20,000.00 by cheque No. 202852 drawn upon the Sin Hua Bank;

2. $50,000.00 by cheque No. 361489 drawn upon the OTB Bank;

3. $77,602.50 by cheque No. 902113 drawn upon the OTB Bank;

4. $27,897.50 by cheque No. 361486 drawn upon the OTB Bank;

5. $50,000.00 by cheque No. 361491 drawn upon the OTB Bank;

6. $50,000.00 by cheque No. 34359 drawn upon the Bank of East Asia;

7. $50,000.00 by cheque No. 361488 drawn upon the OTB Bank;

8. $95,000.00 by cheque No. 202821 drawn upon the Sin Hua Bank;

9. $36,000.00 by cheque No. 105107 drawn upon the Sin Hua bank; and

10. $56,400.00 by cheque No. 105108 drawn upon the Sin Hua Bank.

13. The repayment cheques were drawn upon the accounts of Hop Shing and were signed by Madam Szeto King.

14. It was not in dispute that Hop Shing was unable to pay for any of the said cheques and in 1991 under Action No. A 3287 of 1991, the Plaintiff commenced proceeding against Madam Szeto King trading as Hop Shing Garment Factory in respect of the cheques. Default judgment was obtained for the sum of $513,400.00.

15. Pursuant to the said judgment, the Plaintiff charged two properties in the jointed names of Szeto King, WKS and WKK. The two properties were Unit C on 2nd Floor of Block 1 of Wah Fung Industrial Building, Kwai Chung. (the 2/F. premises) and Unit C on 7th Floor of Block 1 of Wah Fung Industrial Building, Kwai Chung. (the 7/F. premises).

16. The charging order against the 7/F. premises was subsequently discharged pursuant to a consent order whereby the Plaintiff was paid the sum of $200,000.00 as part payment of the judgment debt of $513,400.00 and $35,743.00 as the full costs of and incidental to the action.

17. The 2/F. premises was subsequently auctioned by the mortgagee bank. The amount realised was insufficient to pay off the mortgagee bank and the Plaintiff was therefore unable to obtain any payment arising out of the charging order against the 2/F. premises.

18. Of the total indebtedness, there was still an outstanding sum of $313,400.00 which sum formed the subject matter of the claim by the Plaintiff against the defendants.

19. It was the Plaintiff's case that the two defendants asked for and obtained the loans in question. Although he was aware that most of the loans were obtained for the purpose of paying off wages or trading debts of Hop Shing, he was led to believe that the defendants were in fact partners of Hop Shing. In any event, at the material times, the defendants represented themselves or allowed themselves to be partners of Hop Shing and they were therefore liable for the debt of Hop Shing.

20. On the other hand, the defendants claimed that they were just employees of Hop Shing and their mother, Madam Szeto King remained the sole proprietress at all material times. They said the loans were obtained on the instruction of their mother for Hop Shing and the Plaintiff was aware of it. They therefore refused to be responsible for the loans or any part thereof.

21. The Plaintiff said he lent the money to the defendants because of the friendship he had with them and the defendants would very often begged him for the loan in order to solve the financial difficulty of Hop Shing which was represented to him by the defendants as their business.

22. Both defendants suggested that they had made clear to the Plaintiff that Madam Szeto King was the sole proprietress of Hop Shing and that all the loans were obtained on behalf of Hop Shing. They said they were just paid employees of Hop Shing. They were adamant that they should be separate from Hop Shing in so far as the liability of Hop Shing was concerned.

23. However, both defendants admitted that when the loans were requested from the Plaintiff, it was one of them who would make the request. They both agreed that both of them were aware of the loans even when they were requested by the other. They admitted that their mother did not know the Plaintiff as well and the Plaintiff was willing to advance the loan due to their friendship.

24. Under cross-examination, it transpired that when the 7/F. premises was sold and after the mortgagee was paid off, the balance was all used as partial repayment to the Plaintiff. But both defendants denied that they had ever said to the Plaintiff that if the worse came to the worse, the two properties would be sold to repay the Plaintiff.

25. I have considered the evidence adduced by the parties as well as counsel's submission carefully. I found the suggestion that the defendants drew a clear distinction between themselves and Hop Shing was difficult to accept. There was no dispute that both of them started working for Hop Shing in early 1980's. There was no dispute that after their father passed away in 1985, they continued working in Hop Shing. Their father had left no will and their mother and siblings shared the father assets. The defendants together with Madam Szeto brought both the 2/F. and 7/F. premises as the factory premises of Hop Shing in their joint names.

26. All three brothers of the family worked in Hop Shing and the only reason why the eldest brother WKC was excluded as the owner of the factory premises was because he was a heavy gambler. Clearly Hop Shing was very much a family business that the defendants had inherited upon the death of their father..

27. There was no need for the defendants to make it clear to the Plaintiff that Hop Shing in fact belonged to their mother and their evidence on such aspect in my view was artificial.

28. It was suggested that when the Plaintiffs advanced the loans, he was aware that such loans would be used in connection with the business of Hop Shing. In response to counsel's question, the Plaintiff agreed that he believe the loans were intended for Hop Shing. But he also said Hop Shing was operated by WKS and WKK and they were in charge.

29. There could be no doubt that at all material time, the Plaintiff drew no distinction between Hop Shing and the defendants. He clearly was of the view that they were the same entity. There could be no doubt that the Plaintiff made the loans because of the personal relationship he had with the defendants. The defendants themselves agreed that the loans were made because the Plaintiff trusted them.

30. One cannot ignore that at the time when the loans were made, the Plaintiff had already ceased business with Hop Shing. The Plaintiff himself had no dealing with Madam Szeto King on a personal basis. He only came to know her through the defendants. There was no conceivable reason for the Plaintiff to make any loan to Hop Shing but for his relationship with the defendants.

31. On the evidence, the only reasonable conclusion to draw is that the loans in question were personal loans to the defendants although there was no dispute that the loans were to be used in connection with Hop Shing's business.

32. I also have no difficulty in concluding that at all material time, the defendants represented themselves or allowed themselves to be represented as owners of Hop Shing. In the light of the family background, they could legitimately be considered as owner of Hop Shing even thought it was registered in their mother's name.

33. The Plaintiff had given clear evidence on this aspect and I have no doubt that he was giving a true and accurate account of his dealings with the defendants. It was clear that the Plaintiff treated the defendants as owners of Hop Shing and the defendants were fully aware of it.

34. The only reason why the Plaintiff was prepared to advance the loans in question was because the defendants had asked for them and the Plaintiff trusted them as they were good friends. The Plaintiff readily admitted that he was aware that the loans were to be used in connection with Hop Shing's premises but he drew no distinction between Hop Shing and the defendants. Such attitude was perfectly understandable in the circumstances of the case.

35. Mr. Nasir on behalf of the defendants argued that the defendants only said they were the people in charge of Hop Shing without saying that they were either bosses or partners.

36. I do not consider the actual term used to be crucial. It is perhaps more important to consider the entire circumstances in deciding if the defendants held themselves out to be partners or allowed themselves to be represented as partners of Hop Shing.

37. The defendants held important position in Hop Shing, WKS was described as the manager. He was responsible for dealing with clients, looking for business and attending to the needs of clients. WKK was responsible for the account and the payments of wages to workers. They both told the Plaintiff that he should only trusted either one of them in connection with the business of Hop Shing. They specifically told the Plaintiff not to trust their elder brother WKC as he was fond of gambling. They asked for loans from the Plaintiffs and gave him cheques as security. They had full power to act for Hop Shing. They had never indicated to the Plaintiff that they needed to take instruction from anyone else in connection with the business of Hop Shing.

38. The defendants on many occasions asked for loans from the Plaintiff to be used by Hop Shing. They were successful in getting the loans because the Plaintiff trusted them and they knew it. Were such conduct consistent with being the employees of Hop Shing ? I do not find the question difficult to answer.

39. One cannot ignore that they had been working in Hop Shing for a long time. They took active part in the business of Hop Shing. After their father died, they inherited his property and continued with his business. Although the mother became the registered owner after the father died, there was no evidence that she took any active part in the running of the business at all. The employee of Hop Shing considered them as the bosses of Hop Shing. On the evidence, it was not difficult to understand the reason for it.

40. I am satisfied that in their dealings with the Plaintiff, both defendants had held themselves out to be partners of Hop Shing or had allowed themselves to be represented as partners of Hop Shing. The Plaintiff clearly regarded them as such and the defendants knew it. On the evidence, it was justified for the Plaintiff to regard the defendants as owners or partners of Hop Shing which was one of the reasons why he advanced the loans to them.

41. In fact, I am quite satisfied that both of them were in fact partners of Hop Shing although the mother's name alone was used to register the business. But of course I need not decide on this particular issue. Suffice for me to say that the defendants are both liable under Section 16 of the Partnership Ordinance Cap. 38 for the debt of Hop Shing towards the Plaintiff.

42. Mr. Nasir also suggested that there was insufficient evidence to show the debt due to the Plaintiff was as much as the claimed amount of $513,400.00. It was suggested that the security cheques in question were suspicious in that they appeared to have come from 6 cheque books and the fingers of two of the sums were strangely in very odd figures. It was suggested that copy of one of the cheques was not available.

43. The Plaintiff had given clear evidence on the amount of the loans. The bank documents matched the security cheques in the hand of the Plaintiff. The Plaintiff's evidence was not seriously challenged. The alleged indebtedness had been clearly pleaded in the Amended Statement of Claim. The Defence consisted of simple denial without making the assertion that a lesser sum was in fact owed.

44. In any event, default judgment had in fact been obtained against Hop Shing, be it only in the name of Madam Szeto King and the judgment remained unsatisfied to the full.

45. Neither defendant was able to say the precise debt owed to the Plaintiff although they claimed it was less than the figure of $513,400.00.

46. On the evidence I do not find it difficult to accept the Plaintiff's evidence that the debts owed to him was the claimed sum of $513,400.00

47. Mr. Nasir, on behalf of the defendants, quite properly conceded that the action and the judgment against Madam Szeto King was no bar to the Plaintiff's claim against the defendants.

48. On the evidence, I am satisfied that the defendants were jointly and severally liable with Madam Szeto King for the debt of $513,400.00 towards the Plaintiff.

49. As the sum of $200,000.00 had been paid. The Plaintiff's claim must be limited to the sum of $313,400.00.

50. The Plaintiff has successful made out his claim against the defendants.

51. There will, therefore be judgment against both defendants in favour of the Plaintiff in the sum of $313,400.00. The judgment sum will carry interest at the rate of 10% P.A. from the date of the service of the writ.

52. I also make an order nisi that the defendants will bear the Plaintiff's costs of the action to be taxed if not agreed. The order nisi on costs will be made absolute 14 days after the handing down of the judgment.

(W. YEUNG)

Judge of the High Court