NG SO KUEN v. NG LUEN FONG AND OTHERS

HEADNOTE

Partnership - Evidence of share of profit, receipt of interest on contribution to capital, notice of meetings etc. is indicative of existence of partnership (Cox v. Hickman (1860) H. of L. cases 268 and Davis v. Davis (1893) 1 Ch., p. 393 which applied Suction 2(3) of partnership Act 1890) - Failure by managing partner to let a sleeping partner inspect books of accounts is good ground for an application to dissolve partnership and to have a Receiver appointed.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

ACTION NO. 2537 OF 1984

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BETWEEN

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EXTEMPORE DECISION

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1. Plaintiff seeks a declaration that the partnership between her and Defendants be dissolved and that a Receiver be appointed to wind up its affairs. Defendants deny that Plaintiff is their partner and counter claim for an order to remove her name from the partnership registered with the Business Registration Office.

2. It is common ground that in the middle of 1980, NO Luen-fong (DI) and NG Pun-fong, who are sons of Plaintiff's elder brother discussed and agreed with Plaintiff to form a partnership to operate en eating-house, a new venture to them. On 11/7/80 they applied for registration of that business under the trading name of Kong Nam Restaurant (referred to as The Restaurant (TR)) and used the relevant certificate as a mandate to open a current account with Ka Wah Bank. Decoration of the shop began in earnest and with funds advanced by Plaintiff. On 15/9/80 Plaintiff entered into a tenancy agreement with The Restaurant whereby she, as owner of that property, leased it to The Restaurant for a term of 5 years from 1/9/80. D1 signed that document as managing partner and oh behalf of The Restaurant. Furnishing of the business premises was completed towards the last part of October 1980 by which time Plaintiff had put in a total sum of $195.000.00. Also by then the number of partners was increased from 3 to 5 with he addition of NG Lin-fong (D2) and NG Wai-ling (D3), younger brother and sister of D1 respectively. On 30/10/80 D1 purchased 5 printed partnership books in Chinese and therein wrote the partners' names, their shares of capital and the remark that interest on capital should be paid at the rate of 1% per month. The 5 partners signed on the partnership books to signify their acceptance of those written words. Apart from the covers, each of which bears the name of one partner, the rest of the contents of those 5 books is similar in all aspects.

3. Plaintiff's case is also that at the time of signing the partnership agreement on 30/10/80 the partners and their shares were : D1 (35%), D2 (15/%), D3 (15%), Plaintiff (20%) and NG Pun-fong (15%). They did not adopt the printed provisions of the partnership book but orally agreed on these terms : (a) that their profit should relate to the ratio of their contribution to capital, (b) that repayment of capital should be made from profits and (c) that every partner should have the right to inspect the accounts of the firm. Shortly afterwards NG Pun-fong backed out and by consent of other partners, Plaintiff took over his share. As a result, partners' capital was revised in this manner : D1 ($105,000.00). D2 ($45,000.00), D3 ($45,000.00} and Plaintiff ($105,000.00), making a total of $300,000.00, but since D2 and D3 had ho funds Plaintiff agreed to accommodate them financially. She thus applied the advances of $195,000 to The Restaurant as payment of her capital and those of D2 and D3.

4. The Restaurant opened its door for business on 1/11/80. Since then it has been run by D1 with some assistance from D2 and D3 while Plaintiff, being a sleeping partner, has not taken part in its management. According to Plaintiff, each month she received from The Restaurant, at first a sum of $1,590 and later a smaller amount, which represented interest of 1 per month on the share of capital that she had paid in as aforesaid. Plaintiff was also the recipient of the following documents and payments from or through D1:-

5. Plaintiff went on saying that she did not exercise her option as suggested by D1 but instead sought an inspection of The Restaurant's accounting records. Her request was only partly met and that gave rise to an intervention by her solicitor which was rejected by D1 on the ground that Plaintiff was not The Restaurant's partner.

6. From the defence only D1 testified. He stated that not long before or after the opening of The Restaurant on 1/11/80 Plaintiff and he agreed, without the knowledge of D2 and D3, the two other partners, that Plaintiff should withdraw from the partnership and that the sum of $195,000 paid by her into The Restaurant's bank account should be regarded as a loan to him personally as 1% in monthly interest, plus a share of The Restaurant's profit. Plaintiff denied that there was such an agreement. On looking at D1 's testimony and the defence one can see that a series of puzzling points has emerged. They are : -

7. As far as the law on partnership is concerned, I am of the view that it has been Long recognised that a share of profit between 2 persons from a transaction or trading venture does not make them partners. The underlying principle involved was settled in "Cox v. Hickman" (1860) H. of L. cases 268 when it was hold that an arrangement whereby a trader assigned his property to trustees representing creditors of his business, to enable the Latter to supervise the conduct of the business so that the creditors might be paid off out of profits, did not raise a partnership between the debtor and his creditors. That principle later received statutory confirmation in S. (2)(3) of the Partnership Act of 1890 and in the Partnership Ordinance, Cap. 38, S. (4)(c) which reads :- "the receipt by a person of a share of the profits ... partner in the business."

8. Application of S. (2)(3) of the Act can be found in "Davis v. Davis" ( 1893 1 Ch., p. 393. It is thus established that the sharing of profits is evidence, but not conclusive evidence of partnership and that the Court has to ascertain the intention and contract of the parties as shown by the facts of the case.

9. Having seen and heard witnesses I believe that Plaintiff is truthful and reliable, whereas D1 gave me the impression of someone who invented something to cover up another which had turned out to be false. I thus accept Plaintiff's evidence and reject Dl's so far as their story differs. In short I was struck with the existence of Plaintiff's various rights, such as the right to profit, the right to inspect accounts, the right to notice of partners' meetings, the right to repayment of capital etc., the fact of which overwhelmingly points to her status as a partner. This finding is in a way supported by Plaintiff's asoertion that she would share in the loss of The Restaurant in the same manner as she had shared in its profit. As regards the inaccurate records of partners with the Business Registration Office and Ka Wah Bank I can safely say that since D1 had the sole management of The Restaurant and was duty bound to put those records right but had hot done so, other partners, including Plaintiff, ought hot to be blamed for the inaccuracy involved.

10. In the light of the foregoing, I hold that Plaintiff has been a partner of The Restaurant since its inception and has not at any time withdrawn from that partnership. There will therefore be judgment to Plaintiff as claimed. As regards the counter-claim which stands or falls on the result of Plaintiff's claim, I would add that it is not supported by the evidence end is therefore dismissed.