Re: WONG NG KEI trading as International Can, a debtor and Ex parte: CHU DOI WAI, JANLEY, a creditor

HCB 2265/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 2265 OF 1999

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REASONS FOR JUDGMENT

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1. This petition for bankruptcy is founded on a debt in the sum of HK$122,000.00 in respect of arrears of wages, severence pay and year end pay owed to the petitioning creditor, Miss Chu Doi Wai, Janley by a partnership trading in the name of International Can. The debtor Mr Wong Ng Kei is alleged to be one of the three partners in the firm at the material time, which was between 1 January 1995 and 31 December 1995, being the period in respect of which the aforesaid sum was owed to Miss Chu.

2. A statutory demand was served on Mr Wong on 18 May 1999 and as he did not comply with it, Miss Chu filed a petition for bankruptcy on 18 August 1999. Leave was given to the parties to file evidence at the previous hearings. Miss Chu made two affirmations herself, her solicitor made two affirmations on her behalf and a former colleague also made an affirmation, which was not relied on eventually. Mr Wong made four affirmations and a former employee of the partnership Mr Shum Wai Man made an affirmation on his behalf.

3. At the substantive hearing, Mr Frederick Chan, who appeared on behalf of Miss Chu, informed the Court that he did not wish to cross-examine the debtor or his witness. Mr Boey Chung, who appeared on behalf of Mr Wong, indicated that he wished to cross-examine Miss Chu. I gave him leave to do so and I also gave him leave to call Mr Wong to give verbal evidence limited to two specific matters in the 2nd and 4th affirmations of Mr Wong for which clarification was required.

4. After hearing evidence and submissions, I came to the view that Miss Chu has established to the satisfaction of the Court the debt on which the petition was founded and that Mr Wong has failed to make out a bona fide dispute of the debt on substantial grounds. I therefore made a bankruptcy order with costs to the Petitioner. The reasons for my judgment appear below.

5. The case of Miss Chu and the case of Mr Wong as presented to the Court may be set out as follows.

6. According to Miss Chu, she was employed by International Can on 1 June 1992 as an administrative assistant and she produced a copy of a letter dated 27 May 1992 signed by Mr Lawrence Li Wah Lun confirming her employment. She came to know there were three partners of International Can. They were Mr Wong, Mr Lawrence Li and the latter's brother Mr Timothy Lee Kin Wah. Miss Chu did office work in the beginning. About a year and a half later she was given duties such as book-keeping, preparing shipping documents, and handling accounts of clients. She also did secretarial work, mainly for Mr Lawrence Li. As for the other two partners, Mr Wong and Mr Timothy Lee, they were responsible for production work and Mr Wong was specifically responsible for moulds and the provision of technical skill.

7. International Can subsequently moved its production work to the Mainland and only maintained an office in Hong Kong. Miss Chu left the firm on 31 December 1995 when the firm had owed her wages for a year. She approached the Labour Department for assistance and subsequently the Protection of Wages on Insolvency Board, but was unable to recover the sums owed to her. It was only in early 1999 that she went to the Legal Aid Department and was given legal aid to take enforcement action against Mr Wong.

8. I should mention that in February 1996, a claim was filed in the Labour Tribunal by three former employees, one of them being Mr Shum Wai Man who had made an affirmation in these proceedings for Mr Wong, against International Can and International Packaging Company. The latter entity was a firm in which Mr Lawrence Li and Mr Timothy Lee were partners. The claim was for arrears in wages and an award was made by the Labour Tribunal. As the Labour Tribunal award was not satisfied, a petition for the bankruptcy of Mr Lawrence Li and Mr Timothy Lee, as the partners of International Packaging Company, was filed. Receiving orders were made against them in October 1996 and they were adjudged bankrupt in April 1997. This is probably the reason why Miss Chu subsequently filed this petition against Mr Wong alone.

9. Mr Wong's case is as follows. He denied that he was a partner of International Can and claimed that he was merely a "salaried partner". According to his agreement with the other partners, he was entitled to share in the profit of the firm but was not liable to contribute to the losses. He received a salary for the technical assistance he provided to the firm. Mr Wong was also a shareholder and director of a company known as International Can Ltd. On 3 April 1995, there was an extraordinary general meeting of International Can Ltd, during which it was agreed that Mr Wong was to resign as a director and his shares in the company was to be sold at HK$100.00 to International Standard Ltd, a company controlled by Mr Lawrence Li. Mr Wong stated that at that meeting, he had also retired as a partner of International Can with the agreement of the other partners. Although he continued to provide some technical assistance to International Can and the other entities controlled by Mr Lawrence Li, he did not do so as a partner or salaried partner of International Can. Mr Wong claimed that he himself was owed wages for half a year by International Can.

10. In this hearing, Mr Wong's counsel mounted a vigorous challenge on the credibility of Miss Chu. It was suggested that Miss Chu knew that Mr Wong was not a partner of International Can and that she knew he was not liable to her for the arrears in wages. It was suggested that Miss Chu had lied about the amount of wages actually owed to her in that she was not owed 12 months' wages in 1995 as she had received her salary for the first three months of that year. It was also suggested that Miss Chu was not employed by International Can which was a partnership but by other entities owned or controlled by Mr Lawrence Li, such as one of the two firms which were operated as sole proprietorship also in the name of "International Can" and had occupied the same address as International Can.

11. It would be appropriate that I deal with the credibility of Miss Chu first, since this is a matter so vigorously challenged by the counsel for Mr Wong. I am satisfied that Miss Chu has given truthful evidence to this Court. I accept her explanation why she had not taken any action to recover the debt from Mr Wong until 1999. She had been to the Labour Department and the Protection of Wages on Insolvency Board as I have already stated. There was some delay before she had a response from the Labour Department which referred her to the Board. It would appear to be the case that she went to the Board too late as she was told that the file was closed and she could not apply for payment. She did not think she had any other avenue open to her to recover the arrears in wages. I accept her evidence that after the futile approaches to the Labour Department and the Insolvency Board, Miss Chu had tried to approach the partners personally in an attempt to recover payment. It is not in dispute that she had at least two meetings with Mr Wong. I accept her explanation that she did not try to chase after Mr Wong particularly for the arrears in salary because Mr Wong was the only partner who did not try to avoid her, unlike the Li brothers. I also accept her evidence that she was owed a whole year's salary in 1995 and that the incorrect information she wrote in the tax return dated 11 May 1995 was partly because of the instructions given to her by another staff of International Can and partly due to her own mistake. She has given a detailed explanation of this in her 2nd affirmation, which I accept.

12. I am satisfied on the evidence that during the material time from 1 January 1995 to 31 December 1995, Miss Chu was employed by International Can and that she was owed wages, severence pay and year end pay in the amount of HK$122,000.00.

13. Mr Chung submitted on behalf of Mr Wong that there is a bona fide dispute of the debt on substantial grounds in that (1) prior to 3 April 1995, Mr Wong was not a partner of International Can, but merely a salaried partner; and (2) in any event, as from 3 April 1995, Mr Wong had retired as a partner of the firm. In my judgment, both points taken on behalf of Mr Wong are misconceived. There was no occasion to cross-examine Mr Wong at all and Mr Chan had wisely refrained from doing so except to put one brief question to Mr Wong that he had failed to approach the Business Registration Office to cancel his name as a partner, which was denied by Mr Wong. Even if I were to accept Mr Wong's evidence given in Court and his evidence in the four affirmations he filed as well as the affirmation of his witness Mr Shum Wai Man, Mr Wong would still have failed to raise a substantial dispute on the debt.

14. The law relating to the liability of a partner to a third person is clear. Section 16 of the Partnership Ordinance, Cap.38 provides as follows:

"Every one who, by words spoken or written or by conduct, represents himself, or who knowingly suffers himself to be represented, as a partner in a particular firm is liable as a partner to any one who has, on the faith of any such representation, given credit to the firm, whether the representation has or has not been made or communicated to the person so giving credit by or with the knowledge of the apparent partner making the representation or suffering it to be made ..."

15. Whatever agreement Mr Wong had made with the other two partners as to his true status, and whatever their arrangements as regards the sharing of profits and the contribution to the losses of the firm, quoad the outside world, it would matter little whether Mr Wong was a full partner or merely a salaried partner. At the very least, Mr Wong was an apparent partner. I am satisfied on the evidence that he was held out to the world as a partner. That was why his name was entered as a partner on the business registration of the firm at all relevant times. As an apparent partner, Mr Wong was and is liable to those who had dealings with the firm and who had done so in reliance on the representation that he was a partner, which, I am satisfied is the position as regards Miss Chu. There is therefore no substance in the first point taken by Mr Chung.

16. Turning to the second point, the answer is again in the Partnership Ordinance, section 38 which provides, inter alia, as follows:

"(1) Where a person deals with a firm after a change in its constitution, he is entitled to treat all apparent members of the old firm as still being members of the firm until he has notice of the change.

(2) An advertisement in the Gazette as to a firm whose principal place of business is in Hong Kong shall be notice as to persons who had not dealings with the firm before the date of the dissolution or change so advertised."

17. Mr Chan does not accept the allegation put on behalf of Mr Wong that he had retired as a partner of International Can as from 3 April 1995 and pointed to the fact that Mr Wong had not removed his name as a partner from the business registration records and that the reason he gave for not doing so was dubious. It is not necessary to make a finding whether Mr Wong had retired from the partnership on 3 April 1995 as alleged. Even if he had done so, he was liable for the arrears in wages for the first 3 months of 1995 before he retired as a partner under section 11 of the Partnership Ordinance which provides that "every partner in a firm is liable jointly with the other partners for all debts and obligations of the firm incurred while he is a partner." Furthermore, in respect of the wages of Miss Chu after Mr Wong had allegedly retired as a partner, Mr Wong was and is liable under section 38(1) of the Partnership Ordinance because Miss Chu had no notice of the change in the constitution of the partnership up to the time when she left the employment in December 1995. Under the law, she was entitled to assume that no change in the partnership had occurred until she had been given notice to the contrary. I am satisfied on the evidence that Miss Chu had no or no sufficient notice that Mr Wong had retired as a partner in April 1995.

18. As Mr Wong has not shown a bona fide dispute of the debt on substantial grounds, I have made a bankruptcy order with costs to the Petitioner. I have also ordered that the Petitioner's own costs are to be taxed in accordance with the Legal Aid Regulations.