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DCCJ226/2010
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
CIVIL ACTION NO 226 OF 2010
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BETWEEN
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MA WANG CHUN |
Plaintiff |
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and
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YUM SHU WING |
Defendant |
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| Before : Deputy District Judge R Lai in Court |
| Dates of Hearing : 23 to 26 April 2013 |
| Date of Judgment : 22 August 2013 |
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J U D G M E N T
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Introduction
1. The plaintiff and the defendant are and at the material times were partners operating a hotel called “Chung King Hotel” (鴻京酒店) (the “Hotel”) at Flat A, 11/F, Kingland Apartments, 739 Nathan Road, Kowloon, Hong Kong (the “Premises”). The Hotel has seven rooms.
2. There was no dispute that the parties had agreed in about June 2004 that they would purchase the Premises and run the Hotel at the Premises in partnership (the “Partnership”). The ownership and management of the Hotel should be shared by the parties equally. They would also share the profits and costs of running the Hotel in equal shares (the “Hotel Business Agreement”).
3. There was also no dispute that on about 25 March 2005, the parties agreed that the defendant should manage rooms 1, 5 and 6 of the Hotel (“D’s Rooms”) and the plaintiff should manage rooms 2, 3 and 4 (“P’s Rooms”). The management of room 7 (the “7th Room”) should be shared by the parties (the “Room Management Agreement”).
4. The purchase of the Premises was completed on about 18 June 2004. Business registration certificate for the Hotel was issued on about 20 July 2004 (see pp 266 – 270 of the trial bundle 2). Licence for the Hotel was issued on about 1 March 2005.
5. The plaintiff claimed that the defendant was in breach of the Hotel Business Agreement and failed to pay his share of the costs and expenses for running the Hotel. She seeks a declaration that the defendant is under an obligation to pay 50% of all the costs, expenses and/or outgoings in relation to the running of the Hotel’s business. She claims $231,172.81 as outstanding sum due from the defendant pursuant to the Hotel Business Agreement.
6. The defendant denied that he owed any money to the plaintiff and counterclaimed against the plaintiff for breach of the Hotel Business Agreement and the Room Management Agreement in failing to pay to him his share of the Hotel’s profits and in excluding him from the management of the Hotel since the Hotel commenced its business. He counterclaims against the plaintiff for his share of the profits of the Hotel in the hands of the plaintiff from July 2004 onwards. He also seeks an order to dissolve the Partnership and consequential directions for appointment of receiver and taking accounts and making inquiries.
The plaintiff’s case and evidence
7. The plaintiff pleaded that on about 18 June 2004, the parties entered into the Hotel Business Agreement orally which was evidenced by an unsigned Chinese agreement (see p 253 of the trial bundle 2). The said unsigned Chinese agreement provided that the acquisition costs and deposit for purchasing the Premises should be paid by the parties in equal shares. The title of the Premises would be registered under the joint name of the plaintiff’s son, Mr Li Sheng (“Mr Li”), and the defendant. The decoration costs for the Hotel, to be shared equally by the parties, were estimated at $300,000.00.
8. The plaintiff pleaded in para 6A of the re-amended statement of claim that it was an implied term of the Hotel Business Agreement that the defendant would not be entitled to profits, if any, generated from the running of the Hotel’s business unless he paid to the plaintiff his half share of the costs of setting up of the Hotel and/or the general outgoings of the Hotel (the “Implied Term”).
9. The parties originally estimated that the decoration costs for the Hotel was $300,000.00. It was later revised to $400,000.00 payable by five equal instalments of $80,000.00 each which would be paid by the parties in equal shares (the “Decoration Costs Agreement”). The final figure of the decoration costs was $456,000.00. Each party should bear $228,000.00. The defendant had only paid $120,000.00 leaving $108,000.00 outstanding which had been paid by the plaintiff to the decoration contractor.
10. The plaintiff’s case was that the Hotel did not commence business until it obtained the hotel licence on 1 March 2005.
11. The plaintiff claimed that the defendant had also failed to pay his share for other expenses of the Hotel in the sum of $123,172.81 which had been paid by the plaintiff. The plaintiff claimed the total sum of $231,172.81 against the defendant.
12. The plaintiff set out her claim by categories by way of a Master Schedule annexed to her re-amended statement of claim (the “Master Schedule”). A copy of the Master Schedule is annexed to this judgment as Annex I. Breakdowns of the plaintiff’s claim for each category were set out in Schedules 1 to 19 annexed to the re-amended statement of claim.
13. The plaintiff’s case to the defendant’s counterclaim was that she had only collected rentals for P’s Rooms and had not collected rentals for D’s Rooms. The plaintiff further pleaded that the defendant’s counterclaim, if any, had been time-barred under the Limitation Ordinance (Cap 347). Of course, the plaintiff denied that she had excluded the defendant from the management of the Hotel.
14. The plaintiff had signed a witness statement dated 28 September 2012 and a supplemental witness statement dated 5 April 2013. She adopted both witness statements as her evidence-in-chief at the trial.
15. The plaintiff confirmed her pleaded case in her witness statement dated 28 September 2012.
16. In her witness statement, the plaintiff stated that the defendant had been causing interruption to the normal operation of the Hotel. Their disputes had been reported in newspapers on 8 November 2009 and the police was involved.
17. In her supplemental witness statement, the plaintiff stated that she had paid $336,000.00 for the decoration costs of the Hotel of which $108,000.00 should have been paid by the defendant. She further stated that she had paid $246,345.62 for the outgoings in relation to the running of the Hotel, 50% of which should have been paid by the defendant. She had since June 2004 repeatedly demanded the defendant to contribute his share of the aforesaid outgoings of the Hotel but the defendant refused.
18. The plaintiff testified at the trial that some demand notes for expenses produced by her in support of her claim were addressed to the defendant (see pp 178-183, 254(1), 254(2) and 254(6) of the trial bundle 2). As the defendant did not pay, she had to pay the same to get licence for the Hotel or to keep the Hotel running.
19. In respect of the decoration costs, the plaintiff testified at the trial that the defendant had paid the 1st and 2nd instalments and failed to pay further instalments to the contractor. She confirmed in cross-examination and re-examination that she had only paid her own share to the contractor and did not pay for the defendant. She said that the defendant owed payment to the contractor.
20. The plaintiff also agreed at the trial that some expenditure items claimed were expenses incurred after the date of the writ and some were in duplicate. The plaintiff also agreed that she could not tell the description of the subject matters stated in some of the invoices/receipts produced by her.
21. The plaintiff agreed that her relationship with the defendant had been poor since the beginning of the Partnership. She stated that they argued every time they met. She had called the police a number of times to resolve their disputes (see p 254 of the trial bundle 2). She said that she had once been assaulted in November 2007 (see p 230 of the trial bundle 2).
22. She stated that after the Room Management Agreement, she only rented out P’s Rooms and did not participate in the defendant’s management of D’s Rooms. She did not have any knowledge of how much profits or losses the defendant had made on D’s Rooms.
23. She stated that all the information stated in the tax returns filed by her (see pp 272 – 304 of the trial bundle 2) related only to the profits and losses of P’s Rooms which had nothing to do with the defendant. She denied that she had understated the figures of the turn-over stated in the tax returns.
24. The plaintiff confirmed at the trial that the expenses set out in the profit and loss account of the Hotel for the year end on 31 March 2010 (p 292 of Trial Bundle No. 2) were expenses for the whole Hotel and not expenses confined to P’s Rooms.
25. She denied that she had done anything to exclude the defendant from managing D’s Rooms. She stated that the defendant had employed various people to manage D’s Rooms. They included a Leung Lai Ping (梁麗萍) (“Leung”), a Kwong Chiu Hong (鄺照雄) (“Kwong”), a Lui Jun Yu (雷震雨), a lady surnamed Chu (朱姑娘), a Siu Hiu Fung (施曉峰) (“Siu”) and another man surnamed Tsang (曾生) (“Tsang”).
26. At the trial, the plaintiff testified that Leung had obstructed business of the Hotel and she had to call police. The plaintiff said that Leung had managed D’s Rooms for about six months before she was expelled by the defendant.
27. The plaintiff testified that Kwong came to the Hotel one to two months after Leung left and had managed D’s Rooms from about April to November in 2006. Kwong had beaten her in about 2006 and she had to call the police. Other people sent by the defendant also caused disruption to the business of the Hotel or scolded her. The police was again called.
28. The plaintiff said that Siu had managed D’s Rooms for more than half year〔大半年〕to one year and Tsang had managed D’s Rooms for a few months.
29. The plaintiff said that it was the customer’s choice as to which room he/she would rent. When all rooms managed by a party were full, that party could use the 7th Room. If both parties’ rooms were full, she would let the defendant to use the 7th Room. The plaintiff said that she would not rent out D’s Rooms.
30. Under cross-examination, the plaintiff said that if she had rented out any of D’s Rooms, she was only helping the defendant’s representatives to manage D’s Rooms. She said that if she did not help them, they would cause disruption to the Hotel. She said that the rentals of D’s Rooms would be collected by the defendant’s representatives or handed over to them. She said that the defendant came to the Hotel to scold her in July 2011 and she had let customers to use any rooms of the Hotel since then. The plaintiff said that as she had helped the defendant to repair damage in D’s Rooms, she was entitled to rent out D’s Rooms. She said that she did not allow the defendant to come to the Hotel since 14 January 2013.
The defendant’s case and evidence
31. The defendant pleaded that he had orally agreed with the plaintiff to form a partnership business to operate the Hotel and the Hotel commenced business in about July 2004.
32. The defendant did not dispute the terms of the Hotel Business Agreement set out in para 2 above but denied the Implied Term claimed by the plaintiff.
33. The defendant pleaded that the total decoration costs for the Hotel was $385,500.00 and he had paid his half share when it was demanded by the contractor. The defendant agreed that there were some variation works done to the Hotel’s decoration which cost $30,000.00 but pleaded that these variation works were instructed by the plaintiff for the plaintiff’s own benefit without his knowledge and consent. The defendant agreed that he had not paid for these variation works.
34. The defendant agreed that the parties had entered the Room Management Agreement. It was the defendant’s case that the plaintiff had excluded him from the management of the Hotel since its commencing of business in July 2004 and despite the execution of the Room Management Agreement, the plaintiff did not allow the defendant to manage D’s Rooms and had taken over all the control and management of the Hotel operation to the defendant’s exclusion. The defendant had repeatedly demanded and requested the plaintiff to account for the profits of the Hotel from July 2004 onwards which demands and requests were refused by the plaintiff.
35. According to the tax returns submitted by the plaintiff to the Inland Revenue Department for the period from 1 April 2005 to 31 March 2011, the plaintiff reported total profits in the sum of $435,297.00. The defendant averred that the plaintiff had already fully charged all operating expenses of the Hotel to the Hotel’s turnover and should have no further claim against him for these expenses.
36. The defendant further averred that he was not liable to the expenditures claimed by the plaintiff in the Master Schedule on the following grounds:
(1) They were not incurred for the Hotel business;
(2) They were wholly paid by the defendant;
(3) The defendant had already paid his half share; or
(4) They were incurred solely for the benefit of the plaintiff as the defendant had been excluded from operating the Hotel.
37. The defendant’s grounds for disputing individual item were set out in Schedules 1 to 19 annexed to the amended defence and counterclaim. These Schedules are annexed to this judgment as Annex II.
38. The defendant pleaded that he was entitled to 50% of the aforesaid reported profits of the Hotel. He counterclaimed the sum of $217,648.50.
39. The defendant further averred that the plaintiff had understated the turnover of the Hotel in the aforesaid tax returns for the period from 1 April 2005 to 31 March 2011 by $769,120.00. He also counterclaimed 50% of such sum.
40. Alternatively, the defendant claimed that the plaintiff had excluded him from managing D’s Rooms allotted to him under the Room Management Agreement and had rented out D’s Rooms at the daily rate of $300.00 thus causing loss and damage to the defendant.
41. The defendant also sought an order for accounts and inquiries.
42. The defendant claimed that the Partnership ought to be dissolved by the court on the grounds that the plaintiff having willfully or persistently committed breach of the Partnership and/or conducted herself in matters relating to the partnership business that it was not reasonable practical for the defendant to carry on the business in partnership with the plaintiff and/or it was just and equitable that the Partnership ought to be dissolved.
43. The defendant relied on his being excluded from the management of the Hotel, the disputes between the parties on control and management of the Hotel and the refusal of the plaintiff to account for the profits of the Hotel to support his application to dissolve the Partnership.
44. The defendant testified at the trial and had called Miss Lee Virginia Macadangdang (“Miss Lee”) to testify as his witness.
45. The defendant signed a witness statement and two supplemental witness statements dated 28 September 2012, 7 March 2013 and 12 April 2013. He adopted all his aforesaid witness statements as evidence-in-chief at the trial.
46. In his witness statement dated 28 September 2012, the defendant confirmed his pleaded case.
47. In his witness statement, the defendant stated that after signing of the Room Management Agreement, the plaintiff introduced Leung to manage D’s Rooms for him. However, Leung was expelled by the plaintiff in less than two months. The defendant stated in para 11 of his aforesaid witness statement as follows:
“其後約2005年4月，經原告人介紹梁麗萍小姐代我管理，但原告人在不到2個月的時間，趕走了梁小姐。從此直到現在，雖然雙方協議上述安排 [the Room Management Agreement] ，但原告人並沒有按協議分配本人所得的房間作管理。原告人繼績全部控制和管理酒店的業務運作。”
48. In his 2nd supplemental witness statement dated 12 April 2013, the defendant stated that Leung was the first of his friends arranged by him to assist him to manage D’s Rooms and she was expelled in less than one month. He stated as follows in para 7 of his 2nd supplemental witness statement:
“梁麗萍是我第一位安排的朋友，去幫助我管理那些分配給我的那些房間。但每次原告人都強稱到訪的客人是屬於她的只可租用她房間的。到頭來，我所分配的房間並沒有成功被租出，而我安排的朋友在不足一個月也被她趕走了。”
49. The defendant further stated that he had not received any sharing of the profits of the Hotel. According to the tax returns filed by the plaintiff, the Hotel made a total profit of $435,297.00 for the period from 1 April 2005 to 31 March 2011. He was entitled to share 50% of such profit. His share was $217,648.50.
50. He further said that from the website of the Hotel, it could be seen that the room rates of the Hotel ranged from $280.00 to $380.00 per night (see pp 305-311 of the trial bundle 2). He said in his witness statement dated 28 September 2012 that assuming all rooms of the Hotel were rented out at the average rate of $330.00 per night for all Fridays and Saturdays throughout the whole year, the Hotel should have a turnover of $240,000.00 per year. For the six year from 1 April 2005 to 31 March 2011 covered by the tax returns filed by the plaintiff, the Hotel’s turnover should be $240,000.00 x 6 = $1,440,000.00. He said that the plaintiff had understated the profits of the Hotel for the aforesaid period by $769,120.00 (being $1,440,000.00 - $670,880.00 [turnover reported by the plaintiff in the tax returns]) and that his share of the understated profits was $384,560.00.
51. In his 2nd supplemental witness statement, the defendant stated that since 25 March 2005 (the date of Room Management Agreement) D’s Rooms should have 40% occupancy at the rate of $300.00 per night. He said that his loss was $919,800.00 for seven years from 25 March 2005 (being $300.00 x 3 rooms x 365 days x 40% x 7 years).
52. The defendant stated in his 1st supplemental witness statement dated 7 March 2013 that certain expenditures claimed by the plaintiff were wholly or partly paid by him. They were expenses referred to in the following pages of the trial bundle 2:
2, 8-10, 12, 18, 21-25, 27-30, 33, 36-37, 39-41, 45, 73, 89, 98, 100, 102, 109, 117, 119, 121, 123, 129, 137-139, 141, 143, 146, 150, 152-155, 158, 165-166, 173-174, 178-183, 194-203, 216-224 and 228.
53. The defendant’s case was that he had paid his share (ie 50%) for certain expenditures claimed by the plaintiff (see Annex II). At the trial, he said that most of such payments were made by cash to the plaintiff at the McDonald restaurant near the Hotel. He agreed that he had not kept records of his payments paid to the plaintiff.
54. In his 2nd supplemental witness statement dated 12 April 2013, the defendant agreed that he had sent his friends referred to in the plaintiff’s supplemental witness statement attempting to assist him to manage D’s Rooms but they were all expelled by the plaintiff within one month. The defendant said in cross-examination that he could not remember the dates when his friends were expelled by the plaintiff.
55. The defendant testified that he had visited the Hotel from time to time and knew that the occupancy rate of the Hotel was 70% to 80%. He said that it was for sure that the Hotel was fully occupied on Saturdays, Sundays and public holidays. He said that he went to the Hotel on Saturdays, Sundays and holidays and found the Hotel full.
56. The defendant stated that whenever he visited the Hotel, he would end up quarrelling with the plaintiff and the defendant had to call the police on several occasions for assistance (see p 271 of the trial bundle 2). On 3 July 2011, when he visited the Hotel, he had a quarrel with the plaintiff again and the plaintiff called the police. The plaintiff claimed on the next day that the defendant had assaulted her on 3 July 2011. The defendant was charged but acquitted after trial.
57. The defendant stated that it was not possible for him to continue to operate the Hotel with the plaintiff in partnership. He asked for the Partnership to be dissolved.
58. Miss Lee had signed a witness statement dated 27 March 2013. She adopted her witness statement as evidence-in-chief at the trial.
59. Miss Lee’s evidence was to tell her experience of renting a room in the Hotel. She said that she went to the Hotel on 13 March 2013 to rent a room. She was showed a few rooms for her to choose. She chose room 5 (which was one of D’s Rooms) and was charged $300.00 per day for that room. She produced photos taken outside the Hotel and inside the hotel room. She also produced receipt for the rental paid by her. At the trial, she identified the plaintiff as the person who issued the receipt to her.
60. She stated in her witness statement that she went to the Hotel on 26 March 2013 again attempting to rent a room. This time, she was refused by the person who issued the previous receipt to her. No reasons for the refusal were given to her.
Discussion and rulings
61. Before I deal with individual claim items of the parties, I shall deal with a few issues which will have bearing on my judgment. They are:
(1) Terms of the Partnership;
(2) Was the Partnership subjected to the Implied Term;
(3) The date when the Hotel commenced business; and
(4) Credibility of witnesses.
Terms of the Partnership
62. The parties had no dispute that the Partnership was governed by the Hotel Business Agreement and the Room Management Agreement.
63. There was not much dispute on the terms of the Hotel Business Agreement, ie the parties would share the management, expenses and profits of the Hotel equally.
64. However, the parties seemed to have different understanding on the Room Management Agreement.
65. The plaintiff’s case was that after the Room Management Agreement, each party would manage the rooms allotted to him/her and would be entitled to the rentals generated by his/her rooms. However, the expenses of the Hotel would still be shared equally by the parties.
66. The plaintiff in her evidence had emphasized that she had not received rentals from D’s Rooms and she had not received rentals for more than three rooms at one time. The plaintiff when cross-examined on the defendant not being liable for expenses of the Hotel after the Room Management Agreement replied that only room management but not expenses of the Hotel was split by the Room Management Agreement.
67. The plaintiff also testified that she had agreed that if rooms allotted to both parties were full, she would let the defendant to have the 7th Room.
68. The plaintiff had also been cross-examined on para 21 of her witness statement dated 28 September 2012 which stated that:
“21. On or about 25 March 2005, by a written agreement, the Defendant and I made a further agreement (hereinafter referred to as “the 3rd Agreement”) [the Room Management Agreement]. The 3rd Agreement stated that:-
“…..
(i) The Defendant shall seek customers and manage the profit and losses of rooms number one, five, and six of the Hotel.
(ii) I shall seek customers and manage the profit and losses of rooms number two, three, and four of the Hotel.
(iii) Room number seven of the Hotel shall be shared by the Defendant and I for the purposes of obtaining extra profit on a first come first serve basis. …..””
69. The plaintiff denied that the Room Management Agreement was meant to split the “profit and loss” of the allotted rooms. She said that the aforesaid paragraph in her witness statement had not been clearly explained to her by her former solicitors.
70. The stance of the defendant on this issue was unclear. In para 19 of the amended defence and counterclaim, the defendant claimed that the plaintiff should account to him 50% of the profits reported by the plaintiff for the period from 1 April 2005 to 31 March 2011. The defendant further pleaded in paras 20 and 21 of the amended defence and counterclaim that the plaintiff had understated the turnover of the whole Hotel in the tax returns filed by her and that the defendant was entitled to share 50% of the alleged understated turnover for the whole Hotel. It seems that the defendant’s case was that after the Room Management Agreement, he was still entitled to share the profits of the Hotel with the plaintiff equally.
71. However, in para 21A of the amended defence and counterclaim the defendant put in an alternative claim claiming that the plaintiff had excluded him from managing D’s Rooms and had rented out D’s Rooms thus causing loss and damage to him. In such case, the defendant seemed to suggest that the rentals received from D’s Rooms belonged to him.
72. In para 13(7) of the amended defence and counterclaim, the defendant pleaded that one of the grounds for the defendant objecting to pay the plaintiff’s claim for expenditures was that they were incurred solely for the benefit of the plaintiff as the defendant had been excluded from operating the Hotel in particular those hotel rooms allotted to the defendant under the Room Management Agreement. The defendant’s counsel in cross-examination of the plaintiff also put forward the proposition that the defendant was not liable to pay expenses not incurred for D’s Rooms after the Room Management Agreement. The defendant was suggesting that the expenses for the rooms were split after the Room Management Agreement. If the defendant’s stance was that he was not liable to expenses incurred other than those incurred for D’s Rooms, I do not see how the defendant may argue that he was still entitled to share the profits of the whole Hotel. This is further confirmed by the defendant’s calculation of his loss as set out in para 11 of his 2nd supplemental witness statement when he stated that:
“11. 由第三份協議〔the Room Management Agreement〕的日期2005年3月25日起至今超過7年 。 約計星期五、六、日及公衆假期，房間全年最少4成時間出租。有關我的3間房間租金損失，每年最少有港幣131,400元〔即$300 x 3 x365 x 40%〕，7年共919,800元〔即$131,400 x 7〕。” 〔Emphasis added〕
73. The Room Management Agreement was produced at p 244 of the trial bundle 2 which stated as follows:
“〔甲〕任樹榮先生 [the defendant]管理鴻京酒店6號房，1號房及5號房，共三間房。
〔乙〕馬宏津小姐 [the plaintiff] 管理鴻京酒店4號房，3號房，2號房，共三間房。
餘下7號房共用”
74. I accept the plaintiff’s evidence and find that pursuant to the Room Management Agreement, each party would be entitled to the rentals generated by the rooms managed by him/her. The term “管理” (“manage”) used in the Room Management Agreement means to get customers for the rooms and to receive rentals of the rooms. The Room Management Agreement replaced the profit sharing part of the Hotel Business Agreement. However, the sharing of expenditures was still governed by the Hotel Business Agreement, ie the parties should share the expenditures equally.
75. The two interpretations of the defendant (ie to share profits of the whole Hotel equally or to split the expenses of the rooms) do not make commercial sense. If despite the Room Management Agreement, the parties would still share the profits of the Hotel equally, a party doing no business for the Hotel would still be entitled to share the profits generated by the efforts of the other party and at the same time preventing the other party from using all the rooms of the Hotel to earn profits. I do not accept that this was what the parties intended to achieve through the Room Management Agreement.
76. In his 2nd supplemental witness statement, the defendant stated as follows:
“6. 原告人口供紙上所列出的名稱是我的朋友，安排到鴻京酒店，幫助我去嘗試管理那分配給我的那些房間及監察原告人有沒有私下將那些房間租給客人。
7. 梁麗萍是我第一位安排的朋友，去幫助我管理那些分配給我的那些房間。但每次原告人都強稱到訪的客人是屬於她的只可租用她房間的。到頭來，我所分配的房間並沒有成功被租出，而我安排的朋友在不足一個月也被她趕走了。”
77. If the parties were to share the profits of the Hotel equally after the Room Management Agreement, why would the defendant make such complaint in his witness statement?
78. I also do not accept that the Room Management Agreement had the effect of splitting the expenses between different rooms and that each party would only be responsible for expenses incurred for rooms allotted to him/her. Firstly, it was not said so in the Room Management Agreement. Secondly, it was not possible to separate expenses incurred by each room. When stock such as toilet papers and shampoo were purchased for the Hotel, it could not be told which room would use them. It was not the defendant’s case that he had purchased these consumables for D’s Rooms. There were of course other expenditures, such as water and electricity charges, which could not be allocated to each room precisely.
79. I find that the Room Management Agreement had only changed the profit sharing term of the Hotel Business Agreement. Prior to 25 March 2005, ie before the Room Management Agreement, the parties would share the profits and losses of the Hotel equally. From 25 March 2005 onwards, the parties would be entitled to rentals generated from hotel rooms allotted to him/her but would still share the expenses of the Hotel equally.
Was the Partnership subjected to the Implied Term
80. The plaintiff pleaded that the Hotel Business Agreement was subjected to the Implied Term, ie the defendant was not entitled to share the profits of the Hotel until he had paid his contribution for the expenses of the Hotel.
81. Bokhary PJ had pointed out in Kensland Realty Ltd v Whale View Investment Ltd & Anr [2002] 1 HKLRD 87 at 96 the conditions for a term to be implied into a written contract as follows:
“23. In my view, any term to be implied in this context must comply with the conditions stated by Lord Simon of Glaisdale when delivering the advice of the majority in the Privy Council case of BP Refinery (Westernpoint) Pty Ltd v Shire of Hastings (1978) 52 ALJR 20 at p 26:
(1) It must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”
82. Ribeiro PJ also referred to the aforesaid well-known passage of Lord Simon in para 59 of his judgment in the above case.
83. In Attorney General of Belize and others v Belize Telecom Ltd and another [2009] 1 WLR 1988 the Privy Council stated at 1993 that:
“The court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute or articles of association. It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the instrument means. However, that meaning is not necessarily or always what the authors or parties to the document would have intended. It is the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed: see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912-913.”
84. Lord Hoffmann confirmed in para 27 of his judgment in the aforesaid Privy Council case that the conditions stated by Lord Simon in BP Refinery and referred to by Bokhary and Ribeiro PJJ in Kensland Realty Ltd were “a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means, or in which they have explained why they did not think that it did so… [They] are all good reasons for saying that a reasonable man would not have understood that to be what the instrument meant.”
85. I note that the aforesaid remarks were made by their Lordship in the text of written contracts. However, I am of the view that the same principles can still be applied to ascertain the contractual relation of the parties in the present case which is partly written, partly oral and partly evidenced in writing.
86. The plaintiff’s case was that the defendant had been refusing to pay his share for the expenditures of the Hotel since the commencement of the Partnership. In para 13 of her supplemental witness statement, the plaintiff stated that:
“13. From time to time since June 2004, I have repeatedly demanded the Defendant to contribute to his half of the Expenses in accordance with the 1st [the Hotel Business Agreement] and 2nd [the Decoration Costs Agreement] Agreements; but the Defendant has refused to do so on every occasion.”
87. According to the plaintiff’s case, the defendant had already owed her outstanding expenses before they signed the Room Management Agreement. If the Implied Term was one of the terms governing the contractual relation of the parties, the parties would not have signed the Room Management Agreement or the plaintiff would have required such term to be expressly spelt out in the Room Management Agreement.
88. Furthermore, I do not see that business efficacy will require such term as the Implied Terms to be included in the Hotel Business Agreement.
89. The plaintiff’s counsel submitted that it would be rather unreasonable if the defendant had paid nothing in contribution to the setting up of and general outgoings of the Hotel and yet at the same time the defendant would still be entitled to 50% of the profits generated from the Hotel business, costs of which were fully paid by the plaintiff. She submitted that this could not have been what the Hotel Business Agreement read against the relevant background would reasonably be understood to mean.
90. It was not the plaintiff’s case that the defendant had paid nothing in contribution to the setting up of the Hotel. The plaintiff in her pleaded case admitted that the defendant had paid $120,000.00 of the decoration costs and in her evidence admitted that the defendant had paid his share of the surveyor assessment fee claimed in Schedule 7.
91. The aforesaid argument contended by the plaintiff’s counsel may also apply the other way round. It could not be right that a party who had paid say 90% of his contribution be deprived of the right to share any of the profits of the business because that party had not paid the remaining 10% of his contribution whereas the party who put up the outstanding 10% would take all profits of the business and at the same time had the right to claim for reimbursement of the said 10%. I do not see that business efficacy will operate in such inequitable way.
92. I am of the view that the Implied Term was inequitable as aforesaid. It contradicted the undisputed express term of equal profit sharing in the Hotel Business Agreement. It also contradicted the plaintiff’s case on the effect of the Room Management Agreement as discussed earlier in this judgment. The Hotel Business Agreement and the Room Management Agreement were still effective without the Implied Term. It was not a necessary term to any of these two Agreements. It was not so obvious a term that “it goes without saying”. I bear in mind that the court cannot introduce terms to make a contract fairer or more reasonable. I reject the plaintiff’s contention that the contractual relation between the plaintiff and the defendant was subjected to the Implied Term. If the defendant failed to pay his share of contribution, the plaintiff has her remedy in law.
The date when the Hotel commenced business
93. The parties had different versions on the date when the Hotel commenced its business.
94. In para 15 of the re-amended statement of claim, the plaintiff pleaded that on 1 March 2005, the Home Affairs Department issued a licence for the Hotel under the Hotel and Guesthouse Accommodation Ordinance, Cap 349. In para 3 of the amended reply and defence to counterclaim, the plaintiff averred that the Hotel did not commence its business until the Home Affairs Department issued the licence for the Hotel. The plaintiff’s case was that the Hotel commenced business on 1 March 2005.
95. The defendant’s case was that the Hotel commenced business in July 2004. He stated in para 8 of his witness statement dated 28 September 2012 that “酒店約在2004年7月左右開始營業。”
96. Other than this bare assertion, no evidence had been adduced by the defendant to show that the Hotel had commenced business before it obtained its hotel licence on 1 March 2005.
97. The purchase of the Premises was not completed until 18 June 2004. After the purchase, substantial decoration works to the Premises had been carried out. This can be seen from the quotation for the decoration works produced at pp 255 – 256 of the trial bundle 2. The quotation stated that the works needed 60 days (excluding holidays) to complete. It can be seen from the said quotation that it was unlikely that the decoration works for the Hotel had been completed in July 2004, ie less than two months from completion of the purchase of the Premises.
98. In fact, evidence produced to this court showed that the decoration works to the Hotel had not even commenced in July 2004. The quotation provided for the decoration costs to be paid by five instalments. The receipt for the 1st instalment was dated 8 October 2004 (see p 243 of the trial bundle 2). This suggested that the decoration works to the Hotel did not actually start until October 2004.
99. Furthermore, the receipt produced at p 242 of the trial bundle 2 showed that the 4th instalment of the decoration costs was paid on 2 December 2004. There was still the 5th instalment to pay. This showed that the decoration works were still going on as at early December 2004.
100. I do not accept that the Hotel would have commenced business before the decoration works were completed.
101. I accept the plaintiff’s evidence and find that the Hotel commenced its business on about 1 March 2005.
Credibility of witnesses
102. The evidence’s of Miss Lee, the defendant’s witness, was to show that the plaintiff had rented out D’s Rooms in March 2013. Her evidence was not seriously challenged. In fact, the plaintiff admitted that since July 2011, she had allowed customers to choose which room they wanted. I find Miss Lee an honest witness and accept her evidence.
103. The main controversy in this case is the evidence of the parties themselves. They are the key witnesses. Most of their allegations such as alleged payments and alleged obstructions were not documented. In evaluating their conflicting evidence, the court has to assess their credibility. As Chung J stated in para 12 of his reasons for judgment in Star Glory Investment Ltd v Kao Tuo (H.K.) Technology Co Ltd and Ors (unrep., HCA 3523/2002, 13 August 2005) that:
“The assessment of a witness’s credibility and/or reliability is a task frequently undertaken by the court in litigation (in fact, very often an essential task). I consider the following to be the appropriate test to adopt:-
“There are two objective tests for assessing a witness’s credibility regarding a matter to which he has testified:-
(a) whether that part of his testimony is inherently plausible or implausible;
(b) whether that part of his testimony is, in a material way, contradicted by other evidence which is undisputed or indisputable (an example often given of such evidence is contemporaneous documents).
Further, where it is shown that a witness has been discredited over one or more matters to which he has testified (using the above tests), this fact is relevant to the assessment of his overall credibility. Likewise, regard may be had to a witness’s motive for deliberately not giving truthful testimony. For example, telling the truth may prejudice his interest, or a just determination of the litigation may affect his interest”.
(See, for example, the decisions in Chiu Chi Tong v. Lau Chong Sai & Another, HCA 765/2002 (para. 28) and Yu Ming Investment Ltd. v. Pang Ru Chuan, Richard HCA 814/2002 (para. 13)).”
104. After considering the evidence of the parties, I find that both the plaintiff and the defendant are not reliable witnesses.
105. The oral evidence given by them at the trial was different from their witness statements in various aspects. Some material evidence given by them at the trial was not mentioned in their witness statements and no satisfactory explanation was given. Their oral evidence also contradicted their witness statements.
106. The plaintiff testified that the representatives sent by the defendant to manage D’s Rooms had scolded her and even beaten her. She had to call the police on several occasions. These were not mentioned in her witness statements.
107. It was the plaintiff’s pleaded case that under the Room Management Agreement, the 7th Room should be shared by the parties on a first come first serve basis. This was confirmed in both her witness statement and her supplemental witness statement. However, at the trial, the plaintiff testified that if both parties’ rooms were full, she would let the defendant to have the 7th Room. She explained that this arrangement was discussed after signing of the Room Management Agreement. She did not explain why the same was not mentioned in her pleadings and witness statements which were prepared long after the alleged discussion on the subject between the parties.
108. The plaintiff explained that some receipts produced by her in support of her claims were without addressee because the Hotel’s name had not been decided at that time when the name of the Hotel was known latest by 20 July 2004 when she made the business registration application for the Hotel (see pp 266 - 270 of the trial bundle 2).
109. Whenever the plaintiff was cross-examined on the discrepancies between her witness statements and her oral evidence, she would shift the blame to her former solicitors by alleging that they had not fully explained her witness statement to her.
110. When the plaintiff was cross-examined on the tax returns filed by her, her evidence was shifting. In her supplemental witness statement, the plaintiff stated that:
“20. I filed tax returns for the Hotel every year but I must emphasize that all the information stated in the tax returns which I have filed along the years relate only to the profits and losses in relation to the management of Rooms 2, 3 and 4 of the Hotel. As we have agreed by the 3rd Agreement [the Room Management Agreement], those profits and losses have nothing to do with Defendant at all.”
111. At the trial the plaintiff testified that her reported turnover would include rental of D’s Rooms if she knew the amount. The plaintiff also admitted at the trial that expenses of the whole Hotel was included in the reported profits and losses. These were inconsistent with her supplemental witness statement. When it was pointed out to her at the trial that in the tax returns filed by her it was expressly stated that the reported profits were shared equally between the parties, the plaintiff was unable to give a satisfactory explanation other than saying that because the defendant was a partner so she had included the defendant in the tax returns.
112. During the trial, the plaintiff admitted that she had included in her claim items which were in duplicate or which the defendant had already paid. Her counsel had to concede on those claims but the plaintiff still insisted her counsel to pursue claims for those items. The plaintiff had also included expenditures incurred after the date of the writ or claimed more than she had paid to inflate her claims.
113. In her supplemental witness statement dated 5 April 2013, the plaintiff stated that:
“19. Thereafter [after the Room Management Agreement], I sought guests for and only rented out Rooms 2, 3 and 4 of the Hotel. I only arranged for my guests to occupy Rooms 2, 3 and 4 and they paid room charges to me. I did not participate in the Defendant’s management of the other rooms of the Hotel at all, nor did I do anything to exclude him from managing his rooms.”
114. She stated at the trial that she had not received rentals on D’s Rooms but later admitted that from July 2011 onwards she had allowed customers to choose whichever room they wanted. She even admitted that she did not allow the defendant to enter the Hotel since 14 January 2013. All these happened before she filed her supplemental witness statement on 5 April 2013 and yet they were not mentioned in her supplemental witness statement.
115. On the other hand, I also find that the defendant’s evidence was contradicting and evasive. The defendant claimed that he was excluded from the management of the Hotel since July 2004. However, other than mentioning Leung in his witness statement dated 28 September 2012, he did not disclose that he had sent other people to manage D’s Rooms for him until the plaintiff disclosed them in her supplemental witness statement dated 5 April 2013. The defendant then admitted in his 2nd supplemental witness statement that “原告人口供紙上所列出的名稱是我的朋友，安排到鴻京酒店，幫助我去嘗試管理那分配給我的那些房間及監察原告人有沒有私下將那些房間租給客人。” The defendant did not miss out in his witness statement dated 28 September 2012 one of his friends but five out of his six friends sent to the Hotel. This was a plain attempt not telling the whole truth to the court.
116. The defendant was also evasive in giving details on how his friends had managed D’s Rooms for him. In his said 2nd supplemental witness statement, the defendant only stated that “而我安排的朋友在不足一個月也被她 [the plaintiff] 趕走了”and “其他我所安排去鴻京酒店去觀察的朋友，也被原告人用種種藉口趕走。”At the trial, when he was asked to give details of the dates when he sent his friends to the Hotel, the defendant simply said he could not remember.
117. The defendant’s case was that receipts not addressed to the Hotel were not expenditures incurred for the business of the Hotel but for the plaintiff’s own use. However, the defendant admitted that some receipts not addressed to the Hotel or without addressee were for business of the Hotel. To cite some examples: in Schedule 1 of Annex II the defendant agreed that claim items covered by receipts at pp 10 and 121 of the trial bundle 2 were for business use but these receipts were either addressed to the plaintiff or without addressee. His explanation given under cross-examination for paying such expenditures including small amounts involved; he was a “boss” of the Hotel; or the plaintiff was “noisy” and troubled him all the times. It can be seen that the defendant’s own case was inconsistent.
118. The defendant’s evidence on how he would handle the expenditures claimed by the plaintiff was also inconsistent and self-contradicting. On the one hand, his case was that expenses incurred after he was excluded from the management of the Hotel were expenses incurred for the sole benefits of the plaintiff and he did not agree to pay such expenses. Examples for such items could be found at pp 26 to 29 of the trial bundle 2 for advertising fees of the Hotel incurred from July 2007 to March 2008. However, for sign board fee incurred on 19 June 2008 (p 8 of the trial bundle 2), the defendant claimed that he had paid his share of 50%. The defendant explained at the trial that it was because the amount was small. The amount concerned was $1,200. The defendant’s explanation did not sit well with his refusing to pay his share for $888 incurred on 8 Aug 2007 for advertising the Hotel (see p 29 of the trial bundle 2). The defendant’s evidence is self-contradicting.
119. From my above analysis of the parties’ evidence on the date when the Hotel commenced business, it can be seen that the defendant’s evidence on this issue was plainly not supported by contemporaneous documents issued by a third party, ie the decoration contractor. The defendant simply made up evidence to inflate his counterclaim.
120. In the premise, I find both the plaintiff and the defendant not reliable witnesses. When their evidence was in conflict, I have to consider facts of each scenario separately to make a finding as I cannot accept evidence of either party without caution and reservation.
121. I shall now deal with the parties’ claims.
The plaintiff’s claim
122. The defendant did not dispute that the plaintiff had paid the items claimed in Schedules 1 to 19. The defendant only disputed his liability to pay to the plaintiff the amounts claimed.
123. During the trial, the plaintiff had admitted that some expenditures were incurred after the date of the writ and some were in duplicate. She also admitted that amounts stated on some of the receipts supporting her claim were less than the amounts claimed (see pp 21(2) and 254(8) of trial bundle 2). The plaintiff also admitted that the defendant had paid his share for the item claimed under Schedule 7.
124. Miss Law in her skeleton closing submissions for the plaintiff adjusted the plaintiff’s claim accordingly. She set out the adjustments in Appendix 1 annexed to her skeleton which showed that the plaintiff’s claim amount was reduced to $157,334.11. A copy of the Appendix 1 annexed to Miss Law’s skeleton is attached to this judgment as Annex III.
125. However, Miss Law informed the court at the closing submission hearing that she was instructed by the plaintiff to maintain her claim at $231,172.81 despite the plaintiff’s aforesaid admissions at the trial. The plaintiff is not entitled to claim for expenditures incurred after the issuing of the writ. She is also not entitled to claim more than what she had paid or to claim the same expenditure twice. She has no claim against the defendant for expenses which the defendant had already duly paid his share. I see no merits in the plaintiff insisting to claim $231,172.81. The plaintiff is simply acting unreasonably.
126. I do not allow those of the plaintiff’s claim as set out in Annex III.
127. I shall deal with the plaintiff’s claims as set out in each Schedule.
Claims under Schedule 1
128. The defendant objected to pay the items listed in Schedule 1 on the ground that they were either “for the plaintiff’s use only” or “for business use but the defendant had paid his half share to the plaintiff”.
129. The defendant’s objection on expenditures said to be “for the plaintiff’s use only” could be further divided into the following four grounds:
(1) The receipts were not addressed to the Hotel;
(2) It was not clear what were the items covered by the receipts;
(3) The defendant had not consented to the expenses;
(4) The expenses were incurred not for business of the Hotel.
130. One of the defendant’s grounds of objection was that receipts produced by the plaintiff were not addressed to the Hotel and they were not expenditures incurred for the business of the Hotel but for the plaintiff’s own use.
131. Many receipts for items claimed in Schedule 1 were not addressed to the Hotel. Many of these receipts were for goods of small amounts issued by different retail shops. More than half of the receipts listed in Schedule 1 were for less than $100.00. Some were for less than $10.00. It is not surprising to find that retail receipts for such small amounts might not have set out the name of the payee.
132. As pointed out in para 108 above, I do not accept the plaintiff’s explanation that the Hotel had no name until the end of 2004 as the name of the Hotel was clearly stated in the business registration application dated 20 July 2004 signed by the plaintiff. I also do not accept that if a receipt was without addressee, the expenditure had to be unrelated to the business of the Hotel. Each receipt has to be considered individually. As I have pointed out in para 117 above, the defendant had admitted that some receipts not addressed to the Hotel or without addressee were for business of the Hotel. Examples of such receipts can be found at pp 10, 109, 119, 121, 146 and 150 of the trial bundle 2.
133. The plaintiff claimed that the expenditures listed in the Schedules were expenses incurred for the business of the Hotel. The burden of proof rested on the plaintiff. If the plaintiff herself could not tell what were the subject matters covered by the receipts, the plaintiff had failed to discharge her burden of proof. Example of this type of receipts could be found at p 3 of the trial bundle 2 when the plaintiff admitted in cross-examination that she could not tell what was the subject matter covered by that receipt. Such claim items are not allowed.
134. The defendant also took issue on some of the receipts produced were undated or with incomplete date or illegible date. As the plaintiff had the burden of proving the expenses were incurred for the business of the Hotel, receipts without date or with incomplete or illegible date could not show when the expenses were incurred. They could be incurred before the parties started the Partnership. Unless the plaintiff could produce other evidence to prove that they were incurred for the business of the Hotel, such expenses are disallowed.
135. Section 26 of the Partnership Ordinance (Cap 38) provides that subject to any agreement, express or implied, between the partners, the partnership firm must indemnify every partner in respect of payments made by the partner in the ordinary and proper conduct of the business of the firm or in or about anything necessarily done for the preservation of the business or property of the firm and all partners must contribute equally in the capital and losses, whether of capital or otherwise sustained by the firm.
136. There was no dispute that the Hotel Business Agreement had provided for the parties to jointly manage the Hotel. It was not practicable to obtain express consent from all partners for every single item of expenditure for the business of the Hotel. I am of the view that the plaintiff was authorized by the Hotel Business Agreement to incur ordinary expenses for business of the Hotel.
137. A partner is entitled to be indemnified by the firm against losses and expenses bona fide incurred by him for the benefit of the firm, whilst pursuing the authority conferred upon him by agreement entered into between himself and his co-partners. A partner’s obligation to contribute is not necessarily founded upon, although it may be modified and even excluded altogether by, agreement. Where there is no agreement to the contrary, it is clear that if one partner enters into a contract on behalf of the firm, but in such a manner as to render himself alone liable to be sued, he is entitled to be indemnified by the firm, provided he has not, as between himself and his co-partners, exceeded his authority in entering into the contract. (See paras 20-02 and 20-04 of Lindley & Banks on Partnership 19th edition 2010)
138. Subject to any express or implied agreement, each partner is entitled to be indemnified by his firm by way of contribution by his partners, in respect of payments made by him in the ordinary and proper conduct of the partnership business. (See para 138 of Halsbury’s Laws of England 5th edition 2008 vol 79 at p 89) There was no express term in the Hotel Business Agreement which excluded the plaintiff’s right of contribution from the defendant for expenses incurred by the plaintiff for the business of the Hotel. I also do not see that there was an implied term to such effect. The fact that the defendant had not expressly consented to certain expenditures was not a reason for the defendant not to pay the plaintiff’s claims provided that they were ordinary business expenses of the Hotel. Examples for such expenses included items covered by receipts produced at pp 26, 27, 29 and 63 of the trial bundle 2 for advertising fee.
139. The defendant contended that claims covered by documents produced at pp 27 and 29 of the trial bundle 2 were in duplicate. The plaintiff’s counsel submitted that they were two different items by comparing the dates and receipt numbers of the two receipts and there was no double claim. Page 27 was an invoice for $888.00 dated 26 July 2007 issued by Stephen Wong Consultant Company for advertising on internet. Page 29 was a receipt for the same amount dated 8 August 2007 also issued by Stephen Wong Consultant Company for advertising on internet. The receipt stated that it covered the period from1 July 2007 to 31 December 2007. I have no doubt that the receipt produced at p 29 of the trial bundle 2 was for the invoice produced at p 27. They were for the same subject matter covering the same period of time. I find that the plaintiff’s claims under pp 27 and 29 of the trial bundle 2 were in duplicate. I disallow her claim under the invoice produced at p 27.
140. The defendant is of course not liable for expenses not for the business of the Hotel. These included claims for snack, cosmetic products and cutting board (see pp 43, 85 and 95 of the trial bundle 2).
141. The defendant took issue that some of the expenditures claimed were incurred after he was being excluded from the management of the Hotel although he agreed that these expenditures were for the business of the Hotel. The defendant’s counterclaim against the plaintiff for excluding him from the management of the Hotel in breach of the Hotel Business Agreement and the Room Management Agreement will be dealt with later in this judgment. Suffice it to say for the present purpose that it is not a defence to the plaintiff’s claim. If the defendant is entitled to claim loss for breach by the plaintiff of the Hotel Business Agreement and the Room Management Agreement but not liable to pay expenditures of the Hotel under the Hotel Business Agreement, the defendant will be getting the benefits of the Hotel business but without the obligation to bear the Hotel’s operating costs. This cannot be right. I reject the defendant’s such contention and held that he is liable to reimburse the plaintiff 50% of all expenditures paid solely by the plaintiff for the business of the Hotel.
142. Applying the above rulings to the plaintiff’s claims set out in Schedule 1, I disallow certain items of her claims and set out those disallowed items in Annex IV to this judgment with my reasons for the disallowing such items. The amount disallowed by me in respect of the plaintiff’s claims in Schedule 1 is $19,444.40.
143. During the cross-examination, the plaintiff was cross-examined by Mr Cheung, counsel for the defendant, on each and every receipts listed in Schedule 1 which the defendant said were for expenditures incurred for the plaintiff’s use only. I do not propose to go into her evidence in respect of each such receipt in this judgment, suffice it to say that other than those claims set out in Annex IV of this judgment which are disallowed, I accept the plaintiff’s evidence that the expenditures claimed were incurred for the business of the Hotel. I find that the defendant is liable to pay back 50% of these expenditures to the plaintiff.
144. The defendant claimed that he had paid his half share for certain items claimed (see Annex II). For these expenditures, the defendant agreed that they were incurred for the business of the Hotel. The only issue is whether he had already paid his share to the plaintiff.
145. The defendant said that he paid those expenses to the plaintiff by cash and in most cases at the McDonald restaurant near the Hotel. He said that he would pay those expenses to the plaintiff upon production of the receipts. However, he had not kept records of which receipts he had paid his share and he had no document to prove the alleged payments.
146. For item claimed under receipt (2) at p 21 of the trial bundle 2, the plaintiff claimed $374.00 and the defendant in his defence stated that he had paid his half share (see Annex II). It transpired at the trial that the receipt was for $40.60 only. The defendant would not have paid $187.00 (ie 50% of $374.00) for an expenditure of $40.60. This showed that the defendant’s alleged payments are unreliable.
147. When the defendant was cross-examined on the year of his alleged payment for receipts produced at p 117 of the trial bundle 2, the defendant answered “2011” when the year of the receipts had not been specified on the receipts. The defendant simply picked on the number “11” marked behind the word “年”as the year of the receipts when the number should denote the month (November) upon careful reading of the receipts.
148. Some receipts which the defendant claimed that he had paid contained no dates and yet the defendant maintained that he remembered that he had paid those receipts by cash at the McDonald restaurant. Example of such receipts can be found at p 45 of the trial bundle 2. It is quite unbelievable that without any remark made on the receipt and without keeping any payment records, the defendant could remember which of the receipts spanned from 2004 to 2010 had been paid by him.
149. As I have pointed out in paras 117 and 118 above, the defendant’s evidence on how he would handle the expenditures claimed by the plaintiff was inconsistent and self-contradicting. I do not propose to repeat myself here. Suffice it to say that I do not accept that the defendant could remember after all these years which particular receipts he had paid his share without having any payment records kept. I find that the defendant had failed to prove on balance of probabilities that he had paid his share of those items to the plaintiff.
Claims under Schedule 2
150. Schedule 2 is claim for charges of telephone line provided to the Hotel. These expenditures were obviously incurred for the business of the Hotel. This was not disputed by the defendant. The defendant only took issue that he had been excluded from the management of the Hotel. As pointed out above, this is not a good defence.
151. However, some of the expenses claimed in Schedule 2 were expenses incurred after the writ was issued (see Annex III). They are claim items covered by pp 204 to 209 of the trial bundle 2. Cause of action for claiming these expenses had not yet accrued when the writ was issued. The plaintiff had no claims against the defendant for these expenses in this action. The plaintiff’s claims for such expenses are not allowed. The amount disallowed under Schedule 2 is $2,768.
Claims under Schedule 3
152. Schedule 3 is claim for electricity charges of the Hotel. These expenditures were obviously incurred for the business of the Hotel. This was not disputed by the defendant. The defendant only took issue that he had been excluded from the management of the Hotel or that he had already paid his share to the plaintiff. The defendant claimed that he had paid his share of the electricity charges for the Hotel from 18 November 2004 to 17 November 2005. However, the defendant had objected to pay the telephone charges for the Hotel from 19 March 2005 to 21 March 2007 claimed in Schedule 2 on the ground that he had been excluded from the management of the Hotel at that time. I do not see how the defendant would refuse to pay the telephone charges for the Hotel after his alleged exclusion from the management of the Hotel but would pay his share for the electricity charges for the same period of time. This only serves to demonstrate again that the defendant’s alleged payments were unbelievable. As pointed out above, his being excluded from the management of the Hotel is no defence to the plaintiff’s claim.
153. However, some of the expenses claimed in Schedule 3 were expenses incurred after the writ was issued (see Annex III). They are claim items covered by pp 169 to 177 of the trial bundle 2. Cause of action for claiming these expenses had not yet accrued when the writ was issued. The plaintiff had no claims against the defendant for these expenses in this action. The plaintiff’s claims for such expenses are not allowed. The amount disallowed under Schedule 3 is $29,961.00.
Claims under Schedule 4
154. Schedule 4 is claim for various electrical appliances required by the Hotel. These expenditures were incurred for the business of the Hotel. This was not disputed by the defendant. The defendant only took issue that he had been excluded from the management of the Hotel or that he had already paid his share to the plaintiff. When the defendant was cross-examined on his alleged payment for the receipt produced at p 221 of the trial bundle 2, the defendant said that he could remember that payment because he brought the plaintiff to Grand Tower to purchase the mattress. When he realized that the receipt was not for a mattress, he immediately changed his evidence and claimed that it was for a television. This showed that the defendant did not actually remember which items he had paid. This also showed that the defendant’s evidence on his alleged payments was unreliable. As stated above, his being excluded from the management of the Hotel is no defence to the plaintiff’s claim. I allow the plaintiff’s claims in full for items covered by Schedule 4.
Claims under Schedule 5
155. Schedule 5 is claim for water supplies charges for the Hotel. These expenditures were obviously incurred for the business of the Hotel. This was not disputed by the defendant. The defendant’s case was that such charges were either wholly paid by him or that he had already paid his share to the plaintiff.
156. The defendant said that he had paid the deposit for water supplies (p 254(1) of the trial bundle 2). The demand note for the water deposit was issued to the defendant. It is obvious that it was the defendant who had made the application to the Water Authority for water supplies to the Hotel. I note that the deposit was paid on 17 June 2004 which was about the time when the parties completed the purchase of the Premises. It was paid far in advance of the deadline for payment stipulated on the demand note (ie 12 July 2004). It is likely that the deposit was paid shortly (if not immediately) after the demand note was issued. As it was the defendant who applied for the water supplies and payment of the deposit was required when the application was made, it was likely that the deposit was paid by the defendant. I accept the defendant’s evidence that the water deposit was paid by him. The plaintiff’s claim against the defendant for this item is not allowed.
157. However, for reasons stated in earlier part of this judgment, I do not accept that the defendant had paid his share of the water charges covered by the demand note at p 254(2) of the trial bundle 2.
158. Accordingly, I disallow $1,000 claimed in Schedule 5. I note that credit for refund of $1,170.00 being water deposit had been included in this Schedule. There would be a credit balance in favour of the defendant under Schedule 5.
Claims under Schedule 6
159. Schedule 6 is claim for internet service charges for the Hotel. These expenditures were incurred for the business of the Hotel. This was not disputed by the defendant. The defendant claimed that he had already paid his shares to the plaintiff. As pointed out above, the defendant had failed to prove his alleged payments on balance of probabilities. I allow the plaintiff’s claims in full for items covered by Schedule 6.
Claims under Schedule 7
160. Schedule 7 is claim for surveyor assessment fee. The plaintiff admitted at the trial that the defendant had paid his share for this expenditure. Miss Law agreed that the plaintiff had no claim for this item (see Annex III). However, the plaintiff still unreasonably insisted on claiming this item. I disallow this claim of the plaintiff.
Claims under Schedules 8 and 9
161. Schedules 8 and 9 are claims for washing machine, refrigerator, kettle and mattress brought for the Hotel. These expenditures were incurred for the business of the Hotel. This was not disputed by the defendant. The defendant said that he had paid the washing machine covered by the receipt produced at p 222 of the trial bundle 2 and it was the plaintiff who had paid back half of the purchase price to him. The defendant said that he had already paid his share to the plaintiff for the other items. Receipts produced at pp 223 and 224 of the trial bundle 2 were dated August 2007. These expenses were incurred after the defendant alleged that he had been excluded from the management of the Hotel. According to the defendant’s case he would not have paid such expenses. Again, the defendant put forward an inconsistent case. I do not accept that the defendant had paid these expenses. I allow the plaintiff’s claims in full for items covered by Schedules 8 and 9.
Claims under Schedules 10 and 11
162. Schedules 10 and 11 are claims for fees for the Hotel’s licence and business registration. These expenditures were obviously incurred for the business of the Hotel. This was not disputed by the defendant. The defendant only took issue that he had been excluded from the management of the Hotel or that he had already paid his share to the plaintiff. The defendant’s case was again inconsistent. On the one hand, he said that he had paid his share for the hotel licence fee paid on 30 March 2006. On the other hand, he objected to pay his share for the hotel licence fees incurred in February 2009 (see p 156 of the trial bundle 2) on the ground that he had been excluded from the management of the Hotel. However, according to the defendant’s case, he had already been excluded from the management of the Hotel for more than one year as at 30 March 2006. The same applied to the defendant’s alleged payments of the business registration fees. I find that the defendant had failed to prove his alleged payments on balance of probabilities and his being excluded from management is no defence to the plaintiff’s claim.
163. However, some items claimed in Schedules 10 and 11 were fees incurred after the writ was issued (see Annex III). These are claim items covered by pp 157 and 163 of the trial bundle 2. Cause of action for claiming these fees had not accrued when the writ was issued. The plaintiff had no claims against the defendant for such fees in this action. The plaintiff’s claims for these items are not allowed. The amounts disallowed under Schedules 10 and 11 are $9,100.00 and $450.00 respectively.
Claims under Schedules 12 and 13
164. Under these schedules the plaintiff claimed government rent and rates for the Premises. The defendant’s case was that these expenditures were responsibilities of the owner/landlord of the Premises and not expenditures for the business of the Hotel.
165. The defendant is and was one of the registered owners of the Premises. Another registered owner of the Premises is Mr Li, the plaintiff’s son. The arrangement between the plaintiff and her son in respect of the ownership in the Premises was unclear. In para 12 of the re-amended statement of claim, it was pleaded that Mr Li had executed a power of attorney appointing the plaintiff as his attorney to act on behalf of Mr Li in all matters in respect of the Premises. However, no evidence had been adduced to show whether the plaintiff had any beneficial interest in the Premises. No evidence had been adduced to show that Mr Li was holding the Premises as nominee of the plaintiff.
166. There was no dispute that the Premises was occupied by the Hotel for its business. However, no evidence had been adduced to show the terms upon which the Hotel was allowed to occupy the Premises, apparently rent free. The plaintiff did not claim in the capacity as a co-owner or attorney of a co-owner of the Premises. The plaintiff’s claim was for contribution to business expenses of the Hotel.
167. Miss Law submitted in her closing submission that: “Given that the Hotel could not possibly have continued to run without the “landlord” paying the government rent and rates, it is plain that those expenses are for the Hotel’s operation”. I have difficulties to follow the logic of her aforesaid contention.
168. As no evidence had been adduced to show that paying government rent and rates was one of the terms upon which the Hotel was allowed to occupy the Premises for its business, the plaintiff failed to prove on balance of probabilities that such expenses were for the business of the Hotel. I disallow the plaintiff’s claims under Schedules 12 and 13.
Claims under Schedule 14
169. Schedule 14 is claim for annual examination fees paid to Fire Department by the Hotel. These expenditures were obviously incurred for the business of the Hotel. This was not disputed by the defendant. The defendant only took issue that he had been excluded from the management of the Hotel or that he had already paid his share to the plaintiff. The alleged payments were again for expenses incurred after the defendant said that he had been excluded from the management of the Hotel. The defendant’s alleged payments were disbelieved and his being excluded from the management of the Hotel is no defence to the plaintiff’s claim.
170. However, some items claimed in Schedule 14 were fees incurred after the writ was issued (see Annex III). These are claim items covered by pp 159 to 160 of the trial bundle 2. Cause of action for claiming these fees had not accrued when the writ was issued. The plaintiff had no claims against the defendant for such fees in this action. The plaintiff’s claims for these items are not allowed. The amount disallowed under Schedule 14 is $1,050.
Claims under Schedule 15
171. Schedule 15 is claim for accounting fees for the Hotel. The defendant agreed that these expenditures were incurred for the business of the Hotel but took issue that he had been excluded from the management of the Hotel when the expenses were incurred. As pointed out above, the defendant being excluded from the management of the Hotel is no defence to the plaintiff’s claim.
172. However, some items claimed in Schedule 15 were fees incurred after the writ was issued (see Annex III). These are claim items covered by receipts produced at p 185 of the trial bundle 2. Cause of action for claiming these fees had not accrued when the writ was issued. The plaintiff had no claims against the defendant for such fees in this action. The plaintiff’s claims for these items are not allowed. The amount disallowed under Schedule 15 is $1,000.
Claims under Schedules 16, 17 and 18
173. Schedules 16 to 18 are claims for fees for signboard, locksmith and repairs for the Hotel. The defendant agreed that these expenditures were incurred for the business of the Hotel. The defendant only took issue that he had been excluded from the management of the Hotel or that he had already paid his share to the plaintiff.
174. Two of the receipts produced in Schedule 16 which the defendant said that he had paid his share were dated 2007 or 2008. They were expenses incurred more than two years after the defendant alleged that he had been excluded from the management of the Hotel. According to the defendant’s case, he would not have paid those expenses. The defendant explained that this was because the signboards were important to the Hotel’s business. This did not sit well with his refusing to pay the hotel licence fees and business registration fees for the Hotel without which the operation of the Hotel would be unlawful.
175. All expenditures claimed in Schedule 17 and 18 which the defendant said that he had paid his share were all incurred after July 2004 (all except one were incurred after the Room Management Agreement) when the defendant said that he had already been excluded from the management of the Hotel. According to the defendant’s case. He would not have paid these expenditures. I do not accept that the defendant had paid his share for these expenses and his being excluded from the management of the Hotel is no defence to the plaintiff’s claim. I allow the plaintiff’s claims under these Schedules in full.
Claims under Schedule 19
176. Schedule 19 is claim for decoration costs. The amount claimed in one of the items in this Schedule was for $105,000.00 whereas the supporting receipt only showed payment of $60,000.00 (see p 254(8) of trial bundle 2). Miss Law agreed that the plaintiff’s claim for this item should be reduced by $45,000.00. However, despite this clear evidence, the plaintiff still insisted to claim $105,000.00 for this item. Such claim will certainly not be allowed.
177. The plaintiff’s case on the decoration costs was not supported by documents produced to the court. The unsigned Chinese agreement relating to the Hotel Business Agreement produced by both parties stated that the estimated decoration costs were $300,000.00 (see p 253 (the plaintiff’s copy) and p 265 (the defendant’s copy) in the trial bundle 2). The plaintiff pleaded that around the end of October 2004, the parties agreed that the decoration costs should be $400,000.00. No document had been adduced by the plaintiff on details of the decoration works to be covered by the estimated costs of $400,000.00. The quotation from the decoration contractor dated 22 June 2004 produced by the defendant quoted the decoration costs at $385,500.00.
178. The plaintiff further pleaded that the final figure of the costs of decorating the Hotel amounted to $456,000.00 (see para 14A of the re-amended statement of claim). The plaintiff confirmed her pleaded case in her supplemental witness statement. She relied on receipts produced by her to show how this sum of $456,000.00 was arrived at. It turns out that the receipt for $105,000.00 in fact only showed payment of $60,000.00 as aforesaid. In such case, the receipts produced by the plaintiff only showed decoration costs for $411,000.00 instead of $456,000.00 claimed by the plaintiff. This showed that the plaintiff only made out her case from receipts found and was prepared to make up evidence to support her pleaded case. However, she had not carefully looked into the content of each receipt and inflated her claim for $45,000.00. This demonstrates that the plaintiff’s evidence was also unreliable.
179. The defendant’s case was that he had paid his share for the original decoration costs. This was confirmed by the plaintiff’s evidence when she testified that she had only paid her own share of the decoration costs and the contractor would collect the defendant’s share directly from the defendant. In such case, the plaintiff should have no claim against the defendant for items claimed under this Schedule except the claim for $31,000.00 which the defendant had refused to share. The defendant’s case was that this sum was incurred for variation works without his consent or knowledge. The defendant further took issue on his being excluded from the management of the Hotel to argue that such expenditure was incurred for the plaintiff’s own benefit.
180. The sum of $31,000.00 covered variation of decoration works ($16,000.00) and getting licence for the Hotel ($15,000.00) (see p 254(9) of the trial bundle 2). The defendant did not dispute that these expenditures were incurred for the business of the Hotel. Of course, he had not raised objection to the variation works at that time as his case was that he had no knowledge of it. However, even in this proceeding, the defendant gave no particulars on why the variation or the works for getting licence for the Hotel should not have been carried out. If so, the plaintiff had ostensible authority to incur such expenses and the defendant is liable to pay his share.
181. The defendant is not liable for the plaintiff’s claim for the original decoration costs but he is liable to pay his share to the plaintiff for the expenditure in the sum of $31,000.00 claimed in Schedule 19.
Conclusion of the plaintiff’s claim
182. I find that the defendant is liable to pay 50% of the expenditures claimed in Schedules 1 to 19 as allowed above and set out below:
| Schedule |
Amount allowed ($) Remarks |
| 1 |
41,009.70 |
| 2 |
1,990.00 |
| 3 |
11,406.00 |
| 4 |
9,700.00 |
| 5 |
(697.40) |
| 6 |
582.00 |
| 7 |
nil |
| 8 |
4,090.00 |
| 9 |
8,159.50 |
| 10 |
23,050.00 |
| 11 |
8,250.00 |
| 12 |
nil |
| 13 |
nil |
| 14 |
2,200.00 |
| 15 |
1,400.00 |
| 16 |
23,200.00 |
| 17 |
900.00 |
| 18 |
16,110.00 |
| 19 |
31,000.00 |
| Total: |
182,349.80 |
183. The amount the defendant liable to reimburse the plaintiff for expenditures incurred for the business of the Hotel is $91,174.90 (being $182,349.80 ÷ 2).
184. The plaintiff also seeks a declaration that the defendant is under an obligation to pay 50% of all the costs, expenses and/or outgoings in relation to the running of the Hotel’s business pursuant to the Hotel Business Agreement. In view of the Hotel Business Agreement not being in writing and the defendant having contested the plaintiff’s claims for expenses admittedly for business of the Hotel, I am satisfied that it is appropriate to grant the declaration sought. I so do.
The defendant’s counterclaim
Exclusion from management claim
185. The defendant claimed that he had been excluded from the management of the Hotel since the Hotel commenced business in July 2004. There was no dispute that the parties had agreed to the Hotel Business Agreement in about June 2004 and the parties had agreed to the Room Management Agreement on about 25 March 2005.
186. The parties had different versions on why the parties entered into the Room Management Agreement. The plaintiff stated in paras 15 and 16 of her supplemental witness statement that:
“15. The relationship between myself and the Defendant had been poor ever since the beginning of our partnership in running the Hotel together. We argued every time we met. As I have stated above, the Defendant refused to pay any part of the Expenses despite my repeated requests. I have called the police a number of times to resolve our disputes, albeit in vain. I refer to Item D234 (p 254 of Hearing Bundle No 2) for some relevant police report cards. I have also been assaulted on one occasion and refer to Item D2 for a relevant piece of news report (p 230 of Hearing Bundle No 2).
16. In order to make clear my relationship with the Defendant vis-à-vis the management of the Hotel after the Government licence was issued, I suggested to the Defendant that we should separate the management of the 7 rooms in the Hotel. The Defendant agreed and he drafted the 3rd Agreement [the Room Management Agreement] for me to sign. That is why 3rd Agreement was agreed and signed by the Defendant and I on or about 25 March 2005.”
187. At the trial, the plaintiff said in examination-in-chief that the Room Management Agreement was proposed by the defendant to which she agreed. In re-examination, the plaintiff changed to say that she was the one who initiated the idea. The defendant then drafted the Room Management Agreement which the plaintiff signed.
188. The defendant’s case was set out in paras 9 and 10 of his witness statement dated 28 September 2012 as follows:
“9. 鴻京酒店的業務開始後，原告人排除本人在酒店業務的參與，並全部接管及控制酒店業務的管理及業務運作。本人並不同意這樣的安排。
10. 在2005年3月25日，本人及原告人簽署了一份中文協議書有以下條款。
“〔甲〕任樹榮先生[本人] 管理鴻京酒店6號房，1號房及5號房，共三間房。
〔乙〕馬宏津小姐[原告人] 管理鴻京酒店4號房，3號房，2號房，共三間房。
餘下7號房共用” ”
189. In his 2nd Supplemental witness statement, the defendant stated in para 5 that:
“5. 因每次有客人進入租房，她都說全是她的客人及我懷疑原告人利用出租房間作不道德的用途，所以定下第三份協議書[the Room Management Agreement]，避免與原告人發生不必要的爭執。”
190. It is common ground that the work relation of the parties had never been smooth since the start of the Partnership.
191. I do not accept the plaintiff’s evidence that the parties entered the Room Management Agreement because of the assault to the plaintiff which occurred in November 2007 after the date of the Room Management Agreement.
192. I also do not accept the defendant’s evidence that it was caused by the plaintiff claiming all customers were her customers. Before the Room Management Agreement, the parties would share the profits of the Hotel in equal shares. It did not matter whether the customers were the plaintiff’s customers or the defendant’s customers. The defendant’s allegation against the plaintiff in using the Hotel for immoral purposes was not supported by particulars. The only evidence the defendant could give at the trial to support his said allegation was that he had once been to the Hotel in early 2005 and saw two girls in the bed of a room. This did not show that the room was used for immoral purposes. Furthermore, the Room Management Agreement could not help to solve the problem if rooms of the Hotel were used for immoral purposes. The defendant as a partner of the Hotel would still be liable and the whole Hotel would be affected.
193. I find that the reasons for the parties to enter into the Room Management Agreement were because the parties could not get on with each other on the management of the Hotel. I accept the defendant’s evidence that the plaintiff had dominated the management of the Hotel before the Room Management Agreement. This can also be seen from the fact that most of the operating expenses were paid by the plaintiff. The plaintiff did not seriously dispute this fact as it was her evidence that the defendant simply did not concern with the management of the Hotel. However, I did not accept that the defendant was not bother with the management of the Hotel. I find that the Room Management Agreement was proposed by the defendant to the plaintiff. Although in her witness statement the plaintiff stated that she was the one who suggested splitting the management of the Hotel, the plaintiff testified at the trial that it was the defendant who proposed and drafted the Room Management Agreement. As the plaintiff was dominating the management of the Hotel, I see no reasons why she would initiate the idea of splitting the management.
194. I find that the defendant was not satisfied with the plaintiff dominating the management of the Hotel. He wanted to have his share of management. He proposed the Room Management Agreement which was accepted by the plaintiff. However, I do not accept that the defendant had been excluded from the management of the Hotel. The fact that the parties had signed the Room Management Agreement showed that the plaintiff was still prepared to share the management of the Hotel with the defendant.
195. There was no dispute that after signing the Room Management Agreement, the defendant had sent six persons at different times to manage D’s Rooms for him. The defendant did not give particulars on the dates when these people managed D’s Rooms for him. In fact, in his witness statement dated 28 September 2012, other than Leung, the defendant did not even mention the other five people whom he had sent to manage D’s Rooms for him.
196. The defendant said that all his representatives were expelled by the plaintiff in less than one month in each time. The defendant’s case was that even with the Room Management Agreement and with the six representatives sent by him to the Hotel, he was still being deprived of the right to manage the Hotel since its commencing business.
197. The plaintiff’s case was that after the Room Management Agreement, the defendant had sent representatives to manage D’s Rooms for the defendant. These people stayed in the Hotel from a few months up to a year. They would rent out D’s Rooms and collect room charges for D’s Rooms. The plaintiff said that she had not rented out any of D’s Room before July 2011. She admitted that after the defendant scolded her in July 2011, she had allowed customers to choose from any of the seven rooms of the Hotel. The event referred to by the plaintiff occurred on 3 July 2011. In such case, she did rent out D’s Rooms since 4 July 2011 and collect rents for these rooms.
198. The defendant alleged that the plaintiff had deprived his representatives of the right to manage the Hotel. The only particulars of the alleged interference provided by the defendant was that Chu, one of his representatives, found that the door of the Hotel was locked when his representative returned to the Hotel at night. The defendant had not called any of his representatives to testify at the trial. Whether and how they were deprived of the management of the Hotel, I do not know. The defendant testified at the trial that he had visited the Hotel from time to time and therefore knew the occupancy rate of the Hotel. Although no further particulars for these visits were given by the defendant, such evidence showed that the defendant had not only sent representatives to manage D’s Rooms for him but would also visit the Hotel from time to time to look after his investment. I find that the defendant failed to prove on balance of probabilities that the plaintiff had deprived him of his management rights despite presence of his representatives at the Hotel and his visits to the Hotel from time to time.
199. The plaintiff admitted that she did not allow the defendant to enter the Hotel since 14 January 2013. I accept that the plaintiff might have excluded the defendant from the management of the Hotel from 14 January 2013 onwards. However, this occurred after the defendant filed his defence and counterclaim on 16 April 2012. The defendant has no claims against the plaintiff in this action for cause of action accrued after his filing herein of the defence and counterclaim.
200. I find that the defendant had failed to prove on balance of probabilities that the plaintiff excluded him from the management of the Hotel as at 16 April 2012.
Claim for profit sharing
201. The defendant’s case was that he had never received any profit sharing of the Hotel. He claimed that he was entitled to share the profits reported by the plaintiff in the tax returns filed by the plaintiff for the period from 1 April 2005 to 31 March 2011. He further claimed that the plaintiff had understated the turnover of the Hotel in the aforesaid period and he was entitled to a further sum of $384,560.00.
202. It was not the case of the plaintiff that she had shared any profits of the Hotel with the defendant. Her case was that the defendant was not entitled to share any profits of the Hotel before the defendant had paid up his share of contribution for the Hotel’s expenses. I have rejected her contention that the contractual relation of the parties was subjected to the Implied Term. I accept the defendant’s case and find that the plaintiff had not shared any profits of the Hotel with him.
203. When I deal with the plaintiff’s claim herein, I have dealt with the defendant’s liabilities for the expenses of the Hotel claimed by the plaintiff from the commencement of the Partnership to the date of the writ. As all expenses of the Hotel have been dealt with, the defendant’s entitlement to the profit sharing would be his sharing of the rental income of the Hotel.
204. The defendant was entitled to share 50% of the profits of the Hotel under the Hotel Business Agreement before the implementation of the Room Management Agreement. He was entitled to 50% of the rental income of the Hotel from 1 March 2005 (the date of when the Hotel commenced business) to 24 March 2005 (the day immediately before the implementation of the Room Management Agreement). As I have found that the management of the Hotel was dominated by the plaintiff which led to the parties entering the Room Management Agreement, I find that the rental income of the Hotel for the aforesaid period was received by the plaintiff and the plaintiff had to account to the defendant for 50% of such rental receipt. An account for such rental income has to be taken.
205. From 25 March 2005 to 14 January 2013, the Room Management Agreement was in force. The defendant was entitled to rental income generated by D’s Rooms. I have found that the defendant had failed to prove that he had been excluded by the plaintiff from the management of the Hotel prior to 14 January 2013.
206. The defendant had sent representatives to manage D’s Rooms for him. No evidence had been adduced to show that the plaintiff had collected rentals of D’s Rooms from 25 March 2005 onwards until 4 July 2011 when the plaintiff admitted that she had rented out D’s Rooms since then.
207. The plaintiff shall account to the defendant for rentals received by her in respect of D’s Rooms from 4 July 2011 onwards. However, the defendant has to pay his share for the expenses of the Hotel incurred after 20 January 2010 (the date of the writ) which are not covered by the plaintiff’s claim in this action. Accounts on rental income of D’s Rooms received by the plaintiff from 4 July 2011 onwards and expenses of the Hotel from 21 January 2010 onwards have to be taken before the amount due from the plaintiff to the defendant, if any, can be ascertained.
208. The plaintiff contended that the defendant’s claim for profit sharing, if any, had been time-barred under the Limitation Ordinance.
209. As pointed out in para 1009 of Halsbury’s Laws of England 5th edition 2008 vol 68 at p 415 that in claims for an account between partners, the statute of limitation does not run until the partnership is determined. If one partner unlawfully excludes another from the management or control of the partnership property, time begins to run against a claim based on the exclusion from the act of exclusion. (See also para 290.141 of Halsbury’s Laws of Hong Kong vol 20 2010 Reissue at p 206)
210. In Noyes v Crawley (1878) 10 Ch. D. 31 Malins V.C. stated at 39 that:
“I entirely agree with the law as laid down by Mr. Justice Lindley, in the passage to which Mr. Bristowe has referred me. Mr. Justice Lindley says (1): “So long, indeed, as a partnership is subsisting, and each partner is exercising his rights and enjoying his own property, the statute [of limitations] has, it is conceived, no application at all; but as soon as a partnership is dissolved” (which it was here in 1860), “or there is any exclusion of one partner by the others, the case is very different, and the statute begins to run.””
211. The Partnership was still subsisting at the trial of the case and I find that the defendant was not excluded from the management of the Hotel until 14 January 2013. The time for the defendant to claim against the plaintiff for accounts and inquiries in respect of the Partnership has not yet time-barred.
212. I find that the plaintiff is liable to account to the defendant for 50% of the rental income of the Hotel from 1 March 2005 to 24 March 2005 and all rentals in respect of D’s Rooms received by the plaintiff from 4 July 2011 onwards after deducting the defendant’s share of the Hotel’s expenses incurred after 20 January 2010.
Dissolution of partnership claim
213. It is common ground that the parties had difficulties to get on with each other. Each party said that he/she had to call the police for assistance to resolve their disputes. There were at least six occasions when the parties had called the police to deal with their disputes (see pp 254 and 271 of the trial bundle 2).
214. It is abundantly clear from the evidence filed by the parties and from their testimonies in the trial that there was a complete breakdown of the trust and confidence between them. The plaintiff alleged that the defendant had assaulted her. The defendant was charged for the offence. Although the defendant was acquitted, the incident would certainly caused substantial resentment between the parties. In the original statement of claim the plaintiff pleaded that the defendant:
“(i) willfully reported to the police that the Plaintiff was a cleaning worker and claimed that she was not the operator of the Hotel; and tried to expel her from the Hotel;
(ii) willfully and wrongfully reported to the police that the Hotel did not have a proper license to operate;
(iii) installed locks on the Plaintiff’s room doors which violated the requirements under the Hotel and Guesthouse Accommodation Ordinance, Cap. 349; and
(iv) willfully and wrongfully urinated on the floor of the Hotel” (para 18 of the original statement of claim)
215. Although the above allegations were deleted when the plaintiff re-amended her statement of claim, the fact that the plaintiff would make such allegations against the defendant showed how worst was the relation between the parties. The plaintiff admitted at the trial that she did not allow the defendant to enter the Hotel since 14 January 2013. In such case, it is simply not possible for the parties to continue their partnership relation.
216. Section 37 of the Partnership Ordinance provides that the court may decree dissolution of a partnership in case where circumstances have arisen which, in the opinion of the court, render it just and equitable that partnership be dissolved. I consider that section 37 of the Partnership Ordinance applies here and it is only just and equitable that the Partnership be dissolved. At the final submissions, the parties agreed that the Partnership should be dissolved but asked the court not to make consequently directions for the time being to see if the parties could agree on a buy-out arrangement. This is a sensible approach.
217. I order that the Partnership be dissolved with liberty for the parties to apply for consequential directions from this court, if necessary.
Conclusion
218. I order that the defendant do pay the plaintiff the sum of $91,174.90 being the defendant’s share of the expenses of the Hotel up to 20 January 2010.
219. I grant a declaration declaring that the defendant is under an obligation to pay 50% of all the costs, expenses and/or outgoings in relation to the running of the Hotel’s business until its dissolution.
220. I order that the following accounts and inquiries be taken and made:
(1) Rental income of the Hotel from 1 March 2005 to 24 March 2005;
(2) Rental income of D’s Rooms received by the plaintiff from 4 July 2011 to the dissolution of the Partnership (ie the date of this judgment); and
(3) Expenses of the Hotel wholly paid by the plaintiff from 21 January 2010 to the dissolution of the Partnership.
221. The plaintiff shall pay to the defendant:
(1) 50% of the rental income of the Hotel from 1 March 2005 to 24 March 2005; and
(2) All rental income of D’s Rooms received by the plaintiff for the period from 4 July 2011 to the dissolution of the Partnership after deducting 50% of the expenses of the Hotel wholly paid by the plaintiff for the period from 21 January 2010 to the dissolution of the Partnership
222. The payment obligations of the parties set out above shall be set off against each other to ascertain the net amount payable by one party to the other after the accounts and inquiries ordered in para 220 above have been taken and made.
Interest and Costs
223. The amount found due from one party to the other pursuant to para 222 above shall carry interest at half judgment rate from the date of the writ to the date of judgment and thereafter at judgment rate until payment.
224. The plaintiff succeeds in part of her claim and the defendant succeeds in part of his counterclaim. In the circumstances of this case, a fair costs order will be for each party to bear his/her own costs. I so order.
225. The above costs order is an order nisi which shall become absolute after 14 days from the date hereof unless any party shall apply to vary the said order nisi within this 14 day period.
|
( R Lai )
|
|
Deputy District Judge |
Miss Deanna Law, instructed by Wong & Tang, for the plaintiff
Mr Ivan Cheung, instructed by Tang. Lee & Co, for the defendant
ANNEX 1
ANNEX 2
ANNEX 3
ANNEX 4
Please refer to HCMP2758/2013 and HCMP2792/2013 for the relevant appeal(s) to the Court of Appeal. |