LIN GUIFEI, as the administratrix of the estate of LEE KIN WAH, Deceased v. LUI CHUNG since Deceased, LUI PO KIN RICKY, appointed by an Order dated 28th March 2025 to represent the Estate of LUI CHUNG, Deceased AND ANOTHER

HCA 596/2021

[2025] HKCFI 1904

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 596 OF 2021

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BETWEEN

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JUDGMENT

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I. INTRODUCTION

1.  This action was commenced by the Plaintiff in her capacity as the administratrix of the estate of her late husband Lee Kin Wah, deceased (the “Deceased”), who passed away on 17 September 2016 at the age of 92. The claim concerns a mahjong parlour business operated in Ground Floor, No. 9 Yi Pei Square, Tsuen Wan, New Territories, Hong Kong (the “Business Premises”). The Business Premises is not owned by any of the parties.

II. BACKGROUND

2.  In the 1970s, the Deceased, the 1^st Defendant (that is, Lui Chung, who passed away in early March 2025 and whose estate his son Lui Po Kin Ricky (“Ricky Lui”)[1] was appointed torepresent in the present action) and some other business partners including Mr Lui Ming, formed a partnership to operate a mahjong parlour business. They entered into a written Chinese agreement dated 18 July 1973 (the “Partnership Agreement”). Its title is “聯發公司股份簿”. It provides:-

“（一）：本公司定名為「聯發公司」。公推李堅華 [that is, the Deceased] 為持牌人，負責向政府領取牌照，以經營麻雀娛樂生意。

（三）：本公司之股權定為A,B,C,D 四大股，每大股再分為五份，合共為貳拾份，每份出資港幣壹萬元整。共資金為港幣貳拾萬元整。

（四）：本公司業務上之盈虧，均按照股份貳拾份共同均分獲利或攤補。股東得永享有獲益之權利與負責攤補之義務。

（七）：本公司推定呂明、李堅華為執行常務股東，於股東代表會議閉會後共同處理本公司之一切業務，切實執行股東代表會議之一切決議案。並督促各單位工作人員之工作，對外代表本公司。

（九）：本公司之股東如中途退股時，須得股東代表大會之通過，並應由股友或公司承受，不得擅自轉讓與外人。

（十）：本公司如有若何之變更，須得全體股東四分之三（即十五份）之同意與簽署，方得變更之。

（十三）：本公司之股份分配如下…

李堅華 - 出資貳萬伍仟元佔貳份半…

呂松 - 出資貳萬元佔貳份。”

3.  Accordingly, under the Partnership Agreement, the Deceased was entitled to 2.5 out of 20 shares of the partnership (that is, 12.5% of the whole “shareholding”) and the proportional share of profit, and was the holder of a mahjong licence issued by the Government for operating a mahjong business in the name of “聯發公司”. For convenience, I shall refer “聯發” as “Luen Fat”.

4.  On or around 27 June 1987, Lui Ming (mentioned in Clause 7 of the Partnership Agreement), one of the partners, passed away. The remaining partners continued to operate the same mahjong business in the name of “Luen Fat”.

5.  In or around 2005, the 2^nd Defendant joined the then partners as an additional partner to carry on the mahjong business in the Business Premises in the name of “Luen Fat”.

6.  On 24 October 2008, the Plaintiff and the Deceased got married.

7.  According to the Business Registration Certificate numbered 55341740 dated 15 June 2015, the mahjong business was registered in the name of “聯發麻雀娛樂” (Luen Fat Mahjong Playing), which was on 18 August 2015 changed to “聯發麻雀娛樂公司” (Luen Fat Mahjong Playing Co.). In the Business Registration Certificate, the Deceased, the 1^st Defendant and the 2^nd Defendant were the only named owners. This partnership is defined in the Amended Defence as the “Last Partnership”, “last” in the sense that it was the last partnership of which the Deceased was a partner.

8.  On 17 September 2016, the Deceased passed away.

9.  As the Deceased passed away on 17 September 2016, the mahjong licence granted in favour of the Deceased on 13 November 2015, which would otherwise expire on 29 November 2016, terminated automatically upon the Deceased’s death. It is pertinent to note that Condition 12, a standard condition, of the licence provided that:-

“The licencee shall not transfer, lend or hire this licence to any person.”

10.  On 9 November 2016, the mahjong business ceased in the Business Premises.

11.  On 31 December 2016, upon the 1^st Defendant’s application, the business was deregistered.

12.  Since 1 January 2017, the 1^st and 2^nd Defendants and the Deceased’s son Mr Lee Chi Fu (the “Deceased’s Son”) have carried on a mahjong business in the name of “聯發麻雀娛樂公司” (Luen Fat Mahjong Playing Co.), the same name as the Last Partnership’s, under business registration certificate no 55838278, which states that the 1^st and 2^nd Defendants and the Deceased’s Son were the owners.

13.  It is not in dispute that for the Last Partnership, the 1^st Defendant was the one responsible for the daily operation and management and in control of the business throughout.

14.  On 9 November 2017, the Plaintiff filled in and signed the Schedule of Assets and Liabilities of the Deceased for the purpose of applying for grants. In the Schedule, under the section “Business”, “聯發公司” was typed out and stated as “operation has already ceased”. Further, the percentage was stated to be 12.5%

15.  On 10 September 2018, a mahjong licence granted in favour of the Deceased’s Son to carry out a mahjong business in the Business Premises.

16.  On 8 January 2019, the Plaintiff obtained grants of letters of administration in respect of the Estate.

17.  On 26 February 2019, the Plaintiff’s then solicitors Messrs Hugill & Ip (“H&I”) issued a letter to Luen Fat Mahjong Playing Co., demanding:-

“1. 所有死者李堅華的資產，包括持有麻將/天九牌照的收入，股息，利潤和利息等等；

2. 每天支付給死者李堅華的持有麻將/天九牌照的持牌費/利潤;

3. 每天支付給死者李堅華的人工及花紅;

4. 所有每天支付給死者李堅華的人工及花紅之糧包/信封袋記錄;

5. 每月支付給死者李堅華的營業額分紅;

6. 每月支付給死者李堅華的(冬工);

7. 其他所有收益，包括但不限於(a)死者李堅華生前；及(b)由2016年9月17日至2019年2月26日，支付給死者李堅華的持有麻將/天九牌照的持牌費/利潤。

In relation to the Deceased’s dividends and interest to be accrued in future, our client will liaise with you on further arrangements.”

18.  On 4 March 2019, having received no written reply, H&I issued a further letter to Luen Fat Mahjong Playing Co:-

“We also refer to the telephone conversation between your Mr Yau and Mr Thomas Lau this afternoon, wherein, he replied that the cash would be ready for our client’scollection on Friday, 8^th March 2019.

…

We write to inform you that our client Madam LIN GUIFEI… the Administratrix, together with our firms’ two representatives, will attend your company on Friday, the 8^th day of March, 2019 at about 2:45p.m… again for the purpose of collecting the aforesaid payment of the Deceased’s salary, dividends and interests belonging to the Estate of the Deceased from your company… ”

19.  On 6 March 2019, Luen Fat Mahjong Playing issued a reply letter to H&I stating that (1) the company had met and resolved to cooperate; (2) because of a lapse of more than two years, it would need time to verify the accounts; and (3) after the verification, they would immediately inform H&I.

20.  On 3 June 2019, the 1^st and 2^nd Defendants issued to H&I a cashier order of even date for HK$312,696.20 (the “Cashier Order”) as payment for the estate of the Deceased. In reply, by letter dated 5 June 2019, H&I informed the 1^st and 2^nd Defendants that they had ceased to act for the Plaintiff and returned the Cashier Order.

21.  Subsequently, in August and September 2019, the 1^st and 2^nd Defendants issued two letters to the Plaintiff at the address of Flat G, 34/F of a building in Tsuen King Garden, informing the Plaintiff that a cashier order of HK$312,696.20 for the Deceased’s payments had been sent to and returned by H&I, and asked the Plaintiff to contact them for the Cashier Order. There was no reply. I should add that the address is not the address the Plaintiff uses in the Writ of Summons herein.

22.  On 24 March 2020, the Plaintiff’s new solicitors Messrs KCL & Partners (“KCL”) issued a letter, stating, among others:-

“… We note that prior to the Deceased’s passing away, the Deceased had all along been the holder of the relevant Mahjong/Tin Kau licence in respect to Luen Fat and delegated all the duties and obligations arising therefrom to your Yau Man Yick [that is, the 2^nd Defendant].

As part of the above arrangement, it was all along intended for the Deceased to carry on being the holder of the relevant licence of Luen Fat, and it was all intended that upon his passing our client would be entitled to hold the relevant licence in his stead. However, we are instructed that during a meeting held between the shareholders and/or all their trustees of Luen Fat on a day in about November 2016, in breach of this understanding, our client was misled by other shareholders to believe that our client was ineligible to hold the relevant licence required to operate Luen Fat and instead the said licence was applied for and eventually granted to Lee Chi Fu [that is, the Deceased’s Son].

Further, as a result of the above, we are given to understand that our client has been effectively excluded from the management of Luen Fat. This is a clear affront to the modus operandi of Luen Fat and the spirit of the shareholder agreement.

…

In light of the aforesaid, we hereby demand, within 14 days from the date of this letter, the following:-

1. Your agreement that the licence vis-à-vis Luen Fat be transferred to our client’s name and that all subsequent licences be applied under our client’s name and/or in the alternative that all shareholders of Luen Fat cooperate and assist with all procedures relating to said transfer;

2. All books and accounts of Luen Fat from September 2016 to present;

3. All monies, whether arising from daily wage pairs and/or dividends, in arears due arising from the Deceased’s share, be paid to our client, as administratrix of the Estate…

Let us have your reply to our proposal within the next 7 days, failing which, we shall proceed to take out the necessary application including but not limited to an application for judicial review, if necessary.”

23.  On 11 May 2020, Luen Fat Mahjong Playing replied in writing, stating in essence that the partners operating the mahjong business in the name of Luen Fat were not the same as those at the time of the death of the Deceased and the licence now for the business was not the one held by the Deceased, so the contents of the KCL letter were not related to them. It also stated that they opened the KCL’s letter because the intended recipient’s name and address (that is, the Last Partnership) was the same as theirs.

24.  Also on 11 May 2020, the 1^st and 2^nd Defendants issued a joint letter in their own names:-

“得悉貴行代表上述已故李堅華先生的遺產管理人林桂飛女士…

相信貴行清楚知道已故李堅華先生所持有的麻雀/天九牌照號碼003153以因李先生身故而被收回，另由李先生作為持牌人的前聯發亦於2016年12月31日正式結束。

我等作為前聯發的股東會計師核實李先生在前聯發結業時應有的分成及應得的花紅及小費(共港幣312,696.20)後分別希望透過林女士的前代表律師及/或直接聯絡林女士將上述款項以現金/銀行本票交予林女士，可惜皆未能成功。

為妥善處理已故李堅華先生於前聯發的應有權益和維護相關遺產受益人的利益。請盡速安排收取該筆款項。”

25.  On 3 June 2020, the Plaintiff made an application in HCAL 1102/2020 for leave to apply for judicial review of the decision to grant the Mahjong licence to the Deceased’s Son on 10 September 2018. Chow J (as he then was) dismissed the application on 16 November 2020 in [2020] HKCFI 2888.

III. PLAINTIFF’S CLAIM

26.  According to the Plaintiff’s case (pleaded in §§13 and 14 of the Amended Statement of Claim):-

“3. Starting from the 1970s, the Deceased, the 1^st Defendant and several other business partners founded and operated a Mahjong Business… (“Mahjong Business”) in Tsuen Wan in the form of partnership (“The Partnership”)…

13. At the material time… a staff member of the Partnership known as Mr Lam Song… was the bookkeeper of the Mahjong Business and he was the one in custody and control of the Mahjong Business’s books and accounts. A diary containing the business’s daily turnover was kept at the business premises of the Partnership… (“Business Premises”). Cash was counted by hand at the end of each business day and the daily share of profit would be distributed to the partners of the Partnership on a daily basis. The said daily shares of profit were prepared in envelopes (“Envelopes”) with each Envelope containing the daily share of profit to be paid to each partner. On top of the daily share of profit, monthly profit would also be distributed to the partners depending on the Mahjong Business’s performance.

14. Prior to the Deceased’s death and since the Plaintiff was married to the Deceased, from time to time, the Plaintiff would attend the Business Premises and collect the Envelopes on the Deceased’s behalf upon the Deceased’s instructions.”

27.  The Plaintiff claims that after the Deceased’s death on 16 September 2016, the 1^st and 2^nd Defendants continued to carry on the Mahjong Business under the name of “聯發麻雀娛樂公司” (Luen Fat Mahjong Playing Co) from 1 January 2017 onwards, without taking of the partnership account or final settlement of account concerning the Deceased’s share of the Partnership. The Amended Statement of Claim defines this Luen Fat Mahjong Playing Co from 1 January 2017 onwards as the “Post-2017 Luen Fat”. The particulars are set out in §17 of the Amended Statement of Claim:-

“(a) the Defendants, notwithstanding the Deceased’s demise, carried on the Mahjong Business under the name of Post-2017 Luen Fat, which is almost identical to the previous names used by the Mahjong Business, namely 聯發麻雀娛樂 and 聯發麻雀娛樂公司, and referred [to] by the public or customers under the same moniker, namely Luen Fat or 聯發;

(b) the Defendants utilised the Business Premises, which is the long time premises of the Mahjong Business, as the place of business for Post-2017 Luen Fat utilising almost the same décor, apparatus, equipment and modus operandi;

(c) the Defendants utilised most, if not all, of the staff of the Mahjong Business under the name of Post-2017 Luen Fat which were previously employed by the Mahjong Business prior to the Deceased’s demise; and

(d) the Defendants utilised the same accountant…”

28.  The Plaintiff raises an alternative claim that if the Post-2017 Luen Fat does not amount to carrying on the Mahjong Business, then the 1^st and 2^nd Defendants effectively utilised the goodwill and/or reputation of the Mahjong Business without account to the Plaintiff or the Mahjong Business.

29.  Based on the above, the Plaintiff claims that:-

(1) The Partnership was dissolved upon the Deceased’s death but without final settlement of accounts to the Plaintiff, while the 1^st and 2^nd Defendants have continued to carry on the Mahjong Business with the Partnership’s capital and assets.

(2) The Plaintiff relies on section 44 of the Partnership Ordinance (Cap 38) to claim 8% pa on the value of the Deceased’s share of the Partnership assets or such share of profits of the continued business as the Court may find attributable to the use of the Deceased’s share of the Partnership assets.

(3) The Plaintiff also claims that in breach of their fiduciary duties, the 1^st and 2^nd Defendants misappropriated the Partnership’s assets and thus hold the assets and the traceable proceeds on constructive trust.

(4) If the Partnership was not dissolved by reason of the Partnership Agreement or otherwise, the 1^st and 2^nd Defendants owe certain fiduciary duties to the Partnership and the Deceased and his estate, which the 1^st and 2^nd Defendants have breached by, inter alia, failing to account and distribute profits.

IV. THE 1^ST AND 2^ND DEFENDANTS’ DEFENCE

30.  The 1^st and 2^nd Defendants’ defence can be summarised as follows:

(1) From time to time, upon departure (or death) of existing partners or joinder of new partners, old partnerships would be dissolved and new partnerships would be formed for the operation of the Mahjong Business under the name “聯發” (Luen Fat).

(2) Upon such dissolution, all amounts due and payable to the existing partners would be properly accounted for.

(3) Upon the death of one of the then partners Lui Ming on or around 27 June 1987, the partnership under the Partnership Agreement was dissolved as a matter of law. The remaining partners constituted, as a matter of law, a new partnership.

(4) Upon the 2^nd Defendant’s joining the then partnership as an additional partner in 2005, a new partnership was formed.

(5) All the partnerships operated the Mahjong Business under the name “聯發” or “Luen Fat”.

(6) The Last Partnership, of which the Deceased was a partner, was formed in 2015 with the Business Registration Certificate numbered 55341740, also operated the Mahjong Business under the name “聯發麻雀娛樂公司”.

(7) The partners of the Last Partnership orally agreed that they would share the profits and losses according to certain specified ratios. The Partnership Agreement did not apply to them.

(8) The Last Partnership was dissolved upon the Deceased’s death on 17 September 2016. By June 2019, it had been worked out that the Deceased (and thus his estate) was entitled to HK$312,696.20, thus the Cashier Order. However, the Plaintiff failed or refused to accept the Cashier Order.

(9) The Post-2017 Luen Fat, that is, the partnership formed subsequent to the Last Partnership, was not a continuation of the Last Partnership. Nor did it use, effectively or otherwise, the goodwill or reputation of the Last Partnership.

(10) Therefore, section 44 of the Partnership Ordinance is not applicable.

(11) Upon the dissolution of the Partnership, subject to section 40 of the Partnership Ordinance, the 1^st and 2^nd Defendants have owed no duty to the Deceased or his estate.

V. ISSUES

31.  The issues, as essentially set out in the Joint Statement of Issues, are:-

(1) Was the mahjong business known as “聯發麻雀娛樂公司”, which was in the form of partnership with business registration certificate number 55341740 since August 2015, governed by the 1973 Partnership Agreement at the death of the Deceased? If so, was there any breach on the 1^st and 2^nd Defendants by failing to account and distribute the Partnership’s profits after the death of the Deceased?

(2) Was the partnership dissolved at the death of the Deceased?

(3) Is the Plaintiff entitled to the relief under section 44 of the Partnership Ordinance?

(4) Have the 1^st and 2^nd Defendants misappropriated assets and funds belonging to the partnership by establishing the Post-2017 Luen Fat and held the misappropriated assets and traceable proceeds and the profit generated therefrom on trust as constructive trustees in favour of the Plaintiff?

(5) How much share of profit did the Deceased generally receive per month from the partnership before he passed away?

VI. WITNESSES

32.  The Plaintiff is the only witness for the case of the Deceased’s estate. The 1^st Defendant’s son Ricky Lui (now representing the 1^st Defendant’s estate) and the 2^nd Defendant each were witnesses for the Defendants.

33.  It is noted that even before the 1^st Defendant passed away in early March 2025, the 1^st Defendant had not made any witness statement and the witness for the 1^st Defendant had always been Ricky Lui. Therefore, Ricky Lui is not a substitute witness in that he made a witness statement or adopted the 1^st Defendant’s witness statement only upon the 1^st Defendant’s death.

VII. PARTNERSHIP OR PARTNERSHIPS?

34.  Before I determine the issues, it is necessary for me to determine whether the Partnership (the one at the outset, as defined in the Amended Statement of Claim) is the same partnership as the Last Partnership by the time of the Deceased’s death. The Amended Statement of Claim seems to suggest that this is the Plaintiff’s case, using the definition “Partnership” to describe the partnership by the time of the Deceased’s death.

35.  First, as mentioned above, Lui Ming, a partner of the Partnership, passed away in 1987. Section 35 of the Partnership Ordinance provides that:-

“Dissolution by bankruptcy, death, or charge

(1) Subject to any agreement between the partners, every partnership is dissolved as regards all the partners by the death or bankruptcy of any partner…”

36.  It is said that “this rule is applied strictly”: see Lindley and Banks on Partnership (21^st ed) §24-69. The Plaintiff has pleaded no contrary agreement, whether written or oral, express or implied, under section 35(1). Nothing in the 1970 Partnership Agreement mentioned what would happen upon a partner’s death.

37.  Mr Ronald Pang (leading Mr Nicklaus Pannu-Yuon), counsel for the Plaintiff, submitted in his written Opening Submissions that such an agreement was clear from reading the terms of the Partnership Agreement. I do not accept such submissions.

(1) This is not pleaded.

(2) In any event, a fair reading of the Partnership Agreement does not give any impression that there was such an agreement.

(3) On the contrary, it is clear from the Partnership Agreement that the parties thereto did not provide anything for the situation of death of a partner, because (a) Clause 9 of the Partnership Agreement expressly provided for a situation where a partner would like to quit; and (b) had the parties thought about the situation of death of a partner, they would have in all likelihood like Clause (9) stipulated what would happen in such a situation.

38.  Therefore, at latest, upon the death of Lui Ming, the Partnership was dissolved by virtue of section 35.

39.  Second, as a matter of law, a new partnership is formed when partners leave and/or new partners join: see Lindley and Banks on Partnership, supra, §§3-06 – 3-07 citing Hadlee v Commissioner of Inland Revenue [1989] 2 NZLR 447 at 455, upheld by Privy Council in [1993] AC 524. While Clause (9) may mean that it was possible for a new partner simply to take up the outgoing partner’s shares, it is clear that the number of partners has changed from the original number of nine under the Partnership Agreement to the number of three or seven under the Last Partnership (the exact number being a matter I shall discuss later). In the absence of any plea and evidence as to how the old “shares” of an outgoing partner were taken up by the incoming partners, the Plaintiff cannot rely upon Clause (9) to say that it has all been strictly performed to displace the default position at law.

40.  Therefore, in my view, the Partnership, as a matter of the law, cannot be the same partnership by the time of the Deceased’s death, there having been a partner’s passing and partners leaving and new partners joining. It is therefore more accurate to describe the Last Partnership as a partnership in its own right.

41.  This is consistent with the factual evidence presented before me:-

(1) The second last financial statements of the Last Partnership were for 1 April 2015 to 31 March 2016, and the last financial statements were for 1 April 2016 to 31 December 2016. Consistently, the management accounts produced of the Last Partnership ended also on 31 December 2016. All these accord with the date of the deregistration of the Last Partnership on 31 December 2016.

(2) Also consistent is the financial statements of the Post-2017 Lune Fat for 1 January 2017 to 31 March 2018. This financial period is more than 12 months, consistent with the fact that Post-2017 Luen Fat was regarded as a new business.

42.  The Plaintiff initially suggested that whether the partnerships were the same or not, they were all governed by the same Partnership Agreement. After my exchange with Mr Pang (for the Plaintiff) during the Opening Submissions on Day 1, he informed me on Day 2 before calling the Plaintiff to give evidence that he would abandon this suggestion. Mr Pang was, in my view, right to do so because:-

(1) The 1970 Partnership Agreement is a contract. It does not bind non-parties.

(2) While the burden lies upon the Plaintiff to prove that the subsequent parties agreed to be bound by the 1973 Partnership Agreement, there is no plea and no evidence to that effect. In all likelihood, they would not, because the shares would change and the shares stated in the 1973 Partnership Agreement did not and could not fit to the changes.

43.  As such, the Partnership Ordinance applies to govern and regulate the Last Partnership.

VIII. THE NUMBER OF PARTNERS AND WHO WERE THEY?

44.  I should say something about the number of partners in the Last Partnership.

45.  The Plaintiff pleads in §5 of the Amended Statement of Claim that the Deceased, and the 1^st and 2^nd Defendants were the partners named in the Business Registration Certificate numbered 55341740 dated 15 June 2015. §3(6) of the 1^st and 2^nd Defendants’ Amended Defence names seven partners (including the Deceased, the 1^st and 2^nd Defendants and persons not parties to the present proceedings) and specifies their shares, including the Deceased with 5%. On the pleadings, therefore, there appeared a dispute over the number of partners.

46.  Inconsistent with her own Amended Statement of Claim, I §17 of her Witness Statement, the Plaintiff said:-

“在2016年11月某一天，本人與呂松、邱文益及聯發公司其他股東或持份者，包括一名叫章偉旋… 的股東、呂松的兒子呂保堅、李先生的其中一名兒子李志富等，於荃灣一所荼樓出席會議…” (emphasis added)

47.  The 2^nd Defendant’s evidence is inconsistent with the Defendants’ case that there were seven partners. In cross-examination, the 2^nd Defendant explained that the other “partners” than the Deceased, the 1^st and 2^nd Defendants were “shadow partners” (暗中股東). Ricky Lui’s evidence is, however, consistent with the Defendants’ case that there were seven partners.

48.  During the closing submissions, both parties confirmed that their respective cases were the same here – only the Deceased, the 1^st and 2^nd Defendants were the only partners of the Last Partnership. Therefore, I do not need to assess the inconsistent evidence above, and both parties should be bound by their confirmation, which I accept as a fact here.

49.  I now turn to the Issues.

IX. ISSUE (1): WAS THE LAST PARTNERSHIP GOVERNED BY THE 1970 PARTNERSHIP AGREEMENT?

50.  By my analysis in §§34-43 above, I find that the Last Partnership was not governed by the Partnership Agreement.

X. ISSUE (2): WAS THE PARTNERSHIP DISSOLVED AT THE DEATH OF THE DECEASED?

51.  By my analysis in §§34-41 above, I find that the partnership, that is, the Last Partnership, was dissolved at the death of the Deceased on 17 September 2016.

XI. ISSUE (3): IS THE PLAINTIFF ENTITLED TO THE RELIEF UNDER SECTION 44 OF THE PARTNERSHIP ORDINANCE?

A. The law

52.  Section 44 of the Partnership Ordinance provides:-

“44. Rights of outgoing partner in certain cases to share profits made after dissolution

Where any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business of the firm with its capital or assets without any final settlement of accounts as between the firm and the outgoing partner or his estate, then, in the absence of any agreement to the contrary, the outgoing partner or his estate is entitled, at the option of himself or his representatives, to such share of the profits made since the dissolution as the court may find to be attributable to the use of his share of the partnership assets, or to interest at the rate of 8 per cent per annum on the amount of his share of the partnership assets:

Provided that where, by the partnership contract, an option is given to surviving or continuing partners to purchase the interest of a deceased or outgoing partner, and that option is duly exercised, the estate of the deceased partner or the outgoing partner or his estate, as the case may be, is not entitled to any further or other share of profits; but if any partner assuming to act in exercise of the option does not in all material respects comply with the terms thereof, he is liable to account under the preceding provisions of this section.”

53.  In other words, if the following conditions are all satisfied:-

(1) any member of a firm has died or otherwise cases to be a partner (“Condition (1)”);

(2) the surviving or continuing partners carry on the business of the firm (“Condition (2)”);

(3) with [the firm’s] capital or assets (“Condition (3)”);

(4) without any final settlement of accounts as between the firm and the outgoing partner or his estate (“Condition (4)”); and

(5) the surviving or continuing partners do not or do not properly exercise any rights conferred upon by the partnership contract (if any) to purchase the interest of the deceased or the outgoing partners (“Condition (5)”);

then, the outgoing partner or his estate is entitled to choose either:-

(a) such share of the profits made since the dissolution as the court may find to be attributable to the use of his share of the partnership assets; or

(b) interest at the rate of 8 per cent per annum on the amount of his share of the partnership assets.

54.  To determine the extent of the profits attributable to the use of the outgoing partner’s share of the partnership assets is not simply referring to the share held by the outgoing partner. It is a task of complexity. The Court has to look at, among others, the nature of the business and how profits are made (for example, whether the profits are more from the assets themselves or from the skills of the continuing partners), to determine how much the partnership’s assets attribute to the profits: see Lindley and Banks on Partnership, supra, §§25-44 – 25-51.

55.  Given the complexity of the task, usually the outgoing partner or the estate would choose option (b): see Lindley and Banks on Partnership, supra, §25-53.

56.  But before all that, the fundamental question is: are the Conditions satisfied?

57.  It is clear that Conditions (1) and (5) are satisfied. The disputes are over Conditions (2), (3) and (4).

B. Conditions (2): “business of the firm” carried on?

58.  Mr Brian Chok, counsel for the 1^st and 2^nd Defendants, submits that the “business of the Last Partnership” was not carried on.

59.  There is no definition on “business of the firm”. From its natural and ordinary meaning, it means the business of the previous partnership. In my view, it is not necessary that it should be exactly the same as the business of the previous partnership. It is sufficient if it is substantially the same. An ordinary person would look at all the relevant circumstances, including (non-exhaustively) the nature of the business, the place of the business and how long the two businesses were apart in terms of time, to determine whether they are substantially the same.

60.  In the present case, both the business of the Last Partnership and that of the Post-2017 Luen Fat are mahjong business. Although the commencement of the business of the Post-2017 Luen Fat was more than a year apart from the Last Partnership, the reason was that the application for a new Mahjong licence would take time. Further, the Post-2017 Luen Fat is carried out in the same Business Premises.

61.  On balance, I find that the Post-2017 Partnership carried on the “business of the firm”. Thus, Condition (2) is satisfied.

C. Condition (3): With the Last Partnership’s capital or assets?

62.  For Condition (3), upon my finding that the previous partnership business was carried on, the burden lies upon the Defendants to prove that the partnership assets were not utilised to generate profits in the business being carried on: see Manley v Sartori [1927] 1 Ch 157 at 165, a case on the English equivalent of section 44 of the Partnership Ordinance; adopted in Chu Ka Sun Winston & Another v Mo Wan Lung Peter & Others [1985] 2 HKC 365 at 370G per Clough J. Although the latter is not a case on section 44 of the Partnership Ordinance, the reason for the burden of proof was adopted.

63.  Since the burden lies upon the Defendants, it is no answer by saying that the Plaintiff has not properly pleaded what assets were utilised: see Chu Ka Sun Winston & Another v Mo Wan Lung Peter & Others, supra at 372D-E.

64.  I start with the following evidence first, which is largely not in dispute.

(1) The last financial statements of the Last Partnership, for the period ended on 31 December 2016, shows that the fixed assets were disposed of at a total loss of HK$1,141,441, and an amount of cash of HK$4,474,124 was left in the account. This amount of cash represented the net asset value based on which the amount of the Deceased’s entitlement upon the dissolution of the Last Partnership. The Cashier Order for the payment was issued (although the Plaintiff refused to accept it), and therefore, on balance, I find that the cash was not left for the Post-2017 Luen Fat to use.

(2) Although the Cashier Order was issued only in June 2019, any suggestion that the amount was utilised by Post-2017 Luen Fat was not supported by the accounts, which would have shown, but actually did not show, that certain amount of cash was withdrawn. If such amount had been kept in a safe left unaccounted for in the accounts (a practice adopted by the Last Partnership), it would mean that the share had been kept in the safe un-utilised.

(3) As regards the fixed assets, whether they were simply left in the Business Premises or removed therefrom is not clear from the financial statements. When one looks at the first financial statements of the Post-2017 Luen Fat, it had no fixed assets for the period from 1 January 2017 to 31 March 2018. This means that the Post-2017 Luen Fat did not acquire the fixed assets even if the assets were simply left in the Business Premises. For this period, no revenue was made and the business suffered a net loss of HK$1,805,743. This 15 months of loss accords with the fact that the Post-2017 Luen Fat did not have the requisite licence to carry out the Mahjong business until 10 September 2018. This tends to show, even assuming that the assets were simply left in the Business Premises, that the assets were not utilised at all.

(4) In this regard, Mr Pang (for the Plaintiff) submits that it is unlikely that the assets would simply be disposed of or written off, and as a matter of law, the partnership assets could not be disposed of in such a way without all the partners’ consent. He submits therefore that the likelihood is that whether disposed of or written off on the books, the assets were utilised. I agree that he may be right. But I should look at all the relevant evidence holistically bearing this likelihood.

(5) The financial statements of the Post-2017 Luen Fat, for 1 April 2018 to 31 March 2019, shows that fixed assets of HK$750,533 were acquired. The substantial increase from nil in the previous financial statements to this HK$750,533 in the financial statements for 1 April 2017 to 31 March 2019 must mean that the Post-2017 Luen Fat acquired assets during the period. This tends to show that the assets of the Last Partnership were not utilised.

(6) In respect of the Defendants evidence that the Post-2017 Luen Fat acquired new tables, new air conditioners, new CCTVs and new water heaters, the Plaintiff had to accept that because she did not participate in the management and operation of the Post-2017 Luen Fat, she does not have the knowledge to affirm or deny.

65.  In my view, the Defendants have, by the above evidence, made out a prima facie case that the partnership assets have not been utilised.

66.  During the opening submissions, Mr Pang (for the Plaintiff) clarified that the assets utilised, according to the Plaintiff’s case, are (a) the Deceased’s share of profits and remunerations retained by the Last Partnership (“Asset (a)”); (b) goodwill (“Asset (b)”); and (c) the décor, apparatus and equipment (“Asset (c)”).

67.  For Asset (a), namely, the Deceased’s share of profits and remunerations retained by the Last Partnership. The share of profits and remunerations would stay on the debit side of the Last Partnership’s balance sheet as assets. I therefore accept that without any distribution, these would be the assets of the Last Partnership.

68.  Though not distributed, the amount under the Cashier Order issued in June 2019, as analysed in §64(2) above, was not utilised in the Post-2017 Luen Fat. However, the Defendants’ case that this amount was all the Deceased’s entitlements is not necessarily true. If the Deceased’s entitlements go beyond this amount, this means that there were some cash or other forms of assets of the Last Partnership not accounted for, in the absence of any suggestion that the 1^st or 2^nd Defendant obtained more than they were entitled to. If there were some cash or other forms of assets unaccounted for, then in my view, the Defendants would not be able to discharge their legal burden of proof that they did not utilise the Deceased’s share beyond the amount under the Cashier Order.

69.  The question is, should I make any finding that the Deceased’s entitlements go beyond the amount represented by the Cashier Order. To answer this question, in my view, the completeness of the accounts and financial statements is crucial. If they are complete, then I can see no reason to say that there was any part of the Deceased’s unaccounted for and that the Deceased’s entitlements would go beyond the amount represented by the Cashier Order. If they are incomplete, then I would see whether it is appropriate to find that the Deceased’s entitlements would go beyond the amount represented by the Cashier Order.

70.  It is convenient at this juncture to mention that on 12 July 2022, upon the Plaintiff’s application, Master Sabrina Ho granted an Order, inter alia, that the 1^st and 2^nd Defendants do within 7 days from the date of the order disclose, among others the books and accounts, journal entries, ledgers, vouchers and financial statements (audited and unaudited) of the Mahjong business between 1 January 2013 and 31 December 2021. The Defendants have produced, among others, financial statements, ledger accounts and trial balance sheets.

71.  The 1^st and 2^nd Defendants, via the 3^rd Defendant’s affirmation, say that they have disclosed all they have in power, custody and power. They say that in 2017 and 2018, because the attic above the Business Premises, four to five decades old, was flooded during typhoons, the records of the Last Partnership stored in the attic were destroyed or were not in good conditions, and when tidying up the Business Premises in October 2018 in preparation for the commencement of business of the Post-2017 Luen Fat, the documents, either destroyed or in poor conditions, were discarded. The Defendants managed to disclose the aforesaid documents because they were copies kept by the accountant firm which prepared financial statements for the Last Partnership. This explanation is contrary to the Defendants’ admission in §15 of the Amended Defence, verified by the 1^st and 2^nd Defendants but not Ricky Lui, that “the books and accounts of the Last Partnership are in possession of the Defendants”.

72.  The 2^nd Defendant, when giving oral evidence, was not asked about this inconsistency. Ricky Lui, who did not sign the statement of truth for the Amended Defence, was. In answer, Rick Lui could not explain the inconsistency. However, since the 2^nd Defendant was not asked about the inconsistency, I do not think it fair to draw any adverse inference simply on this inconsistency.

73.  But such inconsistent explanation remains. Not only that. Even on the Defendants’ own evidence, in respect of the amount of HK$312,696.20 under the Cashier Order, certain parts have not been accounted for. The components of this sum, according to the Defendants, are:-

(1) share of the Deceased as a partner: HK$223,706.20 (being his share of the net value of the assets of the partnership);

(2) salaries: HK$57,200;

(3) annual bonus: HK$12,800; and

(4) tips: HK$18,990.

74.  While I can see from the disclosed ledgers and the financial statements the book value of the partnership assets and can understand how HK$223,706.20 is arrived at (by the Deceased’s 5%) as share of the partnership assets, as Mr Chok (for the Defendants) fairly accepts, there is no plea and no evidence, whether from the ledgers or financial documents, Ricky Lui or the 2^nd Defendant, or otherwise, as to how the Deceased’s salaries, bonus and tips are worked out. One would expect that such information would be available in the ledgers, but the disclosed ledgers do not show a shred of such information at all. Mr Chok cannot give any explanation on how, either. This means, and so I find, that the 1^st and 2^nd Defendants did not keep proper accounts of the partnership at least in respect of the Deceased’s liabilities.

75.  Not only did they fail to keep proper accounts of the partnership’s liabilities vis-à-vis the Deceased, they also failed to keep proper accounts of the partnership’s assets. During cross-examination, Ricky Lui said, and during re-examination, he confirmed again, that there was some HK$1,000,000 odd cash left in the safe which was all distributed to the partners in late December 2016 or early 2017. This amount obviously was not recorded in the financial statements of the Last Partnership ended on 31 December 2016 only. The balance sheet only shows the cash in the bank in the sum of HK$4,474,123.70, the very sum on which the Defendants say the Deceased’s share of the partnership assets is based. In the absence of any evidence or even suggestion that for the HK$1,000,000 odd cash in the safe, the Deceased had already obtained his share and so this was not included in the amount represented under the Cashier Order, this must mean that the HK$1,000,000 odd cash in the safe was unaccounted for and the Deceased’s share to the cash in the safe had not been distributed to the Deceased.

76.  Where appropriate, if a partner responsible and in control of the partnership does not keep proper accounts, the Court may, with no diffidence, draw inference against that partner: see Al-Najjar v Mujeed [2022] EWHC 686 (Ch) at §42 per Charles Morrison (sitting as Deputy Judge of the High Court).

77.  In the present case, as discussed above, there is no breakdown or any explanation for the amounts of the debts due and owing to the Deceased, and there is basis for me to find that the Deceased’s share to the unaccounted cash in the safe had not been distributed to the Deceased. In such circumstances, I draw an inference from the absence of a complete account of the partnership’s liabilities and assets, that the Deceased’s entitlements go beyond the HK$312,696.20 represented under the Cashier Order.

78.  Logically, that this amount did not show up in the accounts of the Last Partnership produced before me does not necessarily mean that this amount has been utilised by the Post-2017 Luen Fat to generate profits. However, the burden lies upon the Defendants to disprove that this amount has been so utilised, but the Defendants have not adduced anything about this amount. It is no answer for the Defendants to rely on the financial statements of the Post-2017 Luen Fat because there is simply no evidence as to the source of funds of the Post-2017 Luen Fat.

79.  In the circumstances, the Defendants fail to discharge their burden to disprove, and therefore I find, that the amount beyond has been utilised by the Post-2017 Luen Fat.

80.  Therefore, Condition (3) is satisfied.

81.  I do not need to find what this amount beyond the Cashier Order is. As Mr Pang (for the Plaintiff) submits that once I am satisfied that some of the Last Partnership’s assets have been utilised, it is not necessary for me to make any definitive findings on what assets have been utilised and what not. He relies on the following dicta in Chu Ka Sun Winston & Another v Mo Wan Lung Peter & Others, supra at 370:-

“Citing Manley v Sartori [1927] 1 Ch 157, Mr Thomas rightly contended that once it was established that some use had been made of the partnership assets by a former partner for his own profit subsequent to dissolution the court should not enquire further at the trial but should order an account in terms similar to that ordered by Romer J in that case.”

82.  I accept this as a general proposition of law. The reason is obvious – upon proper compliance with a court order for taking of account, more information may come up as to what assets have been used and how they have been used. It is therefore inappropriate for the court at this stage to go further. For completeness sake, I should mention that there are the exceptions to this general rule: see Lindley and Banks on Partnership, supra, §§23-119 and 23-378, but Mr Pang (for the Plaintiff) does not rely on any of these exceptions.

83.  In the context of section 44 of the Partnership Ordinance, this general rule still applies. This is because only upon taking of the partnership account can then there be proper basis to know what exact assets have been utilised and how.

84.  During closing submissions, there was an exchange between the Bench and the Bar Table on a possible scenario where during the taking of account, no evidence of this amount beyond the Cashier Order could be found. Since I am not dealing with the taking of account, I do not have to express any view on this, save and except that I note Mr Pang (for the Plaintiff)’s submissions that in that scenario, the Court would simply find that no profit has been generated from that amount, without the need for that Court there to overrule or set aside my finding here that the amount has been so utilised to generate profit.

85.  In the event that I would have to make any findings on Asset (b) and Asset (c), I would make the following findings.

86.  For Asset (b), namely, goodwill, there is no plea of any particulars and no evidence of how the alleged goodwill was established. For example, how much the Last Partnership spent on advertisement and other kind of promotion with reference to “Luen Fat”, and any revenues made as a result of such promotion. These are all the basic elements one would find in any pleading and evidence for goodwill. However, there is none. Therefore, on the evidence, I would find no goodwill owned by the Last Partnership, and it follows that no goodwill of the Last Partnership has been used by the Post-2017 Luen Fat.

87.  In relation to Asset (c), namely, the décor, apparatus and equipment (by which the Plaintiff means the décor, apparatus and equipment in the mahjong room of the Business Premises), there are no photographs for comparison. The only evidence is the Plaintiff’s own evidence. According to her, during her three visits (viz, on 26 February 2019, 8 March 2019 and 8 April 2019) to the Business Premises in 2019 to discuss or demand for the Deceased’s share of profit and remunerations etc, she saw that the décor, apparatus and equipment was the same as that before the Deceased passed away in 2016. During cross-examination, when asked how she saw the décor, apparatus and equipment, the Plaintiff said that:-

(1) Her stay during the three visits was about 30 minutes each.

(2) She was able to take a look at the mahjong room of the Business Premises when the door to the mahjong room was opened by the staff who went into the mahjong room to look for the 2^nd Defendant whom the Plaintiff was asking for.

(3) During the three visits, the Plaintiff and her solicitors would discuss the matter with the 2^nd Defendant in the storage room near the accountant room. On all the occasions, she did not go through the mahjong room to reach the storage room. Further, the storage room was partitioned from the mahjong room such that there was no way for anyone in the storage room to look through into the mahjong room.

88.  In such circumstances, her impression could only be rough. I cannot rely on such rough impression to say that the same décor, apparatus and equipment has been used by the Post-2017 Luen Fat.

89.  In any event, for the Plaintiff to be in a position to say that the décor, apparatus and equipment were the same, the Plaintiff would have to have a detailed recollection of the mahjong room of the Last Partnership. However, having heard her evidence on this matter, I find that she did not have any such recollection at all, because in the first place, she had not had acquired any such recollection:-

(1) For the first time, she alleged that she paid visits to the Business Premises a few times before the Deceased passed away. She mentioned the years 2008, 2010, 2013-2014. If this were true, such important evidence would have been mentioned in her witness statement. However, this was not. There is no reason for not raising this earlier. I therefore reject such evidence as incredible.

(2) In any event, according to the Plaintiff, during these visits, she mostly stayed in the accountant room, with once or twice getting to the mahjong room briefly. She mainly watched the CCTV screens in the accountant room. According to her, there were 3-4 CCTVs and there were three screens. One screen was about 40-50 inch large while the other two were about 20 inch large, and they were both in colour. Such evidence was mentioned for the first time, and I reject such evidence as incredible.

(3) Further and still in any event, the Plaintiff admits in cross-examination that the CCTVs were aimed at the mahjong tables but not the décor, apparatus and equipment. Therefore, if the Plaintiff alleges that she got an idea from the CCTVs of how the décor, apparatus and equipment looked like, I would disregard her such allegation.

(4) Insofar as there is any suggestion that such CCTVs should still give an idea of how the mahjong tables looked like, absent any special details, I do not accept any such suggestion because mahjong tables would look more or less the same through the CCTV screens and it is difficult, if not impossible, to tell whether the same tables remained after 2017.

90.  In other words, there is no basis for the Plaintiff to make any comparison to say that the décor, apparatus and equipment were the same.

91.  Lastly, I should mention that the Plaintiff accepts that the mahjong tables were electrical tables and would have to be replaced every 2-3 years. Given that the tables were not used for the period of 2017 and part of 2018, and there had been renovation in September 2015, the likelihood is that the Post-2017 Luen Fat replaced them, even if the tables were left in the Business Premises.

92.  Having considered the above evidence in relation to Asset (a), I would find that the Post-2017 Luen Fat has not utilised the décor, apparatus and equipment of the Last Partnership.

D. Condition (4): Any final settlement of accounts of the Last Partnership?

93.  A settled account of a partnership means an account agreed between all the partners: see Lindley and Banks on Partnership, supra, §23-183.

94.  Here, the Defendants have not been able to explain how the figure in the Cashier Order was worked out, except for the part relating to the net asset value. Further and in any event, even on the Defendants’ evidence, the Plaintiff refused to accept the Cashier Order. Thus, the account has not been agreed, and there has been no settlement of account at all. This Condition is satisfied.

E. Remedy under section 44

95.  In conclusion, all the Conditions in section 44 of the Ordinance are satisfied.

96.  As mentioned in §53 above, there are options (a) and (b) for the Plaintiff to choose as the remedy. Since I shall order taking of account only at this stage, there is no need for the Plaintiff to elect, and for me to decide, on the remedy. The Plaintiff, however, will have to during the taking of account.

XII. ISSUE (4): HAVE THE 1^ST AND 2^ND DEFENDANTS MISAPPROPRIATED ASSETS AND FUNDS BELONGING TO THE PARTNERSHIP BY ESTABLISHING THE POST-2017 LUEN FAT AND HOLD THE MISAPPROPRIATED ASSETS AND TRACEABLE PROCEEDS AND THE PROFIT GENERATED THEREFROM ON TRUST?

97.  For the claim of misappropriation, the burden lies upon the Plaintiff. The Amended Statement of Claim is not very clear on what assets were misappropriated. Mr Pang (for the Plaintiff) confirmed during the Opening Submissions that they are the same assets which the Plaintiff claims have been utilised by the Post-2017 Luen Fat, that is, those set out in §66 above. For the same reasons, I find that there has been misappropriation of the Deceased’s share of the Last Partnership beyond the HK$312,696.20, and that there is no misappropriation of goodwill and décor, apparatus and equipment.

98.  I should add that normally for a claim of misappropriation, the amount misappropriated is known. In my view, in the context of partnership and in the present circumstances, where section 44 is also invoked and an account is to be taken, it is an exception that the amount misappropriated is left unknown until the taking of the account.

XIII. ISSUE (5): HOW MUCH SHARE OF PROFIT DID THE DECEASED GENERALLY RECEIVE PER MONTH?

99.  There are two questions here. The first is what the Deceased’s share of the Last Partnership was. The second is what was the usual amount the Deceased received. The second question seems unnecessary in the light of Mr Pang’s seeking for an account only. But since I have heard the evidence, for completeness sake, I would still make findings in the event that such findings would be necessary. I emphasise that the second question is in relation to the Deceased’s receipts in the past. The actual amounts the Deceased was entitled to is another matter, and can only be known upon taking of account.

100.  For the first question, initially, the Plaintiff appeared to say that the Plaintiff’s share was all along 12.5% as stated in the Partnership Agreement. However, in all likelihood, the share of the Deceased was entitled to under the Partnership Agreement could not be necessarily the same as under the Last Partnership for the reasons that first, the partnerships were not the same; second, the Partnership Agreement, as I found above, does not govern the Last Partnership; and third, the numbers of partners were not the same.

101.  As mentioned above, in §11 of his Witness Statement, the 2^nd Defendant, who was one of the partners of the Last Partnership, lists out the shares of the Last Partnership as follows:-

(1) The Deceased: 5%;

(2) The 1^st Defendant: 2.5%;

(3) The 2^nd Defendant: 25%;

(4) Ricky Lui: 2.5%; and

(5) Others: the remaining 65%.

102.  During cross-examination, the Plaintiff changed her stance and accept that for the Last Partnership, the Deceased’s share was 5%. She made some explanation that there had been unilateral dilution and there should have been changes in 2005 to 2015. I must say that the evidence in this respect is confusing. But the long and short of her evidence is that she accepts that for the Last Partnership, the Deceased’s share is 5%.

103.  On such evidence, I find that the Deceased’s share of the Last Partnership was 5%.

104.  For the second question, the Plaintiff’s evidence is that the Deceased would receive a total of over HK$100,000 in cash each month as his share of profit. In §8 of her Witness Statement, she gave the following breakdown:-

(1) Licence holding fee: HK$400 per day;

(2) Toi Jo (抬租): HK$500 per day (being 12.5% of a total of HK$4,000 per day);

(3) Partner’s salary: HK$100 per day;

(4) Daily bonus: being the partners’ share of the 20% of commission or tips (抽水): HK$700 – 1,500 per day;

(5) Month-end bonus: depending on the profits of that month: HK$50,000 – HK$100,000 per month; and

(6) Dividend (冬息): HK$18,000 each year.

105.  The existence of these items (not the amounts) is supported by the writings put on the brown envelopes containing the payments for the Deceased which the Plaintiff says she received from Lam Sung (the bookkeeper of the Last Partnership) on behalf of the Deceased during his lifetime. Further, the Defendants do not dispute the amount of Items (1) and (3). For Item (2), the Plaintiff, having accepted that the Deceased’s share was 5% only instead of 12.5%, it should be HK$200. For the remaining Items, since they depended on the profits made, the Defendants dispute.

106.  Since Lam Sung was the bookkeeper of the Last Partnership, he would have assisted the Court if he would give evidence. However, neither side called him to give evidence. The Plaintiff says that she did not think about calling him because he had from time to time said that he could not be of any use to her and asked her to go after the 1^st Defendant for whom he had already given the Deceased’s share of money to keep. In response to why she did not summon him to give evidence, the Plaintiff says that she does not have the address of Lam Sung, although before mid-2023 (when she was preparing her own witness statement for the present litigation), she was still able to reach him by phone.

107.  The Defendants could call Lam Sung, but did not. They did not do so because they did not think that the present litigation concerns him.

108.  In my view, neither side has provided any good reason not to call Lam Sung to give evidence, or at least ask Lam Sung to prepare a written statement or affirmation. As such, I do not think it appropriate to draw any adverse inference against any party from the absence of Lam Sung.

109.  For the Plaintiff’s case of such substantial amounts due and owing to the Deceased, the ledger accounts would have shown the same. However, on the fact of it, they do not.

110.  The main part of the Plaintiff’s case on the amount is that a substantial amount of the Deceased’s entitlements was put under “Entertainment – Red Packet”. The Plaintiff’s case is that this item is not expenses as the Defendants allege but is in fact the partners’ daily and monthly bonuses. This is one of the main planks based on which the Plaintiff sets out her case that the total amount the Deceased was entitled to should be more than HK$100,000, because otherwise, based on the ledgers and the financial statements, the Plaintiff could not point to anywhere to say that the Deceased was entitled to such a big sum (unless the ledgers and the financial statements were inaccurate, but I have found to the contrary above). In the words used in §34(f) of her Witness Statement, after the Plaintiff tabularised in §34(e) the “Entertainment – Red Packet” expenses shown in the ledgers produced by the Defendants for September 2018 to March 2020 totalling HK$1,591,062.50,:-

“本人相信，‘娛樂 – 紅包’ 此項支出，實際為分派予各股東之日花紅及月尾花紅。” (original emphasis)

111.  In cross-examination, the Plaintiff explained that she was aware that before cigarettes were prohibited in public premises, Luen Fat gave cigarettes to customers and the expenses for that were booked under “Entertainment”. She was also aware that after cigarettes were prohibited, red packets of HK$30 each were given instead. She also frankly admitted that she did not have personal knowledge of whether the amount would be more than HK$30 depending on what Mahjong games the customers played, and that the Deceased would know more. She also accepted during cross-examination that to her knowledge, these red packets were, like the cigarettes, booked under “Entertainment”.

112.  When pointed to the obvious inconsistency between her oral evidence and §34(f) of her Witness Statement, she could not offer any explanation. She just said that she could not estimate the amounts of the expenses of “Entertainment”. This is besides the point.

113.  I also note the 2^nd Defendant’s explanation that if the Deceased, holding 5%, would receive almost HK$100,000 per month as the Plaintiff alleges, then this would mean that the business would have made a very substantial profit. The 2^nd Defendant says that only persons who do not know the business would say so. I do accept that the 2^nd Defendant’s explanation does cast doubt on the Plaintiff’s evidence.

114.  On the other hand is the failure to keep proper accounts of the Last Partnership, as I have found in §§75-75 above.

115.  Having considered all these, if I would have to make a finding on the amounts the Deceased usually received, on balance, I would draw the following adverse inferences in favour of the Plaintiff from the 1^st and 2^nd Defendants’ failure to keep proper account:-

(1) Licence holding fee: HK$400 per day;

(2) Toi Jo (抬租): HK$200 per day (being 5% of a total of HK$4,000 per day);

(3) Partner’s salary: HK$100 per day;

(4) Daily bonus: being the partners’ share of the 20% of commission or tips (抽水): HK$1,000 per day (there is no evidence of exact figure and drawing adverse inference cannot point to any exact figure, and this figure is the best I can do);

(5) Month-end bonus: depending on the profits of that month: HK$75,000 (there is no evidence of exact figure and drawing adverse inference cannot point to any exact figure, and this figure is the best I can do); and

(6) Dividend (冬息): HK$18,000 each year.

XIV. RELIEF

116.  In the circumstances, I make the following order against the 1^st and 2^nd Defendants:-

(1) There shall be taking of the partnership account of the Last Partnership as at 31 December 2016, including an account of all the Deceased’s entitlements.

(2) There shall be an account of and inquiries into what assets of the Last Partnership have been utilised by the 1^st and 2^nd Defendants in the Post-2017 Luen Fat and how they have been so utilised, including any profits generated by the utilisation of the assets.

(3) There shall be tracing of the assets and any profits generated by the utilisation of the assets.

117.  As regards costs, Mr Chok (for the 1^st and 2^nd Defendants) asks me to order that the costs shall be paid out of the Last Partnership. However, I do not see why costs should not follow the event especially when I have found that the Defendants have misappropriated and utitilised the assets of the Last Partnership.

118.  There should be apportionment of costs, because only during the Opening Submissions did the Plaintiff abandon her stance that the Partnership Agreement governed the Last Partnership. In my view, a considerable amount of time and costs had been incurred on this issue. I shall apportion 15% to this abandoned issue. Therefore, the Plaintiff would be entitled to 85% of the costs and the Defendants would be entitled to 15% of the costs. Adopting a broad-brush approach, setting off each other, the Plaintiff would be entitled to 70% of the costs.

119.  Therefore, I make a costs order nisi that the Defendants shall pay the Plaintiff 70% costs of the action (including all costs reserved), to be taxed if not agreed. For the avoidance of doubt, there shall be certificate for one counsel only.

120.  Lastly, I thank Mr Pang, Mr Pannu-Yuon and Mr Chok for their assistance.