MAK MING ON v. LUNG FOOK SUN AND ANOTHER

1985, No. A7413

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT ON TRIAL OF PRELIMINARY ISSUE

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1. The parties to these proceedings are partners in two companies namely United Engineering Company and Maxim Engineering Company.

2. By a Deed dated 18th April, 1985 made between the Plaintiff of one part and the Defendants of the other, the Plaintiff agreed to withdraw from the partnerships upon payment by the Defendants of certain sums representing his interest in these partnerships.

3. In order to calculate the sums payable to the Plaintiff by the Defendants, provision was made under Clause 2 of the Deed for each side to appoint accountants to examine the books of the companies and to arrive at a figure in respect of the Plaintiff's share in the capital and profit of the two companies.

4. It is this Clause which now raises the question which comes before me today.

5. Under Clause 2(c) of the Deed, the Defendants were required to deliver up to the Plaintiff's accountant all books, records and documents relating to the partnerships from their respective dates of inception up to 3rd February, 1985 being the agreed date from which the Plaintiff was deemed to have retired from the partnerships

6. By Clause 2(d), the Plaintiff was required to procure or cause his accountant to prepare Balance Sheets and Profit and Loss Accounts of the partnerships from the books delivered by the Defendants and then to deliver up these accounts and the books to the Defendants' accountant.

7. Clause 2(e) provided that the Defendants shall procure or cause their accountant to check and audit the accounts within 21 days from the accounts and the books being delivered to them.

8. Clause 3 of the Deed provided for the payment by the Defendants to the Plaintiff of the amount standing to the Plaintiff's credit shown in the accounts.

9. However, the Deed does not specify what course of action is to be taken in the event that the Defendants' accountant disagrees with the accounts provided by the Plaintiff's accountant.

10. The question, therefore, before me as a preliminary issues whether the Plaintiff at the trial of this action bears the burden of proving that his accounts are correct or whether the burden is on the Defendants to prove that his accounts were wrong.

11. It is necessary, first of all, to look at the precise wording of the relevant Clauses of the Deed.

12. Clause 2(d) reads as follows:-

"The outgoing partner shall then procure or cause the first accountant to prepare the Balance Sheet and Profit and Loss Accounts of the said partnerships (hereinafter called "the said Accounts") for the periods from their respective dates of inception to the 3rd February, 1985 and thereafter to deliver up the said Accounts and the, said Books to the second accountant forthwith."

13. The reference to the first accountant and the second accountant of course indicates the Plaintiff's and Defendants' accountants respectively.

14. It is significant to note that the accounts to be prepared by the Plaintiff's accountant are referred to here as "the said Accounts".

15. Clause 2(e) then reads as follows:-

"The continuing partners shall then procure or cause the second accountant to check and audit the said accounts within 21 days from the date when the first accountant delivers up the said Accounts and the said Books to the second accountant hereinbefore provided."

16. The provision in this Clause is clearly that the Defendants' accountant should peruse, check and audit the accounts prepared by the Plaintiff's accountant rather than to prepare their own accounts. This is clearly intended as a safeguard merely to ensure the correctness of the Plaintiff's accounts rather than to prepare rival and/or different accounts.

17. As I have already said there is then no provision for the procedure to be followed in the event of the Defendants' accountant's audit showing a disagreement between the accountants, and Clause 3(a) then goes on to provide for payment to the Plaintiff of the amount standing to his credit in respect o his share in the capital and profits under "the said Accounts".

18. Mr. So on behalf of the Defendants has sought to urge me to find that the Plaintiff in attempting to enforce his right to a share of the partnerships has the burden of proving to what he is entitled and will thus have to rely on his accountant's report and prove that it is correct.

19. If this were a straightforward action for the winding up of a partnership, I would agree with that assertion. However, this is an action on a Deed and I am bound to interpret what the parties intended upon the actual wording of that Deed.

20. By referring throughout the relevant Clauses to the Plaintiff's accounts as "the said Accounts", it seems to me clear that it was intended that these accounts should be the starting point of the procedure for compensating the Plaintiff for his share in the partnerships, and there is clear provision in the Deed for payment to the Plaintiff of what those accounts show is due to him, subject to checking and auditing by the Defendants' accountant.

21. The clear inference is that these accounts should be the principal accounts, and it was obviously not envisaged that there would be a major dispute such as has arisen over the amount shown in the accounts to be due to the Plaintiff. However, in view of the status given to those accounts by the Deed, I am bound to agree with the contention on behalf of the Plaintiff that a party wishing to dispute those accounts must bear the burden of proving that they are wrong.

22. I therefore find that on the true and proper construction of the agreement pleaded in paragraph 1 of the amended Statement of Claim, the burden of proving the Accounts prepared by Messrs. Stephen Liu & Co. pleaded in paragraph 8 of the amended Statement of Claim is wrong and/or inaccurate is on the Defendants.

23. I will hear counsel on the question of costs.