LAM CHI KIT KELLY v. HO MAN CHING LI LIANG AND ANOTHER

HCA1402/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1402 OF 2009

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JUDGMENT

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1.  This is an appeal by the defendants against the decision of Master R. Lai refusing to strike out the Amended Statement of Claim (“ASOC”) on the ground that it discloses no reasonable cause of action against them.

2.  The plaintiff’s claim is for breach of a partnership agreement (“the Agreement”).  The Agreement was originally made in 2001 between four parties, namely, the plaintiff, the two defendants and one Mr Hu.  Mr Hu had withdrawn from the partnership (“the Partnership”) in 2004.  Various express and implied terms of the Agreement have been pleaded in the ASOC.

3.  It is the plaintiff’s case that the Partnership business had been conducted via two corporate vehicles.  From late 2001 to June 2003, the corporate vehicle used was called Three Dimension Corporation Ltd (“1^st Company”).  From June 2003 onwards, another corporate vehicle, Three Dimension Ltd (“2^nd Company”), was used in place of the 1^st Company.  It is not clear from the ASOC whether the Partnership had carried on any business not through either the 1^st or the 2^nd Company.  However, I shall assume in favour of the defendants that there was no such business.

4.  The shareholders and directors of the 1^st and 2^nd Companies were the defendants, the 1^st defendant’s wife and daughter.  The plaintiff contends that the shares in the 1^st and 2^nd Companies were held on trust for the benefit of the Partnership.  It is alleged in the ASOC that the defendants had breached the Agreement by excluding the plaintiff from the management of the Partnership, failing to render true accounts of the Partnership affairs and failing to pay the plaintiff his fair share of the Partnership profits.  It is also alleged that the 1^st defendant had wrongfully diverted the Partnership business to his own companies.  For completeness, I am unable to understand the allegations contained in paras. 19 and 20 of the ASOC but they do not impact upon this appeal.

5.  A number of arguments have been advanced by Mr Chung, who appears for the defendants, in support of this appeal.  The kernel of his complaints is that a partnership cannot carry on business via corporate vehicles.  He relies heavily upon section 3 of the Partnership Ordinance, Cap. 38 which provides a definition of partnership as follows:

“(1) Partnership is the relationship which subsists between persons carrying on a business in common with a view of profit.

    (2) But the relation between members of any company or association which is—

(a) registered as a company under any Ordinance relating to the registration of joint-stock companies; or

(b) formed or incorporated by or in pursuant of any other Ordinance, or any enactment or instrument,

is not a partnership within the meaning of this Ordinance.”

6.  With respect, it appears that too much has been read into section 3.  Those provisions do not prescribe or in any way confine the manner in which a partnership business is to be carried on.  I am unable to see any basis in support of Mr Chung’s primary contention identified in the preceding paragraph.  Indeed, it is conceded that there is no authority directly in support of the same. 

7.  The defendants’ submissions seek to make a distinction between a “legal partnership” and a “quasi partnership”.  I find such submissions difficulty to understand.  I am unable to see how the introduction of a concept employed in determining a company winding-up application on the just and equitable ground is of any assistance to this appeal. 

8.  Equally, I am not assisted by Sun Focus Investment Ltd v Tang Shing Bor & Anr, CFI, unrep., HCA538/2007.  Although it was a strike out case, the pleading involved was quite different.  Almost invariably, pleadings are different and therefore judicial precedents are of limited assistance unless a relevant point of principle has been decided in the same.

9.  The remainder of the defendants’ criticisms—(a) the pleaded implied terms cannot be established because the Partnership was not one recognised in law[1] and (b) there was no plea that the corporate vehicles were formed pursuant to the express terms of the Agreement[2]—are, with respect, not well founded and I reject them also.

10.  In the premises, this appeal is dismissed.  The plaintiff said that he does not seek an order for costs in his favour in the event that this appeal fails, because he has incurred no legal costs.  Accordingly, I make no order as to the costs of this appeal.