LAU HING WAN AND ANOTHER v. SO WING YEE AND ANOTHER

DCCJ12206/2000

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 12206 OF 2000

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JUDGMENT

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1. This is a claim by the Plaintiffs against the Defendants in respect of a Chinese partnership agreement dated 29th November 1997 entered into between them pleaded in paragraph 4 of the Statement of Claim. The Chinese Partnership Agreement is at page 152 of the Bundle of Documents.

The Facts

2. The 1st named Plaintiff (hereinafter referred to as "Lau") was the original owner of the Stanley Watch Stall (hereinafter referred to as "the watch stall") operated at the entrance and stairway to the 1st Floor of 35 Stanley Main Street. Lau resided on the 1st Floor immediately above the watch stall. She used her residence to keep the inventory of the watches. Since 1996, Lau had been operating the watch stall by herself with the assistance of her daughter the 2nd named Plaintiff (hereinafter referred to as "Yvonne"). About one year later in 1997, Lau suffered ill health and Yvonne was unable to assist because she had to take care of her child and Lau was unable to operate her business without assistance.

3. The 2nd named Defendant Au Ka Lung (hereinafter referred to as "Au") is a young man working at a Chinese name chop stall next to the watch stall. Arising from conversation between Lau and Au, interest was expressed in the business of the watch stall. Au and So Wing Yee, (hereinafter referred to as "So"), Au's girlfriend, the 1st named Defendant went to the home of Lau to examine the inventory of watches of the watch stall.

4. Lau stated that at the time of the examination of the watches and the counting of them at her home before the Partnership, the watches on display boards had been counted. So admitted that she counted the watches. Lau stated that she had taken out the watches not on display, out of the boxes wherein they were kept, to the Defendants for their examination and counting. She stated that as they counted she would tell them the price from several $10s to $70, $90, $100 and over $100 and $200. She stated that most of them were expensive ones being over $100 and there were not too many children's watches at several $10s cost price. She stated that as she told them the price, So would use a calculator to calculate. The whole process took 2 hours.

5. Au stated in his evidence that as Lau showed her the watches, Lau would tell them the retail price. She stated this lot is worth several ten dollars expensive watches were $100 to $200. The fact that Lau told him retail prices is however inconsistent with Au's witness statement wherein Au stated that Lau told him the value of the stock of watches was worth $250,000 in their wholesale cost price. However Lau stated that she told them the wholesale price. So stated that she counted about 1,200. Lau stated that there was between 2,000 to 3,000 watches mostly over $100. At the end of the counting the parties agreed that the capital of the partnership representing the wholesale value of the stock of watches should be $250,000. Under cross-examination, Lau stated that she had showed the Defendants the invoices at pages 34 to 149 of the Bundle of Documents ("BD"). Au denied that. Lau further stated upon cross-examination that there were other invoices apart from those at pages 34 to 149 of the BD given to Au for perusal but which Au had not returned.

6. Arising from this exercise, the parties stated in the Partnership Agreement that the capital of the partnership was $250,000. However as regards the exercise of examining the watches and the facts related thereto, there is disagreement between the parties and the Defendants allege fraudulent misrepresentation on the part of Lau related to the value of the stock of watches which became the partnership capital.

7. Eventually, terms of the partnership were agreed. Lau stated that it was originally agreed that Au and So would pay their contribution to the partnership capital in one go. Lau drafted the terms of the Partnership Agreement for the signature of Au and So. The terms stated that, Party A in the Partnership Agreement was Lau and Yvonne. Party B was Au and So. The Partnership Agreement stated that each party should contribute half of the capital. Lau and Yvonne would pay the rent for the stall. Au and So would be responsible for the operating of the stall (hereinafter referred to as "Clause (3) of the Agreement"). The stall has to be open at least 25 days in a month (hereinafter referred to as "Clause (4) of the Agreement"). Opening hours of the stall is between 9 a.m. to 6 p.m. It was agreed that the term of the Agreement would be 2 years commencing from 29th November 1997 to 28th November 1999. The agreement is to be re-negotiated upon termination. Were Party B to resign from the partnership before the expiry of the term, the capital and inventory of stock in the partnership would vest in Party A unconditionally (hereinafter referred to as "Clause 6 of the Agreement").

8. It was after the typed Partnership Agreement was handed to Au and So and they signed thereon and returned to Lau that Lau found that Au added hand-written terms to the Agreement. This included a statement that Party B had paid $65,000 towards Party B's share of the capital. The balance in the sum of $60,000 will be paid by 12 monthly installments of $5,000 to Party A. Payment term will commence on 29 January 1998 and end on 29 January 1999. Lau stated that she had no option in the face of the inability of Au and So to pay their share of the capital in one lump sum, to agree to the payment by installment terms offered by Au and So although that was not the original agreement.

9. Au and So signed the original Partnership Agreement but there are no signatures of Lau and Yvonne thereon. Lau stated the reasons for this in her evidence and I shall refer to this later. According to Au, he repeatedly asked for the agreement signed by Lau to be given to him. The Partnership Agreement is at p. 152 of the BD.

10. After the agreement of the terms of the Partnership Agreement, the undisputed facts between the parties show that a bank savings account was opened at the Overseas Trust Bank in the name of So and Lau. It was agreed that the cash from the sales after deducting expenditure such as that for stationery, or purchase of battery, or for the purchase of new stock would be deposited into the bank by So each day. The savings account passbook and a file with the invoices from purchase of new stock and cash from the sales would be put in the drawer of a cupboard shown in photo 5 at page 2 of the BD. This cupboard is normally kept in the home of Lau but would be taken down each day by So and/or Au and placed in the landing of the staircase just some steps above the stair entrance where the stall was operated. The stairway where the watch stall is operated can be shown in photos 7 and 12 at pages 2 and 3 of the BD respectively. Photos 1, 4, 9 and 12 show the display facilities of the stall. Some spare stock is kept in boxes at the residence of Lau and the boxes are shown at photo 10 at page 3 BD.

11. Every morning, So and or Au would go to the home of Lau and take down the display boards and stock and set up stall. Where one of them is unable to work that day, Madam Lai Mei Sung (hereinafter referred to as "Lai"), So's mother, would take his/her place.

12. According to Lau, she gave the key of her residence to So for So to make a duplicate so that So and Au could go to her home every morning to take the stock down. This is because Lau said that her health was not good and she would from time to time go to the hospital or go to visit the doctor. According to her, her health had not been good since 1996 and that was the reason she sought partners to assist her.

13. Au, So and Lai deny that Lau had given the key of her home to them. They state that each morning they knock on her door and either Lau or her Filipino helper would open the door. It is Lau's case that the Filipino helper was the helper employed by Yvonne to care for Yvonne's child and would only be at Lau's residence when Yvonne's child was there. Lau stated the Filipino helper did not reside at her home and she denied she was there to open the door in the morning for So and Au. When Au was cross-examined by Lau's Counsel on whether there was a door key to the front door of Lau, he stated that he did not notice as he always knocked. It was put to him that he had the key and did not knock for otherwise he would be aware of the fact as to whether there was a doorbell.

14. The partnership business commenced on the 29th November 1997. At the start of business, it was Lau's case that each party contributed $500 cash to provide change for the business. Au and So disputed this.

15. At the end of December, there was a distribution of the cash from the sales. Lau stated that Au gave her the calculations, which are printouts from a calculator shown at pages 153 to 158 of the BD. She stated she did not understand the figures. Au confirmed that at page 158 are the total figures. The sum of $38,000 was distributed between the parties. Party A and Party B each got $19,000. When Au was cross-examined about the sum of $23,342.60 shown in the total figures at page 158 of the BD, which sum was stated to be an expenditure, Au stated that it was an expenditure for the purchase of stock. He stated that he did not purchase stock at this time but it was Lau who went to purchase stock. However this had never been put to Lau in cross-examination and we do not have Lau's evidence on this. Lau stated that the sum of $1,000 at page 154 at the BD next to which was written the Chinese character "底" actually meant the cash laid out by each of the parties at the start of the business. Under cross-examination, Au stated that the sum of $1,000 was a sum agreed to be retained from the cash sales to be retained as cash for change.

16. Lau stated that in January a sum of $26,000 was distributed. $24,000 was withdrawn from the bank account and $2,000 from cash sales was added to make up the $26,000. Au disagreed that $2,000 was added to the cash withdrawal of $24,000 for the distribution. So agreed that $2,000 from the cash sales was added to the distribution. There was a distribution of $24,000 in February. In relation to the cash withdrawal from the OTB bank account on 23rd March 1998, at first Lau stated that she did not know what that was for. However under cross-examination when it was put to her that it was a withdrawal for distribution between partners she stated she was not sure.

Lau's Complaints

17. Lau's complaint against the Defendants is that the Defendants had never shown her the sales records. She had only been shown the calculations for the month of December 1997 at pages 153 to 158 of the BD. She stated that she gave the key of the drawer of the cupboard shown at photo 5 at page 2 of the BD referred to earlier to the Defendants and that drawer is locked. She did not have access to the bank passbook which has been kept by So and probably as the Defendants allege are put in the drawer of the said cupboard. The Defendants state that there is no key to the drawer and the lock of the drawer according to So is damaged. The Defendants state that the record of sales as shown in the soft cover black book seen at pages 18 to 33 of the BD is kept in the drawer of the cupboard and the cupboard is brought back to Lau's residence every night. The drawer was not locked and Lau could see for herself the record of sales. Lau stated that the drawer had been locked. However as can be seen the records in the soft cover black book only start from 23 March 1998. When this was put to Au under cross-examination namely that the records of that book only start from 23 March 1998, Au stated that there was an earlier book, which had been given to Lau. This fact had not been put to Lau and was neither in the evidence-in-chief of the Defendants nor in their witness statements.

18. The other complaint by Lau was that there was no distribution between the partners in March. However under cross-examination Lau stated she was not sure about that. Lastly, Lau was unhappy about the dishonoured cheque issued by Au for a monthly installment. She stated that it was upon repeated requests that Au issued another cheque to her, which was subsequently honoured. Au stated that he had signed a wrong signature on the cheque and he often forgot how to sign his signature.

19. There was also a complaint that So had not paid money into the bank account in April. Having seen the pages of the bank account passbook it is clear that this is not the case. However, it is a fact that since the incident of the 8th April 1998, Au stated in evidence that he took everything from the drawer of the cupboard with him including the bank account passbook and the file containing the invoices and the soft cover black book that contained the sales records from 23 March 1998 at pages 18 to 33 of the BD. The Defendants in the Defendants' List of Document subsequently disclosed the pages of the bank account passbook.

Au and So's Complaints

20. From the Defendants' perspective, they stated that they felt cheated by the Plaintiff related to the alleged fraudulent misrepresentation by her related to the value of the inventory at the commencement of the partnership. Secondly, they felt cheated because Lau did not let them have the Partnership Agreement, which they signed. She did not sign it and return it to them. They felt at a disadvantage. Lau stated that the reason why she and Yvonne did not sign it was because the Defendants added words in writing to the typed copy of the Agreement. She discovered that the period wherein the 12 monthly installments were to be paid was stated to be a 13 months term instead of a 12 months term. The Defendants asked her for the Partnership Agreement to amend and she refused to let them have the agreement to amend. She told them to write another Agreement with amendments for her to sign. She did not want to give that copy to them, as she was afraid she would lose proof of the Agreement terms.

21. Thirdly, Lau at times obstructed them from opening the stall by refusing to open the door of her residence to them for them to take the watches and display down to the watch stall. Fourthly they stated that Lau had from March 1998 repeatedly demanded the Defendants to repay the remaining monthly installments to her in one lump sum in the sum of $45,000.

22. Fourthly, the Defendants felt cheated in that the Partnership Agreement stated that Lau would pay the monthly rent. Au stated that he heard from others that Lau did not have to pay rent for the space of the watch stall. In any event, Lau had never showed him any tenancy agreement or rental receipt.

23. This action arises from an unhappy incident on the 8th April 1998. Lau's version of events and that of Au and Lai's related to events leading up to and on 8 April 1998 are different.

Lau's version of events on 8 April 1998

24. Lau stated that on 8 April 1998, Au and So and Lai came to her home and scolded her and said that she took from them the sum of $80,000. (The $80,000 appears to be the initial capital of $65,000 payment together with 3 monthly instalments of $5,000). They called the Police. The Police came and accused her of taking the $80,000. Lau explained to the Police that was not the case. After the Police left, Au and Lai left with the Police. So did not leave but made a mess at her home. Lau was scared. She took the telephone to telephone her daughter. So took the telephone from Lau. Lau was scared. She went downstairs to phone her daughter to come. She waited for her daughter at the bus stop. When her daughter came, she went with Lau to her home. She saw all the boxes opened with watches taken away. She saw empty boxes. The watches in the watch stall had been taken away. They called the Police. The Police asked her to clear the boxes and clear away the obstructions in the staircase. Yvonne took photographs of the empty boxes in Lau's home at photos 10 and 11 at page 3 and photo 3 at page 1 of the BD and at the landing of the stairs at photo 5 of page 2 of the BD and also other photos showing the display at the watch stall without watches at pages 1,2 and 3 of the BD. Lau stated that the OTB bank passbook, the file of invoices, the soft cover black book, and all the cash in the drawer of the cupboard had been taken away by Au including the $500 cash deposited by her for change.

25. Au does not dispute that he left the watch stall taking away with him about 750 watches which he alleged were more than half of the total number of watches in the inventory of watches in the partnership. Lau alleges that the number of watches taken by Au were more than the number stated by him. Lau alleged that Au took most if not all of the watches of the watch stall.

The Defendant's Version of Events leading up to and on 8 April 1998

26. Au stated that Lau complained about So stealing cash and not letting Lau look at the accounts. Lau complained about the dishonoured cheque. She asked the Defendants to repay $45,000.

27. On the 8 April 1998, she obstructed him to open the watch stall. She would not open the door of her home to him. After lunch that day she came down from her home and stated to him that he had to return the $45,000 to her. Lai was there to help that day because So was not there. Lai scolded Lau and said, "How could you not give the Partnership Agreement to Au". The scolding was loud. They scolded one another. Lai called the Police. The Police came and mediated. They informed Au and Lai that since this is a business dispute, they would not interfere.

28. After the Police left, Au and Lai started their argument with Lau again. Lau stated let's divide the watches and let's not work together any more. Au took 2 cardboard boxes 2 feet by 2 feet and 2 feet deep from another store, and used some shoe boxes from the back of the shop and started packing the watches. He packed 10 for Lau and 10 for himself. However because he was so angry he did not care what he did and so put in more watches in the boxes than was half the quantity. After they had done that with Lau watching, Lai said lets go upstairs to Lau's home to divide the watches there. Lau, hearing that immediately ran upstairs and closed her door and locked it. Lai banged on her door but Lau refused to open. It was the case of the Defendants that there were between 200 to 300 watches upstairs in Lau's flat. Au took all the watches packed by him to go. He took with him the bank passbook, the file of invoices, and the soft cover book with the sales records. He was very angry and he took everything in view. Lai who gave evidence substantiates this.

The Plaintiffs' Claim

29. In this action the Plaintiffs allege that the Defendants were in breach of trust to the Plaintiffs and had wrongfully misappropriated all the inventory of watches together with HK$500 change to themselves on 8th April 1998. The Plaintiffs claim for damages for conversion. They allege by paragraph 13(3) of the Statement of Claim that "the Defendants dealt with the stock in a way inconsistent with the rights of the Plaintiffs or the Partnership, or inconsistent with the terms on which they held the stock, amounting to a premature withdrawal from the Partnership which gives the Plaintiffs the right to immediate possession over the stocks by virtue of Clause (6) of the Agreement. The Partnership came into dissolution at the same time; alternatively the Partnership came into dissolution at the latest the expiration of the term on 28th November 1999."

30. Alternatively it was pleaded in paragraph 13(4) that "if the Partnership did not come into dissolution, the aforesaid actions by the Defendants reverted the immediate right to possession to the Partnership. Hence, the Plaintiffs sue on behalf of all partners of the Partnership except the Defendants." The Plaintiffs claim for a sum representing the value of the stock taken away.

31. Further it was pleaded in paragraph 13(9) that "the actions of the Defendants in Paragraph 13 herein referred to amounted to breaches by the Defendants of their duties to the Plaintiffs arising out of their positions as partners in the Partnership, namely their duties to act honestly and in good faith; and breaches by the Defendants of Clause (3) and (4) of the Agreement. By reason of such breaches of duties and Agreement, the Plaintiffs have suffered loss and damage, in particular the value of the stocks."

32. The Plaintiffs pleaded that the losses suffered by the Plaintiffs by virtue of the Defendants' breach of contract and/or conversion caused loss and damage to the Plaintiffs as pleaded in paragraph 16 of the Statement of Claim which included the following: -

(1) The Plaintiffs' share of the sales income for March and April 1998 not yet account to the Plaintiffs in the sum of HK$12,474, being half of the amount of HK$24,948 shown in the OTB Bank Account in the joint names of Lau and So as at 9th June 2000.

(2) The monthly installments in the total sum of HK$45,000 covering the period from April 1998 to December 1998 and interest thereon due from Party B according to the terms of the Partnership Agreement.

(3) Further or alternative to sub-paragraph (2) above, an account for the value of the stock or a sum to be assessed in respect of stock obtained by misappropriation or conversion.

33. The Plaintiffs' claim is for

1. Damages or damages to be assessed.

2. An account of all money and goods had and received or taken by the Defendants to the use of the Plaintiffs or the Partnership as mentioned in Paragraphs 12, 13 and 16 of the Statement of Claim.

3. An Order for payment by the Defendants to the Plaintiffs of any sum found due with interest thereon.

4. Interest pursuant to the District Court Ordinance.

5. A declaration that the Partnership did come into dissolution on 8th April 1998 or a later date to be determined by the Court or an Order that the Partnership be dissolved.

6. Costs.

7. Further or other Relief.

The Defendants' Defence and Counterclaim

34. On the Defendants' part, they state in paragraphs 8, 9 and 10 of the Defence and Counterclaim that Lau fraudulently misrepresented to the Defendants that the wholesale value of the stock of watches which formed the capital of the Partnership were worth $250,000. Lau misrepresented this fraudulently either well knowing that they were false and untrue or recklessly not caring whether they were true or false. As a result of this the Defendants suffered loss and damages as to the money the Defendants overpaid to the Plaintiffs in respect of the wholesale price value of the said watches. At the outstart of the trial the Defendant's Counsel started that the Defendant's case was one of fraudulent misrepresentation and not negligent misrepresentation. Evidence was heard from both parties and the trial was conducted on that basis.

35. The Defendants' pleaded case is that due to the repeated complaints raised by the Defendants over Lau's misrepresentation as to the wholesale price value of the said watches, Lau in early April 1998 suddenly demanded for the immediate repayment of all outstanding installments to which the Defendants refused. Lau then declared that the partnership relationship as between the parties should be terminated and she prevented the Defendants from further operating the partnership business at the watch stall. By reason of this the Defendants have suffered loss in profit earned from the operation of the partnership business at the watch stall. The Defendants admitted that they refused to pay any further installments to the Plaintiffs as a result of the Plaintiffs' breach of the Partnership Agreement. The Defendants further pleaded in paragraph 20 of the Defence and Counterclaim that it was in fact the Plaintiffs who have evinced an intention no longer to be bound by the Partnership Agreement and the Defendants have accepted the Plaintiffs' repudiation.

36. The Defendants counterclaimed for: -

1. Dissolution of the partnership business;

2. Damages;

3. Interest.

Credibility of the Witnesses

Credibility of Lau

37. Having considered the evidence of the parties, I find Lau to be an honest and credible witness. That is despite having considered all the submission of Defence Counsel related to the credibility of Lau. At the time when she gave evidence, she had been having medical treatment for her ill health. Yet I felt that she gave clear cogent evidence and did her best to be accurate in recounting what happened. An instance of this is in her evidence-in-chief she stated that she did not know what the March withdrawal from the bank account was for. However under cross-examination when she was given the item in the bank pass book to look at she stated that she could not be sure of her evidence. It is not surprising that her memory about this is unclear because the bank pass book and other records had been taken away by Au and she did not have these records to look at to refresh her memory before discovery in this action and she had been unwell.

Credibility of Chiu Lai Ha

38. She is the daughter of Lau. She gave evidence of what she saw after the event on the 8th April 1998. I find her evidence credible. She was the one who took a photograph of the empty boxes in the home of Lau and also the watch stall after the incident. I accept her evidence in totality.

Credibility of Defence Witnesses

39. The Defendants apart from giving evidence themselves have called witnesses to substantiate their evidence. The supporting witnesses include Lai Mei Sung (hereinafter referred to as "Lai"), the mother of So and Kan Wai Chung (hereinafter referred to as "Kan") an operator of a neighboring watch shop, and Wong Kam Leung (hereinafter referred to as "Wong"), the salesman of a neighboring shop.

40. The interesting aspect of the evidence of the Defence witnesses is that in their witness statements there are phrases that are identical to several of them. Lai stated in her Chinese witness statement at page 21 of the Bundle of Witness Statements ("BWS") that "the daily turnover of the business was approximately $800 to $2000". In paragraph 15 of Au's statement at page 42 of the BWS Au states "The daily turn over rate was around Eight Hundred to Two Thousand Dollars." In paragraph 11 of So's witness statement at page 32 of BWS So states, "The daily turn over rate was around Eight Hundred to Two Thousand dollars".

41. At page 23 of BWS in paragraph 8 of Lai's Chinese witness statement, Lai states words to the effect that, "Less than one month after that date, Lau's daughter Yvonne started selling the similar style of low price no brand name watches at the same situation of the staircase watch stall." In paragraph 15 of So's witness statement at page 35 of the BWS, So states, "very soon after Au Ka Lung's departure, I noticed that the daughter of Lau Hing Wan started to sell watches at the watch stall the style of the watches selling were very much similar to those watches previously kept at Lau Hing Wan's residence as stock which Au Ka Lung and me has once handled." At paragraph 22 of 'Au's witness statement at page 46 of the BWS, Au states, "Very soon after the partnership business of the watch stall came to a complete halt, I noticed that the 2nd named Plaintiff started operating the business of the watch stall again selling the same kind and style of watches previously kept at the 1st named Plaintiff's residence which I have once handled." Kan Wai Chung in her Chinese witness statement at page 14 of the BWS states words to the effect that, "From thence Au and So did not work at the stairway watch stall. However Lau's daughter Chiu Lai Ha a short while after Au Ka Lung and So Wing Yee left started to operate business at the stairway watch stall. The watches she sold are not dissimilar to the watches she sold before." At page 28 of the BWS at paragraph 8 of the Chinese witness statement of Wong Kam Leung, he stated in words to the effect that, "A short while after Au Ka Lung and So Wing Yee left, I began to notice the daughter of Lau began to operate business at the original location of the stairway watch stall. The watches she sold were the same style of watches."

42. Au stated at paragraph 14 of his witness statement at page 42 of the BWS, "All along, the facilities the 1st named Plaintiff provided me for operating the business of the tiny watch stall could only display no more than 500 pieces of watches." So stated at page 10 of her witness statement at page 32 of the BWS, "The watch stall was very tiny. It could only display around 700 pieces of watches. However, for unknown reason, Au Ka Lung was only given facilities to display no more than 500 pieces of watches." In paragraph 7 of Kan Wai Chung's Chinese witness statement at page 13 of the BWS, Kan states, "The stall front of the stairway stall of Madam Lau is extremely narrow. From my observation, it can only display about 700 watches. Surprisingly, from the time when Au Ka Lung entered into partnership with Madam Lau, the number of watches on display at the stairway watch stall decreased to around 500." Paragraph 6 of the Chinese witness statement of Wong Kam Leung at page 27 of the BWS state, "Madam Lau's stairway stall is extremely narrow. The watches that could be put on display are not many. However from the time of the commencement of partnership between Madam Lau and Au Ka Lung, the number of watches on display became noticeably fewer in number. The reason is unclear."

43. From the aforesaid, it seems that the witnesses have discussed their evidence and chose what they would say and compared notes with what they would say. It seems to me that the credibility of these witnesses is called into question in view of the aforesaid.

Credibility of Au

44. From the evidence of Au, it would seem that the Au has kept poor and unclear records of the business. It is not surprising that Lau found it frustrating. Au stated under cross-examination that before the OTB bank account was opened on 5 December 1997, the cash from the sales was put in the drawer. From the total calculations of the business prepared by Au, at page 155 of the BD related to the daily sales from the end of November 1997 to 23 of December 1997 it was stated that sales on 29 November was 6720, for 30 November was 3470, for 1st Dec was 2046, for 3rd December was 3446, for 4th December was 3620 and 5th December was 3,805. Au stated that after the OTB bank account was opened the cash from sales was banked into the bank account. From the 1st page of the bank account pass book on page 15 of the BD, next to the deposit entry for 5 Dec 1997 Au agreed that the numbers written alongside it represented that the deposit on 5 December 1997 was for the cash from sales on 29 November to 3 December. It was put to Au that the total for the sales from 29 November 1997 to 3 December 1997 as can be seen in the calculations at page 155 should amount to $15,682. He was asked why he deposited only $3,590. And where is the balance? Au stated that he could not remember. Under cross-examination Au admitted that from the cash sales figures shown on the reconciliation at page 158 of the BD it could be seen that there was a sum from the cash sales not deposited into the bank account. The difference between the sum deposited into the bank account and the cash sales shown at page 155 of the BD is a sum of $23,342.60, which was marked by him to be an expenditure at page 158 of the BD. When asked what this expenditure was Au stated that it could be that Lau went to purchase stock. When asked how she could have done this, Au stated that she could have taken cash out of the drawer to do so. When asked where the invoices were to show purchase of stock. Au stated he could not remember why there is the deficiency. He stated that he kept all the invoices in the file. When asked why in all the four months from 27 December 1997 to 7 April 1998 Au purchased stock of watches at the value of $16,610.30 when in December there was the purchase of over $23,000, all that he could say is that it is a high season month. It seems to me that the evidence that the sum of $23,342.60 shown in the calculations at page 158 of the BD, marked "expenditure" was an item unaccounted for and Au was not able to give clear explanation about. At any rate there has been no clear records kept. Although Au stated that invoices of such expenditure are kept by Lau, yet such explanations are not satisfactory as this had not been put to Lau to obtain her evidence.

45. Further, he stated that all the stock of watches purchased by him had invoices to verify such purchases and he kept these in the file. However upon cross-examination on the sales records in the soft cover black book at p. 18 - 33 of the BD it was found that there were many items of expenditures that did not have corresponding invoices to support the purchase of stock watches.

46. An instance when it seemed to me that he made up his evidence as he went along related to the record of sales in the soft cover black book. When asked under cross-examination as to why the records started from 23 March 1998, he stated that there had been an earlier book, which had been given to Lau. If there were such a book recording sales records given to Lau, it would be strange that it had not been mentioned in examination-in-chief or in his witness statement.

47. Both So and Au stated that they counted the quantity of watches at 1,200. I agree with the Plaintiff's Counsel that if the quantity of watches counted by them were only 1,200 and they were told that the watches were valued at sever $10s to $100 odd, as stated in their evidence, it would be obvious to So and Au that the value of the stock would not be worth $250,000. It is unbelievable that they would accept the representation of Lau that the watches were worth at wholesale cost at $250,000. In Au's witness statement he stated that Lau mentioned to him their value at wholesale cost price and not retail price though when giving evidence he tried to say that Lau stated the retail price of the watches as So counted their numbers.

48. Another reason for coming to the conclusion that the claim of fraudulent misrepresentation could not be believed is the fact that the Defendants stated that it was around the end of December 1997 that they began to realize that the value of the watches the capital of the Partnership Agreement was not worth $250,000. That was when they started to go to buy the replacement watches and saw what the wholesale value of the watches was. They began to doubt the representation of Lau related to the value of the inventory of the stock of watches at the start of the partnership. They began to feel cheated by Lau.

49. However, it is clear that after event on 8 April 1998, in the communication between the solicitors of both parties, at pages 188 to 193 of the BD, the issue of fraudulent misrepresentation had not been raised by the Defendant's solicitors. In the letter dated 28 June 1998, the Defendants' Solicitor Messrs. Joseph C.T. Lee & Co stated in the 2nd paragraph thereof, "Lau represented to Au that the business was running with good profit." No reference was made in relation to the alleged fraudulent misrepresentation. Were the Defendants so aggrieved by the alleged fraudulent misrepresentation of Lau surely they would immediately inform their solicitors Messrs. Joseph C. T. Lee & Co of this fact. It would be unthinkable that a solicitor who has received such instructions from a client would not refer to that in communication with the solicitors of Lau. In that letter the cause of the termination of the operation of the business was stated as follows: -

"Lau demanded the termination of operation of the business, no reasons were provided. Acting on Lau's request and in her presence, our client removed the watches from the business premises with her full consent. Your client's unreasonable behaviour did effectively repudiate the agreement made between the parties at the earlier stage, our client later accepted her repudiation."

50. Further the alleged fraudulent misrepresentation had not been raised in the Defence and Counterclaim filed by the Defendants in the Small Claims Tribunal Claim, which had been transferred to this Court. If the Defendants had been so aggrieved by the fraudulent misrepresentation, this would surely be an item they would raise their Defence and Counterclaim in the Small Claims Tribunal. Such Defence and Counterclaim appear to have been drafted with care. However, the first time this was raised was in this Defence and Counterclaim.

51. Au stated that the watches on display on the boards after he took over the stall were less than that as shown in the photograph taken of Lau at the watch stall on the 1st July 1997 in the top photo at page 4 of the BD. He stated that it was Lau who taught him to display the watches in that way. It seems to me unreasonable to suggest that Lau would teach him to display the watches in a way, which would not display more watches to promote sales than before, as Lau as a partner would be interested in promoting sales.

52. Au tried to state that he did not record the sales records in the soft cover black book and it was So or Lai who did so. Au even went to the extent of saying that he could not recognize the writing in that book. So's evidence contradicted him as So stated that she had never written in that soft cover black book. It was Au who wrote on it. Lai said she very seldom wrote on that.

53. As to whether the Defendants had the key to Lau's flat, Au and So and Lai were adamant that the Defendants did not have it. Au and So said they knocked on the door every morning for Lau or her Filipino helper to open the door for them. When asked whether there was a doorbell to the door, Au said he had never checked whether there was a doorbell. This is incredible if he had to seek Lau or the Filipino helper to open the door every morning that he would not notice if there were a doorbell. Further, Au when asked whether the Filipino helper could speak Cantonese said that he had never spoken to her and therefore he does not know. This is again incredible.

54. I find Au to be a wholly unreliable witness and I find his evidence unbelievable. I find this despite considering the submission of Defence Counsel that Au and So would not think of "not doing business". Her reasons were that (1) Au borrowed the money from his family, (2) Au and So knew what they had signed in the Partnership Agreement, in particular, the contents of Clause 6 whereby they would lose everything if they withdrew prematurely, (3) the business is making profits, and (4) it would not be easy for them to find another place to sell watches even if they apportioned the watches. However, it was Au's evidence and Lai's evidence that at the time they were very angry. In particular, Au stated that he was so angry that when he counted the watches he took everything in view. When people act in intense anger, they are at times not able to think rationally and they throw caution to the wind.

Credibilty of So

55. So's evidence related to fraudulent misrepresentation by Lau is the same as that of Au and for the same reasons as stated above is incredible. So's evidence that both she and Au were not given the front door key to Lau's home I find again to be incredible for the same reasons stated above.

56. So stated that the display facility for watches provided by Lau could only hold 500 watches. When asked further as her basis for saying so she stated that she had not counted the watches on display. She said that she relied on what Au told her.

57. In her witness statement at page 35 of the BWS So stated,

"very soon after Au Ka Lung's departure, I noticed that the daughter of Lau Hing Wan started to sell watches at the watch stall the style of the watches selling were very much similar to those watches previously kept at Lau Hing Wan's residence as stock which Au Ka Lung and me has once handled."

58. When cross-examined on this, So stated that she did not see the watch stall nor the watches displayed in it. It was Au who said so. When asked why she stated that she "noticed", she could not explain.

59. For the aforesaid reasons I find So to be an unreliable witness and her evidence is not believable.

Credibility of Lai

60. Lai is the mother of So. From the evidence of Lai it seemed that she was actively involved in assisting So and Au in the running of the partnership business. She stated that she would go to assist about 10 days per month by standing in for either So or Au when they took time off or were unable to work on a particular day. She herself stated that she started the quarrel by scolding Lau when Lau came to ask Au for repayment of $45,000. Au stated that the scolding and the quarrel were so loud that neighbours on the street heard it. She stated that she subconsciously helped Au in the packing of the watches. In her witness statement she was the one who suggested to go upstairs to Lau's home to divide the watches at her home. In her evidence under cross-examination she retracted and said she could not remember who suggested to divide the watches in Lau's home. In her witness statement at page 23 of the BWS she stated that she stood outside the closed door of Lau crying out loudly for Lau to open the door. She stated she was the one who reported to the Police on the 8 April 1998. It is clear that she played an active part in So and Au's affairs and did not merely assist on the side. She was actively defending their interests as she saw it and fought for their rights as she saw fit. I do not find her as objective or independent but biased in favour of So and Au. It seems to me that she is not credible as she would support her daughter So and Au more than speak independently of the truth.

Credibility of Kan

61. Kan made it clear in her evidence that she did not like Lau. She stated that Lau would go into her shop and ask her questions about her mode of doing business. She found it an intrusion and obviously found Lau as a competitor. Although originally Kan and her husband sold brand name watches or imported watches that were more expensive, in 1996 they started to sell some Hong Kong made watches of unknown brand similar to those sold by Lau. Since then Lau and Kan were in competition in relation to the sale of the Hong Kong made watches of unknown brand.

62. Her animosity towards Lau was so undisguised that parts of her witness statement contained such disparaging remarks as to the reputation and character of Lau that these had to be taken out of her statement at the commencement of the trial.

63. As referred to earlier, there were contents in her witness statement, which were similar to the contents of statements of other witnesses. However upon cross-examination, her credibility was truly shaken. When asked with reference to paragraph 7 of her witness statement wherein she stated the number of watches on display in Lau's stall before the partnership and after, "Q You would not notice how many watches they had?" she stated in reply "A. Why would I count it? Why would I want to know?" When questioned about her statement in paragraph 7 of her witness statement, she said that she looked across from her stall and saw that there were less watches after the partnership. When asked whether she knew when Lau and Au and So entered into the partnership, she said that she saw there were 2 young persons there and presumed that was the time they entered into partnership. When asked whether she knew how much Lau sold her watches for, she stated that she heard a customer bargain with Lau once. The bargaining was at $100 or $90. That was the only basis for her statement in paragraph 7 of her witness statement wherein she stated that "most of Lau's watches were sold for 10 odd dollars to several tens of dollars with a few sold near to 100 dollars". Subsequently she stated that that incident of hearing the customer bargaining occurred in 1995 to 1996. When asked why in her witness statement she stated that she saw Au take several boxes and in her evidence she said she saw him take 1 or 2 boxes, she said "several boxes, he had 2 hands. He could only take one on each hand...". Later she said, "I observed 2 boxes, one on each hand. You couldn't say he took 9." When asked on her evidence related to the 8 April 1998 incident that Lau was there during the time when Au was packing and Lau did not stop him, she had to admit that she could not hear if she tried to stop him.

64. It seems to me that she was not concerned with the accuracy of what she stated but was filled with animosity and anger. I totally discount her evidence as I find her evidence unreliable and not to be believed.

Credibility of Wong Kam Leung

65. Wong Kam Leung was the shopkeeper across the road from which Au borrowed boxes to pack the watches into on the 8 April 1998. Upon cross- examination it became clear that his evidence that he saw Lau on the 8 April 1998 was not reliable. He admitted that from where he was standing on the metal step of his shop, his view was obstructed. He then stated that when he brought the 2nd box borrowed by Au to Au at the watch stall, he saw what happened clearly. However, it was clear that according to Au's evidence, he took the 2 boxes himself to the watch stall. According to Kan's evidence, she saw Au take 2 boxes one on each hand. I have the distinct impression that Wong was making up his evidence as he went along. He also admitted that he could not tell if So was at the scene, because he took the box there then he left. He admitted again under cross-examination that he could not be clear how long after the incident on the 8 April 1998 that the watch stall was re-opened. Yet in his witness statement he stated that a short time after Au Ka Lung left, Lau opened the stall again. When it was put to him that he was not clear as to when Lau and her daughter re-opened the shop, he admitted that he agreed. He admitted that he could not have known what he stated in his witness statement that Lau and her daughter sold the same type of watches as before because he admitted that he only passed by and glanced at it.

66. I come to the conclusion that Wong Kam Leung was not a reliable or credible witness and I discount his evidence in totality.

Finding of Facts

67. Having found Lau and Yvonne as credible witnesses and discounted the evidence of Au, So, Lai, Kan and Wong, I accept the evidence of Lau and Yvonne and find their version of events to be credible.

68. In relation to the allegation of fraudulent misrepresentation related to the inventory of watches that became the capital of the business, I find that the Defendants have not established fraudulent misrepresentation on the part of Lau related to the wholesale cost value of the watches at $250,000, bearing in mind the burden of proof for fraud is no light one. I come to this conclusion for various reasons, the first of these, arises from having accepted the evidence of Lau as credible and having discounted the evidence of the Defendants as not credible. Secondly, it is clear that Au and So had ample chance to count and to calculate the wholesale value of the watches shown to them before the commencement of the partnership. They would not lightly have come to the agreement as regards the value of the capital of the business. Further, when Lau gave ample opportunity to the Defendants to examine and calculate the wholesale cost of the watches, it is unlikely that fraud can be proved namely that she made a false representation knowingly, or without belief in its truth, or recklessly, careless whether it be true or false. Thirdly, if they felt so aggrieved by the alleged fraudulent misrepresentation as they stated before 8 April 1998, it was surprising that this had not been raised in the letter from their solicitors to the Plaintiffs' Solicitors dated 28 June 1998 at page 192-3 of the BD and surely would be an issue raised in their Defence and Counterclaim filed in the Small Claims Tribunal. However this had not been raised until the Defence and Counterclaim filed in this Court. Fourthly, Lau stated that there were invoices for the purchase of the inventory of watches that were the stock in November 1997, not included in the BD. She stated that these had been given to Au for perusal and not returned to her. The Defendants disclosed in their List of Documents an invoice dated 22 November 1997 from Imdica Watch Manufacturing Co. No.0292 issued to Mrs. Chiu, namely Lau. This is at page 150 of the BD. Au stated that Lau gave that to him and told him to put on his file of invoices. This lends support to Lau's evidence that there were other invoices which she had given to Au for perusal but not returned to her. The invoices disclosed by Lau in the BD are not the sum total of the invoices related to the purchase of the watches in the inventory of watches at the commencement of the partnership. The wholesale cost price of the inventory of watches as at November 1997 cannot be deduced from the invoices disclosed by Lau in the BD. I therefore find that the Defendants have not been able to establish the fraudulent misrepresentation pleaded.

69. I find that the Defendants have not been able to establish their version of events on 8 April 1998. Apart from the rejection of the evidence of the Defendants and their witnesses related to this I also observe that even in the Defence and Counterclaim in this action and in their solicitors letter dated 28 June 1998 at page 192-3 of the BD, there is no allegation that Lau demanded to divide the inventory of stock between the partners. I do not accept the Defendant's version of events related to 8 April 1998. I accept the Plaintiffs' evidence of the events on 8 April 1998. I accept Yvonne's evidence that the photographs at pages 1 to 3 of the BD were taken by her upon her arrival at the scene representing the scene as she saw it on arrival.

70. I find that the Plaintiffs have proved that the Defendants have unlawfully and without the consent of the Plaintiffs misappropriated and took possession of the stock, namely most of the watches together with the $500 change provided by the Plaintiffs at the watch stall and the inventory being kept in the 1st named Plaintiff's flat without notice to the Plaintiffs and used detained them as if they were their own. It is clear from the photographs some watches on display which were not within easy reach (see bottom left corner of photo 7 at page 2 BD) and some cartoon children's watches (see photo 5 in the box outlined in blue at page 2 BD) had been left by the Defendants.

71. Find that by the aforesaid actions, the Defendants dealt with the stock in a way inconsistent with the rights of the Plaintiffs or inconsistent with the terms on which the stocks were held and amounted to a premature withdrawal from the Partnership which gives the Plaintiffs the right to immediate possession over the stock by virtue of Clause 6 of the Partnership Agreement. The Partnership came into dissolution thereby on the 8 April 1998. The Plaintiffs have accepted such repudiation by the letter from their solicitors dated 27 November 1999. The Plaintiffs would be able to claim damages for breach of contract, and conversion of the partnership property. By virtue of Clause 6 of the Partnership Agreement, the Plaintiffs are entitled to the entirety of the stock inventory from date of dissolution of the partnership. Hence they are entitled to claim damages for conversion of the entire inventory of stock as at 8 April 1998.

72. The Defence Counsel in paragraph 29 of her written Closing Submission stated that the Defendants also say that what happened on 8 April 1998 (namely, the apportionment of watches) did not amount to a premature withdrawal of partnership because the conduct of Lau in the short four months of business had made it impossible for the partnership to continue in that she made it impossible for the Defendants to place any more confidence in her. The conduct submitted by Defence Counsel include Lau's refusal to sign the Partnership Agreement, Lau's accusation that So for stole money, Lau's occasional obstruction to Au and So to operate the watch stall by refusing to open her door, Lau's demand of the repayment of $45,000 in March 1998. However it seems that this line of defence had not been pleaded in the Defence and Counterclaim and as such could not be raised for the first time in the closing submission.

73. It was clearly the Au's evidence under cross examination that the alleged behaviour of Lau by not giving them the Partnership Agreement signed by her and the allegation that she did not have to pay rent for the occupation and use of the entrance and stairway for the operation of the watch stall, as well as other complaints raised by them would not have caused them to terminate the business.

Damages for Conversion and pursuant to Clause 6 of the Agreement

74. The Plaintiff claims breach of the Partnership Agreement. Pursuant to Clause 6 of the Agreement the capital and any inventory will belong to the Plaintiffs unconditionally. The capital includes capital not as yet paid by the Defendants. Inventory would be inventory as at date of dissolution of the Agreement. The Plaintiffs is therefore entitled to the $45,000 capital sum not as yet paid by the Defendants. In addition, the Plaintiffs are entitled to the inventory as at 8 April 1998. Lau have stated that she did not want the return of the stock because the watches retained by the Defendants are out-dated. They are no longer fashionable and hence their value has decreased.

Method of assessing value of stock taken away by the Defendants

75. The wholesale cost value of the stock agreed, as at 29 November 1997 was $250,000. I deduct from that the wholesale cost of goods sold during the period from 29 November 1997 to 8 April 1998 to find the wholesale value of the remaining original stock. Lau stated that profit margin of watches sold would be 50% or 80% of cost price. Under cross-examination, Au stated that if a watch is purchased at $100 he would sell at $100 odd. He stated that the percentage of profit was not fixed. If a customer bargained hard, he would sell at a lower price. I will adopt the most favourable to the Defendants. I am of the view a profit margin of 30% of the cost price would be reasonable in the light of Au's evidence. I would also add the value of new stock purchased as stated by Au, to find out the value of the total stock as at 8 April 1998. I would also take out a sum representing some watches left behind by the Defendants as shown in the photographs at page 2 of BD referred to above. From that I would arrive at the value of the stock taken away by the Defendants.

76. Assessment of Value of Stock Taken Away by the Defendants

				$
Wholesale Value of Stock as at 29 Nov 1997				250,000.00
Less
	Wholesale value of Stock Sold (70% of price of goods sold)
	Dec 1997	$61,477.00
	Jan 1998	26,000.00
	Feb 1998	24,000.00
	Mar 1998	26,000.00
	April 1998	23,140.00
	Dec - April	16,610.00
		177,227.00	x 100/130	136,328.46
				113,671.54
Add
	Wholesale value of New Stock Purchased
	29.11.97 - 23.12.97	$23,342.00
	27.12.97 - 8.4.98	16,610.00
		39,952.00		39,952.00
				153,623.54
				========

Total Damages for Breach of Contract
$45,000 + $149,960.04 = $194,960.04

78. In relation to the sales income of March and April in the OTB bank account in the joint names of Lau and So, the amount of $23,140, being the balance shown as at 7 April 1998 together with interest thereon, should be divided equally between the parties. I order that the bank passbook of the OTB bank account, account number 92-100-3379-9, be delivered up by the Defendants to the Plaintiffs' solicitors together with a withdrawal slip signed by So Wing Yee within 7 days of the handing down of this Judgment. I order that Lau do sign on the same bank withdrawal slip within 3 days thereafter and the Plaintiff's solicitors do effect the withdrawal of the amount of $23,140 together with interest thereon, with the assistance of Lau within 7 days thereafter. I order that the sum withdrawn from the bank account be deposited into Court within 3 days thereafter. There be payment out of half of the sum paid-in to the Plaintiffs and half to the Defendants upon payment-in.

79. I give judgment for the Plaintiffs against the Defendants in the sum of $194,960.04 together with interest thereon from date of filing of claim in the Small Claims Tribunal namely 31 May 2000 to date of judgment at judgment rate and thereafter until payment at judgment rate together with an order nisi for costs of the action to the Plaintiffs to be taxed if not agreed with Certificate for Counsel. The Counterclaim be dismissed. I grant a Declaration that the partnership was dissolved on 8 April 1998. In relation to the prayer for "an account of all money and goods had and received or taken by the Defendants to the use of the Plaintiffs or the Partnership as mentioned in Paragraphs 12, 13 and 16 of the Re-Amended Statement of Claim" and "an Order for payment by the Defendants to the Plaintiffs of any sum found due with interest thereon", I will adjourn this sine die with liberty to restore as it seems that the matters in paragraphs 12, 13 and 16 appear to have been covered in the judgment. The Plaintiff could restore this application should it be felt necessary.