LAM TAI KWAN v. LO WAI KIT

HCA2581/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.2581 OF 2005

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J U D G M E N T

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1. This is an appeal from the judgment given by Master Au Yeung in the sum of $1,037,706 for the plaintiff. 

2. The plaintiff’s case is that he was a partner of the defendant in the trading business of pork oil in the name of a company called Tung Shing (Kuen Fung) Pork Oil Company (東成(權豐)豬油廠).  That was in or about 2002.  According to the plaintiff, apart from the trading of pork oil, they also set up and built a factory in Hong Kong to manufacture oil products themselves.  The trading business of the company ceased in or about January 2004.  Hitherto the plaintiff thought the factory also ceased manufacturing but he later on discovered that the factory became operational and had begun manufacturing oil products without his knowledge.  That was in or about early April 2005.  He then also discovered that the factory was held under Kun Fung Lard Limited (權豐豬油有限公司) whose shareholders were the defendant and one Kun Fung Grinding Mill Limited, but not the plaintiff himself.

3. On or about 15 April 2005, he met the defendant and discussed with him the calculation of buying out the plaintiff’s shares in the trading company.  The calculation was made out in the handwriting of the plaintiff.  Eventually they reached a sum of $1,756,720 due and owing by the defendant to the plaintiff.  The calculation of the plaintiff was reached as follows :

(I)	Monies paid out	Purpose for payment
	by the plaintiff
	RMB207,253.00	Payment for and on behalf of the company to purchase goods and materials.
	HKD108,374.00
	HKD1,556,841.90	Payment to the defendant for general operation and expenses of the company.
	RMB818,000.00	Payment to a Mr Chow, the appointed engineer for the factory to purchase construction materials and make payments to the workers.
	HKD1,400.00
	Total expenses paid by the plaintiff :			RMB1,025,254.00
				and HKD1,666,615.90
	Less amount paid by the defendant to the plaintiff for part of the expenses			500,000.00
	Expenses in HKD			HKD1,166,615.00
(II)	Income received by the plaintiff from purchasers			RMB1,161,169.00
	Less expenses paid by the plaintiff			75,000.00
	Profit			RMB1,086,169.00
	Less total expenses as aforesaid			1,025,254.00
	Debit Balance			RMB60,916.00
(III)	Each partner is entitled to
	half of the profit			543,084.00
	& half of the debit balance			30,458.00
				RMB573,542.00
	Equivalent to			HKD538,540.00
	Add expenses in HKD as aforesaid			HKD1,166,615.00
				HKD1,705,155.00
	Add 2 containers originally taken by the defendant			HKD51,650.00
Plaintiff’s entitlement of				HKD1,756,805.00

was miscalculated (on the said handwritten document at p. 43 of the bundle) as 1,756,720.00, i.e. the total amount of those 4 cheques.

4. The first cheque of $500,000.00 was honoured but not the other three cheques and therefore the plaintiff took out this action and sued for the other three dishonoured cheques.  However, there were certain corrections which the plaintiff would like to make accumulating to the judgment sum of $1,037,706.  This is calculated as follows :

1.	The sum of		RMB573,542.00
	should be less RMB60,916.00 since the profits were already received by the plaintiff		60,916.00
	And the credit balance should only be		RMB482,169.00
	being equivalent to		HKD452,741.00
	Add the aforesaid sum of		HKD1,166,615.00
	Total amount there then due and owing		HKD1,619,356.00
	Less :
	(a)	amount of 1st cheque	500,000.00
	(b)	amount paid by defendant on/about 25 August 2005	30,000.00
	(c)	value of the 2 containers taken by the plaintiff when the defendant failed to pay	51,650.00
			HKD1,037,706.00

The defendant’s case

5. The main point of the appeal is that the defendant contended that the sum of $543,084, being half of the amount of income received by the plaintiff should not added back to the total sum since the plaintiff has already received the same.

The plaintiff’s case

6. The plaintiff disagreed with such a contention.  Although the plaintiff and the defendant were partners, it was agreed between the two of them at the time of dissolution that the plaintiff would not have to pay for the expenses of the partnership and he was entitled to half of the income received.  That was because, as admitted by both sides as the basic facts, the plaintiff had contributed to the setting-up of the factory but the defendant had not issued any shares to the plaintiff.  The plaintiff would then have a cause of action asking the defendant to account for the dissolution of the partnership in the factory.  Instead of calculating the entitlement of the plaintiff to the factory, which was a going concern at that time, it was therefore agreed that the defendant would not have to pay for the expenses of the partnership and would just take the half of the income of the partnership.  That is why the sum of $543,084 already received by the plaintiff was added to the expenses paid by the plaintiff in calculating the plaintiff’s entitlement.

Analysis

7. Is there an issue to be tried when parties dispute on the basis of the consideration of the three cheques?

8. I do not think the defendant has any defence to the action on the three cheques at all.  In the first place those three cheques are regular on its face and therefore they are unconditional bills of exchange.  Extrinsic evidence is not allowed to be deduced unless the allegation of the defence was fraud or there was a total failure of consideration.  Here it was not a total failure of consideration but partial failure only.

9. In any event the defendant did not dispute that the account stated by the plaintiff comprised expenses paid by the plaintiff towards the appointment of an engineer for the factory to purchase construction materials and payment to the workers therefor in the total sums of RMB818,000 and $1,400.  This substantial contribution by the plaintiff as admitted by the defendant was made for the factory.  Thus there is cogent evidence to support the fact that plaintiff was also meant to be a partner in the setting-up of the factory which was still a going concern at the time of dissolution of the partnership.  There was no calculation on the plaintiff’s entitlement to the factory and the defendant is silent as to how he should account for the plaintiff’s entitlement to the factory.  The plaintiff’s version is the only one which would take into account of the factory.  The defendant as an experienced businessman would not have made such a mistake unless there was such an agreement which would give a clean break between the two partners.

10. Accordingly the defendant’s allegation of wrong calculation is just a moonshine defence and it has not been demonstrated that the defendant has any reasonable defence or any defence which is capable of being believed. 

Conclusion

11. For the aforesaid reasons, this appeal is dismissed with an order nisi on costs to the plaintiff, to be taxed if not agreed.