CHEUNG HAU CHUN v. TO SUET CHUN AND OTHERS

HCA 1259/2015

[2022] HKCFI 2761

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1259 OF 2015

_______________

_______________

___________________

J U D G M E N T

(on accounts and inquiries)

__________________

A.   Introduction

1.  By Writ of Summons issued on 9 June 2015, the plaintiff commenced the present action against the defendants to resolve a partnership dispute arisen out of a construction business in the name of Tai Dou Building Contractor (大道建築公司) (“Tai Dou”). 

2.  The trial of the action eventually took place before Linda Chan J from 3 to 6 November 2020.  By a Judgment handed down on 2 February 2021 (“Judgment”) (see [2021] HKCFI 264 for the reasoned Judgment), her Ladyship adjudged and declared that:-

(1)  By virtue of the Partnership Agreement dated 7 December 2010, a partnership between the plaintiff and the 1^st to 3^rd defendants was constituted to carry on the business of Tai Dou from 23 August 2010 (“Partnership”) and that the Partnership was dissolved on 15 August 2012. 

(2)  The plaintiff held 25% interest in the Partnership in his own right. 

She further adjudged, inter alia, that:-

(3)  The following accounts and inquiries be taken in respect of the Partnership for the period from 23 August 2010 to 15 August 2012 (“Relevant Period”):

(a)  All the dealings, transactions, credit and assets belonging to the Partnership for the Relevant Period;

(b)  All the debts and liabilities of the Partnership, if any, during the Relevant Period;

(c)  An inquiry as to what sums have been received by the 4^th defendant in respect of the Partnership’s business, credit, assets or capital and what have become of them;

(d)  An inquiry as to the whereabouts of the Partnership’s credit and assets received by the 4^th defendant or Tai Dou during the Relevant Period. 

(4)  The 4^th defendant do provide an account in respect of the matters described in paragraph 3(a)-(d) above, together with supporting documents, within 42 days from the date of the Judgment.  

3.  Directions were subsequently given by her Ladyship for the service of verified accounts and for the production and inspection of documents.  By paragraph 4 of her Ladyship’s Order dated 23 November 2021, the plaintiff was granted leave to fix a hearing for the taking of accounts before a Master with 2 days reserved. 

4.  This is my judgment on the taking of accounts and the making of inquiries.  The background and issues are set out at paragraphs 6 to 44 of her Ladyship’s reasoned Judgement which I gratefully adopt. 

B.   THE EVIDENCE

5.  Each of the parties has filed affirmation evidence for the purpose of these accounts and inquiries proceedings.  The 2^nd, 3^rd and 4^th defendants attended the hearing in person^[1] and the 2^nd defendant was cross-examined by the plaintiff’s counsel at the hearing. 

6.  Despite the number of affirmations filed, the only primary documentary evidence relevant to the scope of the accounts and inquiries consists of the following:-

(1)  Audited financial statements of Tai Tou for the period from 1 April 2009 to 31 March 2010 issued by Richard S K Chan & Co (“RSKC”);

(2)  Audited financial statements of Tai Tou for the period from 1 April 2010 to 31 March 2011 issued by RSKC (“2010-2011 Audited Accounts”);

(3)  Audited financial statements of Tai Tou for the period from 1 April 2011 to 31 March 2012 issued by RSKC (“2011-2012 Audited Accounts”); and 

(4)  Audited financial statements of Tai Tou for the period from 1 April 2012 to 31 March 2013 issued by RSKC (“2012-2013 Audited Accounts”).

7.  Apart from what has been presented in those audited accounts, there is no affirmation or documentary evidence showing “the dealings, transactions, credit and assets belonging to the Partnership for the Relevant Period” or “the debts and liabilities of the Partnership, if any, during the Relevant Period” (see paragraph 3(a) and (b) of the Judgment). 

8.  Moreover, there is no affirmation or documentary evidence showing “what sums have been received by the 4^th defendant in respect of the Partnership’s business, credit, assets or capital and what have become of them”, let alone the “whereabouts of the Partnership’s credit and assets received by the 4^th defendant or Tai Tou during the Relevant Period” (see paragraphs 3(c) and (d) of the Judgment).  The plaintiff’s counsel also chose not to cross-examine the 4^th defendant at the hearing. 

9.  The defendants proffered various reasons in their affirmations as to why other documents could not be produced.  They include that the documents were not among the records kept by RSKC for the Relevant Period, that no other documents could be found as they were dated from over 7 years ago, or that Tai Tou did not keep the missing records in a computer system as it was an old-fashioned construction firm. 

10.  At the hearing, the 2^nd defendant was cross-examined on various aspects of his affirmation evidence, including the net asset value of Tai Tou at various time periods, the goodwill of Tai Tou’s business, as well as the details of a 陳敏燕, who was said to be a responsible officer and secretary of Tai Tou.  Nothing however came out of the cross-examination that was of assistance to this court for the present accounts and inquiries.  

11.  At exhibit “CHC-5” to the plaintiff’s 2^nd Affirmation, he produced an “Evaluation Report of Tai Dou Building Contractor” dated 23 December 2021 issued by Mr Kwan Pak Kong, Certified Public Accountant. In section 1 of his report, Mr Kwan stated that he had been engaged by the plaintiff’s solicitors to “evaluate or assess the exact amount which should be payable by the Defendants to Mr Cheung Hau Chun … as at the date of his retirement as a partner of [Tai Tou] on 15^th August, 2012 pursuant to [the Judgment] and Order dated 3^rd March 2021…”. 

12.  Apart from the fact that the stated scope of Mr Kwan’s engagement as aforesaid does not actually correspond to the perimeters of the accounts and inquiries as directed under paragraph 3 of the Judgment, it is plain that Mr Kwan’s report is in the nature of expert opinion and could not be adduced as evidence without the leave of the court.  

13.  As a matter of fact, at the directions hearing for the accounts and inquiries held on 23 November 2021, Linda Chan J refused to grant leave pursuant to the plaintiff’s summons filed on 27 September 2021 to adduce expert evidence on this very subject.  I am therefore unable to have regard to Mr Kwan’s report in these accounts and inquiries proceedings.  The plaintiff’s counsel also did not place any specific reliance on it. 

14.  In these circumstances, I am left with no option but to conduct these accounts and inquiries only by reference to the contents of Tai Tou’s said audited accounts.  No dispute as to the authenticity or the contents of the accounts have been raised by any party.  I accept and find that the audited accounts in paragraph 6 above correctly reflect the financial position of the Partnership during the respective reporting periods. 

C.   ACCOUNTS AND INQUIRIES

15.  In their opening submissions, the plaintiff’s counsel submitted that the key question for this court is to ascertain the net asset value or capital of Tai Tou, including profits and goodwill, as at the date of dissolution of the Partnership of 15 August 2012.^[2]

16.  Relying on the partnership agreements dated 7 December 2010 and 19 November 2012, and various figures recorded in the said audited accounts of Tai Tou, the plaintiff’s counsel invited the court to order the 1^st to 3^rd defendants to pay the plaintiff the sum of HK$2,303,062, or alternatively HK$1,924,545, together with interest thereon.  He further submitted that the 1^st to 4^th defendants should be ordered to pay the costs of the present accounts and inquiries with a certificate for one counsel.^[3] 

17.  But as explained at the hearing, it is important for me to adhere to the perimeters of the accounts taking as laid down in paragraph 3 of her Ladyship’s Judgment.  Even if the ultimate purpose of these accounts and inquiries might be for the court to assess any amount payable to the plaintiff to reflect his 25% interest in the Partnership upon the latter’s dissolution, this is not expressly directed in paragraph 3 of the Judgment.  

18.  As her Ladyship observed at paragraph 78 of her reasoned Judgment, an order for an account does not in itself provide the plaintiff with a remedy, as it is only the first step in the process that may enable the plaintiff to obtain the appropriate relief.  Accordingly, it would be necessary for the plaintiff to seek further directions from her Ladyship for that final exercise to be carried out upon handing down of this judgment. 

Paragraph 3(a) and (b) of the Judgment

19.  Under paragraph 3 of the Judgment, the accounts directed to be taken is to ascertain:-

(1)  “[all] the dealings, transactions, credit and assets belonging to the Partnership for the Relevant Period” (see paragraph 3(a) of the Judgment); and

(2)  “[all] the debts and liabilities of the Partnership, if any, during the Relevant Period” (see paragraph 3(b) of the Judgment). 

20.  Of the four sets of audited accounts listed under paragraph 6 above, only the 2010-2011 Audited Accounts, the 2011-2012 Audited Accounts and the 2012-2013 Audited Accounts cover the Relevant Period (ie 23 August 2010 to 15 August 2012). 

21.  As the start and end dates of the accounts fall on 1 April and 31 March of the relevant reporting year, I would divide the accounts taking for the Relevant Period into three sub-periods, namely:-

(1)  23 August 2010 to 31 March 2011 (“First Sub-Period”);

(2)  1 April 2011 to 31 March 2012 (“Second Sub-Period”); and

(3)  1 April 2012 to 15 August 2012 (“Third Sub-Period”).

(a)   The First Sub-Period

22.  The First Sub-Period fell within the reporting period of the 2010-2011 Audited Accounts.  However, the only figures in those accounts which are strictly within the Relevant Period are the asset and liability figures as reported in the Statement of Financial Position as at 31 March 2011.  On the other hand, the entries in the Statement of Comprehensive Income are all yearly totals and do not shed light on the figures for the First Sub-Period, which only formed part of the full reporting year.  A copy of the 2010-2011 Audited Accounts is attached at Annex A to this judgment. 

23.  Since I have found that the 2010-2011 Audited Accounts correctly reflect the financial position of the Partnership during the relevant reporting period:-

(1)  I accept and find that the asset and liability figures as reported in the Statement of Financial Position of the said audited accounts (together with the relevant notes thereto) do reflect the “credit and assets belonging to the Partnership” and the “debts and liabilities of the Partnership” as at 31 March 2011.  

(2)  As to the “dealings” and “transactions” of the Partnership within the First Sub-Period, there is no evidence before me that would enable those items to be ascertained.  The summary totals of the Partnership’s “dealings” and “transactions” for the First Sub-Period would likely fall within the items reported in the Statement of Comprehensive Income for the year ended 31 March 2011.  But in the absence of any apportionment of the figures to the First Sub-Period, it is impossible for me to ascertain such “dealings” and “transactions” of the Partnership on the present evidence.  

(b)   The Second Sub-Period

24.  Turning to the Second Sub-Period, its falls within the Relevant Period and corresponds precisely to the reporting period of the 2011-2012 Audited Accounts.  A copy of the 2011-2012 Audited Accounts is attached at Annex B to this Judgment. 

25.  Since I have found that the 2011-2012 Audited Accounts correctly reflect the financial position of the Partnership during the relevant reporting period:-

(1)  I accept and find that the asset and liability figures as reported in the Balance Sheet in the said audited accounts (together with the relevant notes thereto) do reflect the “credit and assets belonging to the Partnership” and the “debts and liabilities of the Partnership” as at 31 March 2012.  

(2)  I further accept and find that the figures as reported in the Income Statement in the said audited accounts (together with the relevant notes thereto) do record the totals of the “dealings” and “transactions” of the Partnership in the Second Sub-Period. 

(c)   The Third Sub-Period

26.  The Third Sub-Period only forms part of the reporting period of the 2012-2013 Audited Accounts.  A copy of the 2012-2013 Audited Accounts is attached at Annex C to this Judgment. 

27.  Despite my finding that the 2012-2013 Audited Accounts correctly reflect the financial position of the Partnership during the relevant reporting period:-

(1)  The reporting date of the Balance Sheet in the said audited accounts is 31 March 2013, which is outside the Relevant Period.  In the absence of any asset and liability figures for any time point within the Third Sub-Period, I am unable to ascertain the “credit and assets belonging to the Partnership” and the “debts and liabilities of the Partnership” as of any date within the Third Sub-Period. 

(2)  Likewise, the Income Statement in the said audited accounts reports the summary totals of income and expenses for the full reporting year ended 31 March 2013.  Without any apportionment of the figures to the Third Sub-Period, I am also unable to ascertain such “dealings” and “transactions” for the Third Sub-Period on the present evidence. 

Paragraph 3(c) and (d) of the Judgment

28.  Under paragraph 3 of the Judgment, the inquiries to be made is to ascertain:-

(1)  “what sums have been received by the 4^th Defendant in respect of the Partnership’s business, credit, assets or capital and what have become of them” (see paragraph 3(c) of the Judgment); and

(2)  “the whereabouts of the Partnership’s credit and assets received by the 4^th Defendant or Tai Tou during the Relevant Period” (see paragraph 3(d) of the Judgment). 

29.  As mentioned in paragraphs 7 to 8 above, there is no evidence before the court that would shed light on these matters.  In particular, the 4^th defendant has not addressed these matters in either of his two affirmations.^[4]  It is also worth repeating that the plaintiff’s counsel had chosen not to cross-examine at the 4^th defendant at the hearing. 

30.  In these circumstances, I have no option but to find that the 4^th defendant had not received any “sums … in respect of the Partnership’s business, credit, assets or capital”. 

31.  In so far as “the Partnership’s credit and assets received by … Tai Tou during the Relevant Period” is concerned, I make no additional finding beyond what has already made in respect of paragraph 3(a) and (b) of the Judgment in paragraphs 19 to 27 above. 

D.   CONCLUSION

32.  In conclusion, the findings made by this court in these accounts and inquiries proceedings are those as set out in paragraphs 14, 23(1), 25, 30 and 31 of this judgment. 

33.  In terms of costs, I see no reason why the plaintiff should not have the costs of the accounts and inquiries, save for the costs incurred in preparing Mr Kwan’s report given that leave to adduce expert evidence on the very same subject had been refused by Linda Chan J previously (see paragraphs 11 to 13 above).  

34.  I therefore make a costs order nisi that the costs of the accounts and inquiries, including the costs of the hearing but not the costs incurred in relation to Exhibit “CHC-5” to the plaintiff’s 2^nd affirmation filed on 3 January 2022, be to the plaintiff to be taxed if not agreed, with a certificate for one counsel for the hearing.  If no application to vary the costs order nisi is made within 14 days of the handing down of this judgment, it shall become absolute without further order. 

35.  As already mentioned, the ultimate question of any sums payable to the plaintiff is not something within the perimeters of these accounts and inquiries.  This is despite the efforts of the plaintiff’s counsel in their written and oral submissions.  In view of the findings made as aforesaid, the plaintiff has liberty to seek further directions from Linda Chan J as to any further steps as may be appropriate for the assessment of any sums payable to him.  I also grant the plaintiff general liberty to apply. 

Annex A

Annex B

Annex C