LI MEI CHUN EVA v. NG LAI YIN

DCCJ 3355/2015

[2018] HKDC 4

IN THE DSTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3355 OF 2015

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J U D G M E N T

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1.  This trial concerns a partnership dispute between the parties.

2.  The Plaintiff claims for an account of their partnership upon its termination by the Defendant’s notice and an order for payment as to what is found due by the Defendant under the account. She also asks for repayment of an alleged loan of HK$100,000 advanced to the Defendant. The Defendant denies the loan and the said partnership having been terminated. The Defendant’s case is that their partnership business continued at a loss until trial. She counterclaims for her share of the partnership’s loss in the sum of $152,581 as at 10 June 2016, the date of the Amended Defence and Counterclaim.

Brief Background

3.  The parties were friends since the 1990’s. Prior to the formation of the partnership, the Defendant was the sole proprietor of a business under the name of Shui Wo Cuttlefish Ball (瑞和墨魚丸大王) (“Shui Wo”) carrying on business of selling frozen foodstuffs, including cuttlefish balls, at the smaller portion (on the left) of Ground Floor, No. 98 Shui Wop Street, Kwun Tong, Kowloon (“Premises” and accordingly referred to as the smaller portion of the Premises). The Premises comprises the smaller portion on its left and a larger portion on its right.

4.  Somehow they re-connected again towards the end of 2014. They eventually came to an oral agreement whereby they would form a partnership business of selling frozen foodstuffs using the same name of Shui Wo at the Premises. The parties now disagree on many of the terms of their partnership agreement but the following terms appear not in dispute:

i) Each party is to contribute equally to the partnership. The capital contribution of each party is expected to be around $250,000 at the start. However, there is dispute as to how each party was to contribute to the partnership;

ii) The profit and loss were shared equally by them;

iii) The partnership would continue to use the name of Shui Wo and carry on business at the entire Premises instead of only the smaller portion of it. The business was to cover a wider range of frozen foodstuffs;

iv) The tenancy for the sole proprietor business of Shui Wo at the smaller portion of the Premises would expire by end of March 2015. The Defendant was to sign the tenancy for the entire Premises. There was no dispute that it was eventually signed on 29 March 2015 by the Defendant with the landlord for a term of 3 years at a monthly rental of $88,000 commencing 15 April 2015;

v) The Plaintiff was to line up her contractors to renovate the Premises for the partnership.

5.  The Plaintiff pleaded that the agreement to form the partnership was made in or about February 2015. There is no dispute that the parties have not agreed on the duration of their partnership.

6.  There is dispute as to how the $250,000 was to be contributed by each party. The Plaintiff said the $250,000 would include direct contribution in the form of cash to the Defendant as well as other expenses incurred on behalf of the partnership business. A final accounting would be carried out eventually to equalize the total capital contribution of each party. The Defendant’s case, as asserted by her at trial during cross-examination, was that the Plaintiff had to pay up $250,000 cash upfront to her designated accounts on the top of lining up contractors for the renovation and paying them first. The Defendant would pay for purchase of goods and other equipment totalling around $250,000. No cash deposit into account is required for her. Final accounting would be done to equalize the parties’ contribution.

7.  It was not in dispute that 3 sums of money, totalling $250,000 were given by the Plaintiff to and received by the Defendant, as follows:

i) HK$30,000 on 10 February 2015;

ii) HK$20,000 on 25 March 2015; and

iii) HK$200,000 on 31 March 2015.

8.  The Plaintiff said that the first 2 sums together with HK$50,000 out of the 3^rd sum were loans given to the Defendant pursuant to her various requests who was then short of funds. She agreed to help by lending the Defendant a total of $100,000.

9.  The Defendant denied. She said they were capitals contributed by the Plaintiff towards the partnership pursuant to their agreement.

10.  Renovation of the Premises started in or about early April 2015. The partnership business of Shui Wo eventually commenced on 21 April 2015 immediately after completion of renovation.

11.  It is not in dispute that a limited company called Hunter Knot Limited (“Hunter’) was incorporated. The purpose for which this company was formed was also in dispute. The Plaintiff said the Defendant told her that the business of selling frozen foodstuffs required a licence from the Environment and Hygiene Department (“EHD”), which appeared to favour issuing it to a limited company. The Plaintiff took up the job of forming such company. It was done at a cost of $6,100.

12.  The Defendant said that parties agreed to carry on sales of high-end products such as swallow nest and abalone. Suppliers of these high-end merchandises preferred to deal with limited company rather than sole proprietorship/partnership. If the purchaser is not a limited company, the suppliers, said the Defendant, would require payment in full before supplying the goods. That was why they need to form a limited company in addition to the partnership. There is no dispute that Hunter is lying idle now. The company kit was left at the Premises after the 2 partners had fallen apart.

13.  Disputes and suspicion arose soon after they had started to renovate the Premises. Further, the Plaintiff said the Defendant refused to open bank account for the partnership and took away cash from the cash register after each business day. The Defendant also refused to accept the renovation expenses incurred by her on the partnership’s behalf. She also accused the Defendant, who worked for the partnership, of charging a salary for herself higher than the agreed wage which was at the statutory minimum level. She requested to inspect the partnership’s books and accounts kept by the Defendant but was refused. They ended up in a quarrel in the afternoon of 20 May 2015 which arose because the Defendant refused to open a partnership bank account when requested to do so.

14.  It was the Plaintiff’s case that at about 7:43 pm on 20 May 2015, i.e. the evening of the same date of the quarrel, the Defendant sent her a message via WhatsApp, saying (in Chinese) that she would not open the bank account as requested, and she would not continue with their company (partnership business)[1] (“WhatsApp Notice”). It amounted to a notice of dissolution of their partnership.

15.  It was not in dispute that they engaged in some talks after this event. The Plaintiff said that she had invited one Brother Dragon (龍哥), a mutual friend, as a middle man to mediate between them with a view to recouping her investment in the partnership, but to no avail. The Defendant denied.

16.  During cross-examination, it was confirmed by the Defendant that as at 28 May 2015, she incorporated a company known as Shui Wo Cuttlefish Ball Limited (“Shui Wo Ltd”), with business address the same as the Premises. Her explanation was that the partnership business of Shui Wo carried on at the entire Premises was an expansion. At the same time, the business registration of Shui Wo (then still registered in her sole name) was about to expire. She considered it would be better to form a limited company and replace the business registration of Shui Wo by that of the Shui Wo Ltd. She did not deny for Shui Wo Ltd, she was the only director and shareholder.

17.  She was repeatedly asked on why it was necessary for her to register a limited company of similar name. Her explanation is similar to that of forming Hunter. She said suppliers preferred to deal with limited companies than sole/partnership business. She admitted that from then on, purchases for the business carried on at the Premises were made in the name of the Shui Wo Ltd. Expenses were settled from proceeds of sales from such purchases. She, however, insisted that the business remained that of the partnership, and no bank account for Shui Wo Ltd had ever been opened. Money of the business, if necessary, was deposited into the account of the sole proprietor business of Shui Wo maintained with the Wing Hang Bank. She was the sole signatory of the account. She said she could not recall whether she had informed the Plaintiff of the incorporation of Shui Wo Ltd. It is not in dispute that Shui Wo Ltd has never been mentioned in pleadings and the Defendant’s witness statement filed herein, though its name did appear in some documents discovered when the Defendant said she was making discovery pursuant to an order for specific discovery relating to business of the partnership[2].

18.  On 22 June 2015, the Plaintiff instructed her present firm of solicitors to issue 2 letters to the Defendant, respectively, demanding the Defendant to repay the loan of HK$100,000 and to act in compliance with certain obligations as a partner of their partnership business[3].

19.  It is apparent that in one of the said solicitors’ letters, the Plaintiff demanded the Defendant to:

i) Update the business registration certificate of Shui Wo by adding the Plaintiff as one of the partners;

ii) Open a bank account in the name of the partnership or add the Plaintiff as one of the signatories to the existing bank account of Shui Wo; and

iii) Render the Plaintiff’s solicitor the true account and information of all things affecting the partnership business.

20.  It is not in dispute that the Defendant made no response to these letters. By then Shui Wo Ltd had been incorporated. Neither had the Defendant ever disclosed to the Plaintiff the incorporation of Shui Wo Ltd allegedly for the partnership.

21.  The Action herein was issued on 21 July 2015. The Plaintiff sued the Defendant for, inter alia, repayment of the said loan, inquiry as to damages for breach of the partnership agreement or alternatively, termination of the partnership by the Court upon an account to be rendered as to what should be due and owing to the Plaintiff. The Plaintiff’s pleadings were subsequently amended on 14 December 2015 to include a pleading that the partnership was in fact terminated on 20 May 2015 by the said WhatsApp Notice. A declaration to that effect was also sought.

22.  The Defendant’s position, as revealed by the Amended Defence and Counterclaim (in Chinese) was that the alleged loan of HK$100,000 was part of the Plaintiff’s injection of her own share of agreed capital into the partnership business.

23.  It is, however, strange to note that the Defendant did not expressly deny the WhatsApp Notice an effective notice of termination. In [7(B)] of the Defendant’s Defence, the Defendant confirmed that on 20 May 2015, she had received the Plaintiff’s WhatsApp messages. It was pleaded that up until the date of the amended pleading neither the Defendant nor any of her agents had ever accepted the dissolution of partnership proposal unilaterally given by the Plaintiff[4]. Nothing, however, was said about the Defendant’s WhatsApp Notice.

24.  Apparently, the Defendant might have misunderstood the Plaintiff’s amended case. However, the Defence as it now stands remains unamended.

25.  Under cross-examination, the Defendant maintained a position that the partnership was still subsisting and alive as at trial.  The WhatsApp Notice was blurted out in the heat of the quarrel and she did not really mean it. They were mere words spoken out of anger and frustration. At the same time, she was very ill then as she was suffering from a serious flu.

26.  She sets out in her Counterclaim a brief account of the partnership and asks the Plaintiff for a sum of HK$152,581, being the Plaintiff’s contribution to the loss of the partnership as at end of July 2015.

Some Applicable Principles

27.  There is no dispute that the parties had entered into a relationship whereby they carried on business together with a view in common to profit. That fits in the definition of partnership as set out in section 3(1) of the Partnership Ordinance, Cap 38 (“PO”). The PO is therefore applicable to the present dispute. It is trite that the relationship between partners is of a fiduciary nature[5]. A duty of good faith is expected to be displayed by a partner towards his co-partners. They contribute towards the capital and share their loss and profit equally unless otherwise agreed. Under the PO, unless otherwise agreed, a partner is entitled to, inter alia, to take part in the daily management of the business and to inspect the books and accounts of the partnership. Section 26 of the PO provides as follows:

“The interests of partners in the partnership property, and their rights and duties in relation to the partnership, shall be determined, subject to any agreement, express or implied, between the partners, by the following rules—

(a) all the partners are entitled to share equally in the capital and profits of the business, and must contribute equally towards the losses, whether of capital or otherwise, sustained by the firm;

(b) …

(c) …

(d) …

(e) every partner may take part in the management of the  partnership business;

(f) …

(g) …

(h) …

(i) the partnership books are to be kept at the place of business of  the partnership (or the principal place, if there are more places  than one), and every partner may, when he thinks fit, have  access to and inspect and copy any of them.”

28.  As a matter of law, a change in composition of a partnership results in a dissolution of the existing partnership, and the creation of a new partnership or, as the case may be, a sole proprietorship business when only one partner left. The new firm then takes on the assets and liabilities of the old without any break in the continuity of the business: see Lindley & Banks On Partnership 19^th ed (2010) para 24-02. If a partner continues in business following the dissolution of his firm and makes use of the firm’s assets or a business connection derived therefrom, he will be accountable to his former partner for any profits which he may make thereby: see Lindley & Banks On Partnership 19^th ed (2010) para 16-27. In the present case, it appears that the Plaintiff is not seeking to ask the Defendant to account for profits made after the dissolution. However, she was asking for what should be due and owing to her upon dissolution of the partnership as per the account as at the date of dissolution.

29.  There are numerous ways in which a partnership can be dissolved: see Lindley & Banks On Partnership 19^th ed (2010) para 24-04. At issue is dissolution by notice or Court order. The following provisions of section 28(1) and section 34(1)(c) and (2) of the PO, though apparently overlapping, are relevant:

 Section 28(1)

“Where no fixed term has been agreed upon for the duration of the partnership, any partner may determine the partnership at any time on giving notice of his intention to do so to all the other partners.”

 Section 34(1)(c) and (2)

“(1) Subject to any agreement between the partners, a partnership is dissolved —

(a) …

(b) …

(c) if entered into for an undefined time, by any partner giving notice to the other or others of his intention to dissolve the partnership.

 (2) In the last-mentioned case the partnership is dissolved as from  the date mentioned in the notice as the date of dissolution, or, if  no date is so mentioned, as from the date of the communication of the notice.”

 (Emphasis added)

30.  In the Court’s judgment, both sections are applicable to the present case because neither parties have excluded the dissolution of the partner by notice in their partnership agreement. Nor had they agreed that the partnership is for a defined time. Further, for a notice to become effective, there is no requirement for any notice period or that the period should be reasonable[6].  In Lindley & Banks On Partnership 19^th ed (2010) para 24-22, the learned author has the following propositions which this Court respectfully agrees:

“A dissolution notice must be clear and unambiguous but it is not necessary that the partner giving it appreciates its legal effect. … The notice may take effect immediately or on a future date, but will only be effective once it has been communicated to all the partners”

 (Emphasis added)

31.  There is also no requirement for the notice to be in written form unless it was so provided in the partnership agreement, though it would be prudent to do so in writing[7]. In this Court’s judgment, a notice via WhatsApp is also effective. Such notice, once given, cannot be withdrawn without consent of all the partners[8]. The partnership will then be dissolved as soon as the notice is communicated to all the partners or on the date specified. If the notice takes the form of a claim in a dissolution action, the partnership will be dissolved on the date of its service[9].

32.  The Plaintiff is also suing in the alternative of dissolution by the Court by relying on section 37(d) and (f) of the PO which stipulates:

“On application by a partner, the court may decree a dissolution of the partnership in any of the following cases—

(a) …

(b) …

(c) …

(d) when a partner, other than the partner suing, wilfully or persistently commits a breach of the partnership agreement or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable for the other partner or partners to carry on the business in partnership with him;

(e) …

(f)  whenever in any case circumstances have arisen which, in the  opinion of the court, render it just and equitable that the   partnership be dissolved.”

33.  In Lindley & Banks On Partnership 19^th ed (2010) para 24-91, the learned author adopted the legal proposition of Lord Lindley that for section 35 of the English Partnership Act 1890 (almost identical to section 37 of our PO), where the order of the court is required to dissolve a partnership, the dissolution will, in the absence of special reasons, date from the judgment. The learned author also further stated that other dates of dissolution may be possible, e.g. that result from service of notice, occurrence of some determining event specified in the Act (i.e. the PO) or in the partnership agreement.

34.  The above principles will be applied in resolving the disputes between the parties.

The Issues for the Trial

35.  Mr Wong contends that the Plaintiff’s primary case is whether the partnership between the parties had effectively been terminated by the Defendant via the WhatsApp Notice on 20 May 2015. Mr Wong accepts the Writ endorsed with the statement of claim contained no express statement to the effect that the service of Writ constitutes an effective service of a notice of termination of the partnership[10]. His submission is, however, that it is unnecessary to plead the service of the writ amounting to such termination. He relies on Unsworth v Jordan[11]. The Plaintiff’s alternative case is that if the WhatsApp Notice were considered ineffective, this Court should order a dissolution of the partnership, and according to Unsworth, as at the date of service of the Writ. In either case the Plaintiff asks the Court to order an account be taken of the partnership as at the date of dissolution, and the Defendant be ordered to pay over what is due, if any, to the Plaintiff under the account.

36.  In this court’s judgment, the case report of Unsworth (supra) was in the form of a very brief note without any report of the reasoning. Further, it seems even according to the note, the case was concerned with whether the date of the writ or service was to be regarded as the date of dissolution. This Court should continue to be guided by the proposition in para 24-91of Lindley & Banks On Partnership 19^th ed (2010) and more particularly set out in [33] above.

37.  Mr Poon, counsel for the Defendant, has fairly accepted the above being the Plaintiff’s case the Defendant has to face. He also conceded that given the total lack of mutual trust and confidence between the parties, the Court should dissolve the partnership. At trial, he fairly and reasonably accepts that if the Court finds for the Plaintiff’s primary case, i.e. the WhatsApp Notice was an effective termination notice, the counterclaim should be dismissed. The Defendant would then be regarded as having taken up the tenancy for its unexpired term. However, if the Court finds against the Plaintiff in respect of her primary case, the Court should adjudicate on the counterclaim, and perhaps orders a stay of execution, pending the account to be taken of the partnership upon its dissolution. The amount due under the counterclaim should have already been factored in the final account of the dissolved partnership.

38.  At trial, Mr Poonalso accepted that the Defendant’s counterclaim has not taken into account the rental incurred by the partnership during the relevant months in question.

39.  In my judgment, the followings are the issues that need be resolved at the present trial:

i) What are the agreed terms as to how each party was to contribute her capital in the estimated amount of $250,000;

ii) Whether the Plaintiff has advanced a loan of $100,000 to the Defendant as alleged or the money is the Plaintiff’s contribution towards the partnership;

iii) Whether the WhatsApp Notice amounts to an effective notice of dissolution;

iv) Whether the said WhatsApp Notice, if effective, has been withdrawn;

v) If the Court finds against the Plaintiff that there was no dissolution as at 20 May 2015, whether the counterclaim can be established;

vi) If the primary case of the Plaintiff cannot be established, whether the Court should make an order to dissolve the partnership;

vii) Whether an account be taken of the dissolved partnership, and if so, as at which date.

Evidence

 Generally

40.  The parties relied on their respective witness statements of 18 July 2016 and 22 December 2016. The parties’ affirmations filed herein had also been referred to. Each was heavily cross-examined.  This Court will assess their evidence against the contemporaneous documents, and particularly, the WhatsApp messages exchanged between them, and so much of the evidence that is not in dispute. If that is impossible and the truthfulness of the evidence depends on a witness’ credibility, this will be assessed by reference to the consistency of a party’s testimony with her prior answers given orally or in writing. Whether the parties’ evidence is to be believed will also be assessed by reference to its inherently plausibility taking into account the circumstances of this particular case.

41.  At trial, it was admitted by the Defendant that she bought for the partnership business a cash register which is part of a sale system comprising labels printing machines. Labels, each bearing the price of a good and the relevant the bar code, would be printed and affixed to the goods. The cash register could read the labels when customers presented the goods for payment. All sale transactions would thus be recorded in the cash register system.

42.  This Court notes that specific discovery has been sought against the Defendant in respect of a category of documents, namely, the data (which are capable of being retrieved and converted into readable form) recording the business records in the cash register of the partnership business. Obviously it aimed at the raw sales records captured by the cash register in the course of the partnership business. They could give an overall and accurate picture of the business then carried on by the business. The discovery order was granted by Master Tang with the parties’ consent on 17 March 2016. That was not complied with until an unless order was granted by Master Ho on 13 April 2016 by consent. On 4 May 2016, the Defendant made an affirmation in purported compliance of the unless order. However, it was not in dispute that only summarized daily sales and costs by reference to suppliers were produced. No computer records requested had ever been discovered. Both the Defendant and her counsel Mr poon accepted the discovery did not in fact satisfy the orders.

43.  Despite the fact that the Defendant was represented when the aforesaid consent orders and affirmation were made, no attempts had ever been made by her to rectify. The Defendant explained at trial she thought the discovery was sufficient.

44.  The Defendant was also heavily examined on the bank accounts from which she withdrew her share of $250,000 as alleged. Despite her allegation to the effect that she had disclosed all receipts amounting to $250,000[12], she agreed that she had never disclosed her Hang Seng Bank accounts from which, she said, money was withdrawn as her contribution to the capital of the business. She said at trial she withdrew about $80,000 plus from her personal account with Wing Hang Bank for the partnership. Accordingly, some $170,000 should had been withdrawn from her other bank, namely, Hang Seng Bank. The manner of contribution was in dispute, yet no Hang Seng Bank documents had ever been discovered. Neither bank Statements nor other accounts of Shui Wo had ever been disclosed.

45.  In the Court’s judgment, it is most unsatisfactory. It is a blatant breach of Court’s order and a party’s duty to make discovery of documents relevant and necessary for fairly disposal of the issues and matters in question. In the Court’s judgment, the above are important and essential evidence. Without which the accuracy of the alleged partnership account, which is at least essential for her Counterclaim, could never be realistically assessed. This Court will definitely take the Defendant’s conduct into account in assessing her overall credibility.

46.  It is trite if non-disclosure of relevant document is deliberate, there will be irrebuttable presumption against the wrongdoer for the uncertainty created by the non-disclosure. Alternatively, even if the non-disclosure is not deliberate, an adverse inference against the wrongdoer may be drawn. See Hong Kong and Shanghai Banking Corporation v Chan Yiu-wah[13], Man Sun Finance (Holdings) Limited v Foo Sau Chun, Richard & Others[14] and Tam Ying Man v Leung Ka Chun & Others[15].

47.  This Court will apply the above principles to assess the evidence of the parties.

 The Plaintiff’s Evidence

48.  The Plaintiff’s evidence is that initially, the Defendant called her in or about December 2014 and said she intended to go into business with Brother Dragon. The Defendant wanted to borrow $100,000 from her for the purpose of the business[16]. The Plaintiff said Brother Dragon might not be financially sound as he was also indebted to her then. It was eventually agreed that the partnership would be formed with her instead. The agreement was made in or about February 2015. Each was to contribute equally to the partnership. They would also share equally in the profit and loss. Initially she said each party was to put up $170,000. However, they soon realized the amount was insufficient. They later agreed at $200,000 and eventually $250,000. So the final contribution of $250,000 was an estimated level each was to contribute towards capital of business. The said figure was come up in a process and tentatively agreed in or about April 2015. It was not meant to be a final figure regarding contribution. She said when the business commenced each party’s contribution would be crystallized. A final accounting would be carried out by producing receipts. Adjustment would be made to equalize contribution. In the course of their discussion, she also agreed to be responsible to line up contractors renovating the Premises as she knew friends able to do this. It is the Plaintiff’s evidence that in the early part of their discussion about the partnership, the Defendant said she was out of fund and would like to borrow money from her. She promised to lend her $100,000 if they eventually went to business together (‘the said promise”).

49.  She said in or about 10 February 2015, the Defendant gave her a phone call and requested to borrow $30,000. Since by then she had already agreed to partner with the Defendant, she deposited the money as requested according to the said promise.

50.  On 25 March 2015, she said she received a phone call from the Defendant requesting a loan of $20,000 to purchase refrigerators for the partnership. Again because of the said promise the Plaintiff acceded to her request to enable the Defendant satisfy her partnership obligation.

51.  By end of March 2015, she received a phone call from the Defendant alleging she was about to pay deposit of 2 months’ rental plus the 1^st month rental amounting to $264,000. The Defendant told her that she required money to pay this substantial amount. The Plaintiff said as half of the promised loan had already been advanced, she agreed to advance the Defendant a further loan of $50,000 to fulfil the said promise. She reckoned half of her share to the landlord would be $132,000. She therefore paid $200,000. She explained that the money over and above the $182,000[17] would be her contribution towards the partnership subject to final adjustment. She said she was fine with this extra margin even she knew she had to pay further the renovation expenses, which would cost her around $100,000 according to the then estimate, making a total of roughly $250,000 being her contribution. She said the then estimate of $100,000 was in respect of labour costs only, excluding material costs. The question of whether the Defendant would escape liability of repaying her did not occur to her as a problem because the Defendant also owned part of the business, and it was operating.

52.  She particularly drew a banker’s draft payable to the Defendant. Her explanation was that she wanted her contribution to be clearly and safely documented.

53.  The Plaintiff said she was also required to contribute to the frozen foodstuffs, tools and equipment, e.g. old refrigerators, CCTV, computers carried into the partnership from the Defendant’s sole proprietorship business, later agreed at $15,000. She had already paid this amount. On the other hand, the Plaintiff said the Defendant would be responsible for the other half of the rentals and deposit, to purchase further refrigerators, cash register, air-conditioners and stocks for the cold foodstuffs business. The Plaintiff said she knew nothing about this business and all these purchases would be left to the Defendant.

54.  So her case is no party was required to set aside specifically cash of $250,000 as one’s own contribution. Each’s contribution would either be in the form of cash or as expenses incurred for the partnership. The partners then produced their receipts for the final adjustment.

55.  She said after the opening of the business on 21 April 2015, she helped out in the business for a few days. She discovered that the Defendant had kept all cash after close of business every day. She considered it not right. Further, applicants for vacancies of the business referred to by her was not interviewed by the Defendant. However, the Defendant hired workers without reference to her. Neither had she been consulted regarding these workers’ wages. That was why she was anxious to open a bank account for the partnership. She said the agreement between she and the Defendant was that when the Defendant assisted in the daily operation of the business, she could only charge wages at the statutory minimum.

56.  She said that on 8 May 2015, she and the Defendant met in Metro City in Tsang Kwan O, initially with a view for her to withdrawing from the partnership. She was persuaded to and eventually did give up this idea. During the meeting she presented all the original receipts for materials purchased for the renovation together with the breakdown of labours costs. She said the Defendant did check the receipts, accepted and took them away. The only requirement of the Defendant was that she had to ask the workers to sign on the payments slips for proper record. She eventually did what she was asked to do.

57.  On 18 May 2015, she requested to return to the Premises for the purpose of going together with the Defendant to open a bank account for the partnership. However, they had a quarrel when met, and did not open any bank account as initially agreed.

58.  On 20 May 2015, she decided to return to the Premises with a view to retrieving all the receipts relating to the renovation. However, she was unable to find them. She met the Defendant at the Premises and requested the Defendant again to open the bank account for the business together. It was refused. In the heat of the argument, the Defendant said either of them would take up the business. The Defendant asked for $1.4 million if the Plaintiff was to take it up. The Plaintiff enlisted assistance from her accountant friend who managed to reach the Defendant over the phone. The Defendant was told it would be a criminal offence if no partnership account was opened. While the Defendant was engaged over the phone she stayed outside the Premises. Presumably after the said telephone conversation, the Defendant sent her a WhatsApp message proposing to open the account the next day. It was stated that it was not up to the Plaintiff to dictate the time of going to the bank. The Plaintiff left.

59.  Later that day at 7:43pm, the Plaintiff received the WhatsApp Notice from the Defendant terminating their partnership.

60.  She returned again on the 21 May 2015 with a view to getting back the receipts for the renovation materials which she had given to the Defendant when they met at Metro City on 8 May 2015, as well as inspecting the books. However, she could not meet the Defendant. She said her request to inspect books and accounts was also refused by staffs working there upon instruction of the Defendant. She was asked to leave by the Defendant over the phone or else they would report the matters to the Police.

61.  She asked Brother Dragon to act as a middle man to resolve the dispute. She said the Defendant had told Brother Dragon she would repay upfront $100,000, and then $50,000 by 5 further cheques of $10,000 in each and every succeeding months[18]. This proposal did not deal with all money due and owing to her and therefore she refused to accept. This message of the Defendant was forwarded by Brother Dragon to her. She then re-sent it to the Defendant on 8 June 2015. At trial, the Defendant denied she had ever sent the said message to Brother Dragon.

62.  At trial, she confirmed her contribution towards labour costs being $102,350 by reference to the proforma receipts prepared by her. She said they were accurate records of what she had paid the workers, though she had difficulties in securing the full name and signatures of some workers. She corrected the expenses for the materials being $68,628.3[19], making her payment under this head $170,978.3.

 The Defendant’s Evidence

63.  The Defendant’s case is relatively simple. The landlord of the smaller portion of the Premises refused to let her that portion unless she took up the entire Premises. It would mean an expansion of her Shui Wo business. It would also mean a substantial increase in rental. She said she had no alternative but to take it up otherwise the business of Shui Wo would cease. She looked for partnership with other. She did not dispute initially she intended to form such partnership with Brother Dragon. Upon the Plaintiff’s persuasion, she agreed to partner with the Plaintiff. They then came up with an estimate that each was to put up about $250,000 for the partnership. She elaborated at trial it meant the Plaintiff had to deposit this amount in cash in full in her designated accounts before business commenced. The Plaintiff should also be responsible to renovate the Premises and paid the expenses first. As for her parts, she said she needed to dig from her own pockets from the Hang Seng Bank and Wing Hang Bank to make purchases for the partnership. Their respective shares would then be equalized upon production of receipts.

64.  During cross-examination, she accepted that paragraph 3(a) of the Defence, which stated that each party was to deposit $250,000 cash into a designated account, was incorrect. She also said [10] of her witness statement[20] was incorrect either as the Plaintiff also had to be responsible for the renovation expenses initially. She, however, denied the suggestion that she was then out of fund. There is no dispute the banker’s draft of $200,000 was deposited into her personal Wing Hang Bank account on 31 March 2015. On the same date, her boyfriend deposited a cheque of $80,000 into the same account. Apart from these 2 sums, she agreed that the bank balance at the said Bank was only $26,201 as at 31 March 2015[21].

65.  Since the Plaintiff did not want her to partner with Brother Dragon, the Plaintiff paid her $30,000 as deposit on 10 February, 2015. In order to enable her talking to the landlord for the tenancy of the entire Premises for the partnership, the Plaintiff paid her a further $20,000 on 25 March 2015. On 30 March 2015 the Plaintiff paid $200,000 being the balance of her contribution towards the partnership. A further sum $15,000 was paid in or about April 2015 to purchase 50% interest of her trading stocks as well as tools and equipment to be injected into the partnership from her old business.

66.  There is no dispute the business started on 21 April 2015. She did not deny meeting the Plaintiff in Metro City on 8 May 2015. She said she had so far received only 3 hand-written statements from the Plaintiff regarding the labour and materials costs of the renovation. She denied having received, read and kept any receipts of the renovation materials from the Plaintiff as alleged. She did not accept the material costs as there was simply no receipts in support.

67.  She was heavily cross-examined, and the followings came out of her:

i) Although she admitted that she did not have sufficient money for operation of her sole proprietorship business, she denied having requested the Plaintiff for loans;

ii) She agreed that costs of some renovation materials were paid for by her;

iii) Regarding the renovation expenses, she was mainly dissatisfied with the quality of the work, e.g. drainage pipes were wrongly connected, dripping of water. Some workers worked slowly or had repeatedly fixed and removed the same lights a number of time with a view to exaggerate or cheat work hours. Some might have doubled or even tripled their claims for man-day;

iv) She said she had never withdrawn cash from her sole proprietorship business account maintained with the Wing Hang Bank. It was solely used for deposit of money for the purpose of issing cheques;

v) She denied having taken away cash for her own use, nor having refused the Plaintiff’s request to open bank accounts for the partnership. She also denied having ever said that the Plaintiff was only an investor and therefore was not entitled to participate in the business;

vi) She said for the partnership business which she said was still subsisting, she had never engaged any accountant to prepare any account nor had she ever filed any tax return with the Inland Revenue Department (“IRD”). Her explanation was that she was not required to do so by the IRD after 31 March 2014;

vii) She admitted having sent out the WhatsApp Notice on 20 May 2015, but said she was then very tired and sick. She had taken some medication. She was also very angry and unhappy because the Plaintiff had made a scene at the Premises that afternoon, as reported by her staffs. She monetarily blurted out the WhatsApp Notice in the heat of the argument out of anger and frustration. She did not mean termination of the partnership. By her WhatsApp message sent out on 20 May 2015 at 9:50 pm asking time for coming up with money[22], she only meant raising money for repayment of renovation expenses, not for return of capital upon dissolution; and

viii) She insisted that she was not at the Premises on 20 May 2015 and had never met the Plaintiff, contrary to what the Plaintiff had contended. Neither was she at the Premises the next day, i.e. 21 May 2015 as she was very sick these 2 days.

How the Estimated $250,000 is to be Contributed by Each Party

68.  The Defendant’s evidence seems shifting and not tallied with what she had pleaded and said in the witness statement in many respects. On the other hand, the Plaintiff’s evidence, though appeared to be more straight forward, suffered one major drawback, namely, what she said about the loan did not sit in well with her own contemporaneous message sent out via WhatsApp.

69.  By the Plaintiff’s WhatsApp message sent to the Defendant on 3 June 2015 at 6:10 pm, she demanded return of her shares of $265,000 in the partnership and renovation expenses of $173,390.3 (amount not the same as found by this Court)[23] ! The $265,000 appears to be the aggregate of $250,000 (apparently consistent with the Defendant’s version being the Plaintiff’s share of upfront contribution) and $15,000 (which she had paid for the trading stocks of the old business). There was no explanation by the Plaintiff in her witness statement regarding this crucial WhatsApp message. Neither had the Plaintiff been asked to explain nor been cross-examined on this message. At the hearing for closing submission, this Court asked Mr Wong, solicitor for the Plaintiff, as to what possible explanation could be advanced for the figures the Plaintiff stated in this message. Mr Wong submitted, and I think fairly, that he was in no position to explain for the Plaintiff. In the Court’s judgment, the logical inference is this. Even the Plaintiff also accepted the alleged sum of $100,000, which is part of the $250,000 cash she had paid the Defendant, not being a loan but rather her initial contribution towards the partnership.

70.  Further, the Plaintiff saw fit to issue a banker’s draft of $200,000. Her explanation was that it would be clear and safe to have the payment properly documented. She was obviously a very cautious person. This Court believes that she would not have messed up her contribution and loan in one single draft had the money comprised a loan and contribution.

71.  On a balance, despite the inconsistent evidence of the Defendant in her pleading and statement regarding the Plaintiff’s contribution, this Court believes the $100,000 in question was not in the nature of a loan, but the Plaintiff’s initial contribution towards the partnership business.

72.  If the $100,000 was the Plaintiff’s contribution, from the available evidence she would have contributed upfront some $442,078.3[24], which was substantially more than the estimated $250,000 contribution for each party. Would it be too out of line with the parties’ agreement which render this inference not plausible?

73.  Judging from the net balance of the Defendant’s account with the Wing Hang Bank as at 31 March 2015, and the failure on the part of the Defendant to disclose her other bank accounts, this Court believes the Plaintiff’s evidence that the Defendant was short of funds around early 2015 when the partnership business was about to commence. It was a time when heavy commitment of funds was required. The rental was only $28,000 for the old business but $88,000 for the new business. In term of rental commitment, it was almost double that of before even on a partnership basis. So to the Defendant, the business was a substantial expansion, both in terms of size and capital outlay. Her fund was then tight. This Court believes it would be logical for the Defendant to require her partner, namely, the Plaintiff to put in more fund in the initial set up of the business. This Court also believe the Plaintiff was agreeable to this arrangement as she knew the Defendant was financially tight.

74.  Although strictly speaking, the said sum of $265,000 was not entirely correct as the undisputed amount of $6,100 for incorporation of Hunter has been omitted[25], in the Court’s judgment it was only a minor omission. It cannot change this Court’s conclusion regarding the nature of the $100,000 in question.

75.  The findings of this Court are:

i) each party agreed to contribute towards the capital of their partnership in the estimated amount of $250,000. Their respective final contribution for the business which commenced on 21 April 2015 would be adjusted on a 50:50 basis according to a final account to be taken upon production of receipts. In the Court’s judgment, it would mean that a party who has contributed less would be required to repay half of the difference between their contributions to the other party in order to equalize contribution towards the capital.

ii) The Plaintiff had agreed to contribute upfront cash of $250,000 into the designated account(s) of the Defendant, and she had done so. However, the Defendant was not required to do so.

iii) All purchases and expenses incurred for and money injected into the partnership business by the parties for the business to start on 21 April 2015 would be taken into account as contribution towards the capital of the partnership.

iv) Pursuant to this agreement, the Plaintiff had in fact contributed $442,078.3 towards the capital of the partnership, being the aggregate of:

(a) $30,000 paid to the Defendant on 10 February 2015;

(b) $20,000 paid to the Defendant on 25 March 2015;

(c) $200,000 in the form of a banker’s draft and paid to the Defendant and deposited into her bank account on 31 March 2015;

(d) $15,000, being her payment towards the 50% old trading stocks and equipment to be injected into the partnership; and

(e) $6,100 for incorporation of Hunter for the purpose of the partnership; and

(f) Renovation expenses in the total amount of $170,978.3: see [62] above

v) The Plaintiff would be responsible for lining up contractors and labours to renovate the Premises for the purpose of the partnership. All costs and expenses incurred would be counted as contribution towards capital of the partnership. The amount incurred by her and accepted by this Court was $170,978.3.

vi) The Defendant would be responsible for all other purchases such as stocks for the grand opening of the business, purchase of refrigerators, etc. Details of which has yet been ascertained as the same had not been fully set out in the Defendant’s evidence.

vii) It had been agreed that the Defendant was entitled to be remunerated at the statutory minimum wage for as long as she returned to work at the Premises.     

Whether the Said Sums Totalling $100,000 Were in the Nature of Loan

76.  By reasons of this Court’s finding in the preceding paragraphs, this Court does not accept that there was any loan advanced to the Defendant as alleged by the Plaintiff.

Whether the WhatsApp Notice is Clear and Unambiguous

77.  No matter who caused the quarrel on 20 May 2015 and who was to be blamed or blamed more for the quarrel, it was beyond dispute that the following WhatsApp Notice was sent by the Defendant to the Plaintiff on 20 May 2015 at 7:43 pm. For easy reference, the same is repeated below:

“户口我不會開，這間公司我吾做”[26]

 English Translation: “I will not open the (bank) account. I will not continue with this company”

78.  It is noted later in the same evening at about 9:50 pm the Defendant said further in WhatsApp to the effect that she needed time to raise money, and she proposed a meeting coming Tuesday. The Defendant explained at trial by the said WhatsApp Notice, she did not mean termination of the partnership. She sent out the WhatsApp Notice out of emotion. Her request for time was for the purpose of raising money to pay the renovation expenses incurred by the Plaintiff.

79.  However, in the Court’s judgment, reading the WhatsApp Notice in the context of the other WhatsApp messages exchanged contemporaneously, the Defendant’s explanation is unconvincing.

80.  Firstly, the Defendant’s request for time to raise money was in response to the Plaintiff’s earlier request to meet the next day for sorting out the partnership dissolution. The Defendant was then answering this request. The parties were then dealing with matters which arose after the dissolution. This Court does not think she then had misapprehended the Plaintiff’s question.

81.  Secondly, on 21 May 2015 at 4:22 pm, the Defendant demanded in WhatsApp the Plaintiff to keep away from her stuffs (presumably meaning her business) and re-asserted that she would never partner with the Plaintiff[27].  She even referred the business as “her own shop”[28] when she responded to threats apparently from the Plaintiff. The Plaintiff then engaged further if the business was entirely the Defendant’s she should return the money already invested by her. The Defendant replied that it would be sorted out the coming Tuesday. So the Defendant was then very determined to end the partnership and was contemplating repayment, the details of which would be sorted out coming Tuesday. She even threatened to report the matter to the Police or close her shop[29] if the Plaintiff went to her shop[30].

82.  In the Court’s judgment, the WhatsApp Notice, construed in the context of subsequent exchanges, is clear and unambiguous as to its effect, namely, the parties would no longer be partners. The business would be the Defendant’s and continued to be run by her. It is her company entirely. The Defendant said she did not realize the legal effect of her message and she did not mean it. This Court disagrees. As stated in the preceding paragraphs, she definitely meant what she wrote. Even if she did not, it is irrelevant: see the principles set out in [30] above.

83.  There is no evidence as to when exactly the said WhatsApp Notice was communicated to the Plaintiff. However, the Plaintiff responded at 8:26 pm the same evening. So the said notice should have reached and read by the Plaintiff, the latest, by the time she replied. This Court is prepared to accept the partnership was effectively terminated by the WhatsApp Notice issued by the Defendant at 8:26 pm of 20 May 2015.

Whether the Termination Notice Has Been Withdrawn

84.  As stated in [31] above, the termination notice, once given, cannot be withdrawn unless with the consent of all the partners. It is not the Defendant’s case that the notice is valid but has been withdrawn with the Plaintiff’s consent. Her case is that the said WhatsApp Notice did not constitute a termination notice. It is this Court’s conclusion that the WhatsApp Notice is an effective termination notice. Even after receipt of the letter issued by the Plaintiff’s solicitors dated 22 June 2015[31] the Defendant did not withdraw the notice by adding the Plaintiff’s name to the business registration. Instead, she carried on the business in the name of Shui Wo Ltd without first consulting the Plaintiff, contrary to what a partner in a partnership business should have done. She obviously has treated the business hers and had decided to ignore the Plaintiff. She can point this Court to no evidence that she had the very intention to withdraw such termination notice.

85.  In view of what this Court has decided above, it is unnecessary for this Court to rule on the Plaintiff’s secondary case. It is because there was no longer any subsisting partnership to be dissolved after 20 May 2015. Further, the Defendant’s Defence and Counterclaim could not have any effect of resurrecting the partnership. There is simply nothing contained in the Defendant’s pleadings that can be construed as withdrawal of her own WhatsApp Notice. The Amended Statement of Claim prays for an order of this Court to dissolve the partnership. It could not be construed as the Plaintiff’s acceptance of any withdrawal of the said WhatsApp Notice.

86.  The Defendant had continued the business of Shui Wo using the partnership business. According to the principles set out in [28] above, she was required to account for the Plaintiff for the profit she had made out of the partnership assets. Now the Plaintiff is not asking for such profit. In the Court’s judgment, an account of the partnership as at the commencement is required to find out the actual contribution of the parties towards capital. Further a further account as at the date of dissolution have to be made to ascertain the capital and profit and loss position of the partnership. Since the Defendant has taken over the Plaintiff’s share and continued the business on her own, she is required to pay to the Plaintiff what is found to be due and owing to the Plaintiff under those accounts.

Counterclaim 

87.  That being the case, the Counterclaim must be dismissed. It will also be unnecessary for this Court to consider issues (v) and (vi) as set out in [39] above.

Other Matters

88.  If this Court were wrong and were required to adjudicate whether the conduct of the Defendant is such that it warrants an order for dissolution of the partnership, this Court would have no hesitation to make such order.

89.  On a balance, it is the finding of this Court that during the subsistence of the partnership, the Defendant had taken cash from the cash register and kept it without depositing them into the bank account. It is supported by the Defendant’s own evidence that she only deposited money into bank account for the purpose of issuing cheques. This Court believes that it was her usual practice when she was carrying on her sole proprietorship business. She was reluctant to open any partnership bank account with the Plaintiff for she felt it unnecessary. When she had an opportunity to renew the business registration, she preferred to form a limited company instead of adding the Plaintiff’s name as a partner. This Court considers she might not be accustomed to conducting her business in a partnership manner and considered the Plaintiff’s involvement too much. Had the partnership not been terminated by the Defendant, her conduct of incorporating a limited company and siphoning all business to it without the Plaintiff’s knowledge (which is the finding of this Court) would have amounted to a breach of fiduciary duty. An order for dissolution of the partnership is justified.

90.  Judging from the WhatsApp messages exchanged on 20 May 2015, this Court accepts she was present in the Premises in that afternoon when the dispute broke out. This Court also believed she refused to allow the Plaintiff to inspect the partnership’s books and accounts on 21 May 2015 as by then she considered the business hers. Again, had the partnership not been terminated by the Defendant, it would have amounted to a breach of a partner’s obligations under the PO (see [27] above). An order for dissolution is justified because the mutual trust and confidence required of a partnership have gone.

91.  This Court believes the Plaintiff’s evidence that Hunter was incorporated for the purpose of the partnership with a view to gaining the alleged favour from the EHD as advised by the Defendant[32]. It is consistent with the Defendant’s evidence that limited companies would receive more favourable treatment over unlimited business in obtaining credits from suppliers. This Court accepts money incurred in incorporation of Hunter was part of the expenses incurred for the partnership, and is part of capital.

Conclusion

92.  By the above reasons, this Court makes the following orders:

i) The Plaintiff’s claim for loan of $100,000 be dismissed;

ii) A declaration that the partnership business formed by the Plaintiff and the Defendant under the name of Shui Wo and commencing business on 21 April 2015 at the Premises was dissolved by the Defendant’s WhatsApp Notice on 20 May 2015;

iii) As the Defendant was in control of the business, accounts be taken of the said partnership as at the date of its operation on 21 April 2015 and as at date of its dissolution on 20 May 2015 respectively and be rendered by the Defendant to the Plaintiff, and the Defendant do pay the Plaintiff what are found due and owing (if any) by the Defendant to the Plaintiff under these accounts. For the purpose of these accounts,

a)   Each party is to contribute to the partnership’s capital on an equal basis;

b)  The Plaintiff has already contributed a total sum of $442,078.3 towards the capital of the partnership, being the aggregate of cash of $250,000, a sum of $15,000 for purchase of the stocks left behind by the sole proprietorship business and injected into the partnership business, $6,100 for incorporation of Hunter Knot and $170,978.3 towards the renovation of the Premises; and

c)   The Defendant was entitled to be remunerated for as long as she returned to work for the partnership at the Premises at the statutory minimum wage as agreed;

iv) There be liberty to apply for directions as regards the accounts; and

v) The Defendant’s counterclaim herein be dismissed.

93.  This Court is of the preliminary view that the claim for $100,000 takes about one-fifth of the time of the Plaintiff’s whole claim. This Court therefore makes a costs nisi that that Defendant do pay three-fifth of the Plaintiff’s costs of her Claim and her entire costs of defending the Counterclaim, on District Court scale, to be taxed if not agreed. Such costs are to be made absolute if within 14 days from today no application is made to this Court to vary the same.