CHAN PAT t/a HOP KWAN GARMENT FACTORY v. LIN WAN GARMENT FACTORY (a firm)

IN THE COURT OF APPEAL

1987, No. 5
(Civil)

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JUDGMENT

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Cons, V.-P. delivered the judgment of the Court:

1. This is an appeal by Chan Pat, trading as the Hop Kwan Garment Factory, against the dismissal of his claim against the Lin Wan Garment Factory, which is a firm.

2. The substance of the Appellant's case below was that through his son, who ran the business for him, he lent $50,000 to the Defendant firm, which sum has not been repaid; the money was paid to, and at the request of, one of the partners of the Defendant firm, a Miss Wong Wai Yin; she gave a written acknowledgement on the letterhead or the firm, to which she also applied one of the firm's chops.

3. At the trial the Appellant's son and Miss Wong gave evidence which, inter alia, supported the case as we have outlined it.

4. The other three partners in the Defendant firm put in a Defence drafted by their solicitors. It accepted that Miss Wong was a partner but otherwise put the Appellant to the proof of his allegations. In addition it raised two defences, firstly, that the loan was made without the knowledge or authority of the other partners; secondly, that the loan was not made in the ordinary course of the Defendant's business.

5. When it came to the trial the three partners were no longer professionally represented. Their case was conducted by one of their number, Mr. Fong Wing Yat, who was the only witness called on their behalf.

6. The judge found in favour of the opposing partners. He gave three separate reasons, each of which would appear in his view to justify his decision:

1. The partnership had already been dissolved by the time the loan was made;

2. The Applicant, through his son, knew that Miss Wong had no authority to bind the firm by way of borrowing money; and

3. The loan was made to Miss Wong personally.

7. Neither the first nor the third matter was raised by the Defence. Of course, by the Rules of the District Court a judge is allowed to raise issues for himself. That can be a useful provision. But if he does so we would expect, at least where one of the parties represented, that he would inform counsel of what he has in mind and, where appropriate, allow further evidence to be called. If that course is not followed, it will almost inevitably lead to difficulty, as it did here.

8. With respect to the judge, there was no evidence to support a dissolution of the partnership. Undoubtedly the opposing three partners had it in mind, but they never got to the stage of agreeing with Miss Wong as to how it should be done. Instead things were allowed to drift on and indeed, from what Mr. Fong has told us today, resolution of the partnership still has not been achieved. Furthermore, continuance of the partnership was accepted by those responsible for the Defence. Paragraph 2 contains an express admission, in relation to the making of the loan, that Miss Wong was a partner.

9. It is equally difficult to find evidence to support the third reason given by the judge, that is that the loan was made to Miss Wong in her personal capacity. Mr. Fong Wing Yat did not, and of course could not, testify to that. Both the Appellant's son and Miss Wong said the loan was for the company. All the documents support their contention.

10. We are left then with the important question "Did Miss Wong have authority to borrow the money so as to bind' the firm?" If the answer to that is 'no', we must then ask "Did the Appellant know that she had no authority."

11. Every partner has authority by law to bind the partnership in transactions entered into in the usual way of business of the firm[1]. It is well established that in the case of a trading company, which this is, borrowing money is part of the ordinary course of business[2]. There can, of course, be express agreement among the partners to the contrary. The judge seems to have assumed that to be the position here. He said -

"In view of the history of the dispute among the partners which started from October 1985, PW3 (Miss Wong) had no authority of the firm to borrow money …"

But in reality that is no more than a reiteration of his view that by the time the loan was made the partnership had already been dissolved. We have already explained how that has not been made out. So we have the position that Miss Wong borrowed money in the name of the firm, in the ordinary course of business, the partnership still being, albeit reluctantly, in existence. It must follow then that the partnership as a whole is liable for the debt. With respect to the judge below he was wrong in the conclusion to which he came.

12. It may perhaps be cold comfort to the other partners to know that there are two other reasons why, even if Miss Wong did have in fact no authority, the partnership would nevertheless still be liable for the money. Firstly, there is no evidence to show that the Appellant knew the position. He admitted to knowing of her disputes with the other partners, but it does not necessarily follow that they had withdrawn her authority to act. Indeed they could not unilaterally do that. Secondly, equitable principles would have intervened. Where money is borrowed without authority, but is even so in fact expended in the interests of the partnership, equity holds the partnership as a whole liable for its repayment[3].

13. For all these reasons the appeal must be allowed, the judgment below set aside and in its stead judgment entered for the sum as claimed with interest thereon at the rate of 7% from the 19th August 1986 until today.