CHOW KAM HUNG v. WONG KIU, person appointed to represent the estate of NG WAI KWONG, Deceased AND ANOTHER

DCCJ 5127/2019
(Heard together)

[2022] HKDC 1368

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5127 OF 2019

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DCCJ 5138/2019
(Heard together)

[2022] HKDC 1368

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5138 OF 2019

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JUDGMENT

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INTRODUCTION

1.  Before me are two actions heard together, namely:-

(1)  DCCJ No 5127 of 2019 commenced by Chow Kam Hung (“Chow KH”) against Ng Wai Kwong (“Ng WK”) (now deceased and represented by Wong Kiu) and Shine Wheel Limited (“Shine Wheel”). This was commenced initially in DCCJ 1275 No of 2012 on 17 April 2012. It was subsequently transferred to High Court as HCA No 2294 of 2013 and then eventually transferred back to District Court as DCCJ No 5127 of 2019 (“DCCJ 5127/19”).

(2)  DCCJ No 5138 of 2019 commenced by Chow KH against Hoi Kong Ironware Godown Company Limited (“Hoi Kong”), owned and controlled by Ng WK and his wife Madam Pang Hang Ngor (“Madam Pang”). This was commenced initially in HCA No 621 of 2012 also on 17 April 2012. It was eventually transferred to District Court as DCCJ No 5138 of 2019 (“DCCJ 5138/19”).

2.  DCCJ 5138/19 concerns a partnership between Chow KH and Hoi Kong in ironmongery and stainless steel business (the “Partnership in Ironmongery and Stainless Steel Business”), the existence of which is not in dispute. The details of the parites’ history have all been set out in the witness statements in DCCJ 5138/19. DCCJ 5127/19 concerns an alleged partnership between Chow KH and Ng WK on a land (the “Alleged Partnership of Land”) lot known as the Remaining Portion of Lot No 3891 of DD 124 (the “Land”), which even Chow KH alleges that the Alleged Partnership on Land was separate and distinct from the Partnership in Ironmongery and Stainless Steel Business, while Ng WK denied the existence of the Alleged Partnership on Land. The witness statements in DCCJ 5127/19 simply adopt the witness statements in DCCJ 5138/19.

3.  There is no dispute that Chow KH and Hoi Kong formed the Partnership in Ironmongery and Stainless Steel Business in 1986. There is also no dispute that the Partnership consisted in ironmongery first, and later expanded to stainless steel business. For the present purpose, the timing of when the expansion exactly took place is immaterial, and for convenience, the partnership will still be referred to as the Partnership in Ironmongery and Stainless Steel Business even for the time before the expansion.

4.  In DCCJ 5138/19, in gist, Chow KH claims that:-

(1)  No profit had been shared all along and this constituted breach of Hoi Kong’s fiduciary duties under the partnership.

(2)  The Partnership in Ironmongery and Stainless Steel Business ought to be dissolved.

(3)  Hoi Kong should pay the 50% share of profit in the sum of HK$951,438.31, or alternatively, accounts and inquiries be made.

5.  I pause to point out, as I did to Mr Eric Chau, counsel for Chow KH, that the primary relief for payment of the share of the profit is not the right relief to be sought. Assuming that I would order a dissolution of the Partnership in Ironmongery and Stainless Steel Business, I cannot just focus on the profits made by the partnership and order a share of the profit. The right relief is that a winding up of the partnership, that is, the whole partnership business be wound up, accounts and inquiries be taken, assets be realised, liabilities be paid off, and the remaining assets (if any) be distributed to, or the outstanding debts (if any) be shared by, the partners.

6.  Hoi Kong’s defence is, in essence:-

(1)  Chow KH and Hoi Kong agreed that the Partnership in Ironmongery and Stainless Steel Business should be dissolved in October 2004 and it was actually dissolved on 15 October 2004.

(2)  Hoi Kong also claims that the initial capital of HK$300,000 it provided to the Partnership in Ironmongery and Stainless Steel Business was interest-bearing at prime plus 2% per annum.

(3)  There was an oral settlement agreement (the “Alleged Oral Settlement Agreement”) between the parties as to how to deal with the assets of the Partnership in Ironmongery and Stainless Steel Business upon the dissolution.

(4)  In any event, Chow KH’s action for account is time-barred by section 4 of the Limitation Ordinance, having expired in October 2010.

7.  In DCCJ 5127/2019, in gist, Chow KH claims that:-

(1)  In or about 1989, Chow KH mentioned to Ng WK that he would like to cease the Partnership in the Ironmongery Business (by which time, according to Chow KH, the partnership had not yet expanded to stainless steel business). As an incentive for him to stay in the partnership, Ng WK was to purchase the Land with his own money, let the Land to Hoi Kong as the new warehouse for the partnership, and Chow KH would be entitled to half of the profits (including rental income) made on the Land.

(2)  It was via Shine Wheel that the Land was purchased.

(3)  Chow KH pleads that this was another partnership, that is, the Alleged Partnership of Land.

8.  It is not in dispute that in June 1998, Shine Wheel received from the Government HK$1,485,121.50 as compensation for resumption of the Land, and that the cost of purchasing the Land was HK$358,240.00.

9.  Ng WK and Shine Wheel’s defence is, in essence, that:-

(1)  There was no partnership in relation to the Land.

(2)  In about mid-1990, Ng WK did make an oral promise to Chow KH (the “Oral Promise”) that if in the future the Land could be sold, he would share half of the net profits with Chow KH.

(3)  The net profit would not include any rental income would be included.

(4)  The Oral Promise did not form any partnership in relation to the Land.

(5)  The Oral Promise was unenforceable for lack of consideration.

(6)  In any event, Chow KH’s action to enforce the Oral Promise is time-barred by section 4 of the Limitation Ordinance (Cap 347) by June 2004.

(7)  In any event, the Alleged Oral Settlement Agreement covered the sharing of the profit on the Land, and thus the matter had been settled already.

10.  In relation to the Land, in the present context, in my view, whether it was a partnership or simply an agreement is a red-herring, given that neither the claim nor the defence turns upon any rights or duties as partners. The material issue is what were the enforceable terms of agreement between the parties.

ISSUES

11.  The issues before me are:-

(1)  Whether the Partnership in Ironmongery and Stainless Steel Business was dissolved on 15 October 2004;

(2)  Whether Hoi Kong was entitled to charge interest at prime rate + 2% on the capital of HK$300,000 provided to the Partnership in Ironmongery and Stainless Steel Business;

(3)  Whether the relevant parties entered into the Alleged Oral Settlement Agreement;

(4)  Whether Chow KH’s claim for account of the Partnership in Ironmongery and Stainless Steel Business has been time-barred;

(5)  Whether the “net profit” under the Oral Promise (be it a partnership or not) would include rental income;

(6)  Whether the Oral Promise is unenforceable due to lack of consideration;

(7)  Whether the action on breach of the Oral Promise has been time-barred; and

(8)  Whether any dispute under the Oral Promise has been settled under the Alleged Oral Settlement Agreement.

WITNESSES

12.  For Chow KH’s side, Chow KH himself gave oral evidence, and his son Mr Chow Man Kit, who assisted Chow KH from around 1998 to 2005 in his partnership with Hoi Kong and subsequently in Chow KH’s new company, also gave oral evidence.

13.  For the side of Hoi Kong, Ng WK and Shine Wheel, Ng WK’s wife Madam Pang, who controlled and was involved in the daily operation of Hoi Kong and controlled Shine Wheel, gave oral evidence. Ms Leung Siu Ying (“Ms Leung”), who has since 1996 been (and still is) the accountant in charge of the accounting of Hoi Kong and Shine Wheel, also gave evidence. Ng WK himself made two witness statements, but unfortunately he passed away before the trial commenced. I shall accord weight to his witness statements only insofar as corroborated by other evidence.

14.  I shall analyse their evidence under each of the issues identified above.

WHETHER THE PARTNERSHIP IN IRONMONGERY AND STAINLESS STEEL BUSINESS WAS DISSOLVED ON 15 OCTOBER 2004

15.  While a glance at Chow KH’s witness statements gave an impression that there had not been any divorce of the Partnership in Ironmongery and Stainless Steel Business, it is clear in his oral evidence that there had already been, and what his real complaint was that because the accounts had not been settled, he did not think that one can say the partnership had been dissolved.

16.  His testified that in 2004, he talked to Ng WK and suggested that they could not continue the partnership anymore, and he would like to set up a new company to take up the ironmongery business from the Partnership in Ironmongery and Stainless Steel Business. In response, Ng WK said that if that was Chow KH’s decision, then that was his decision. He requested Ms Leung in private to assist him in setting up a new company for this purpose. Ms Leung did render the assistance. In fact, Ms Leung herself also confirmed in her evidence that she did render the assistance, although there is some dispute over the capacity in which Ms Leung did so, namely, whether she did so on behalf of Hoi Kong or in her private capacity. But in my view, this dispute is peripheral.

17.  A new company (the “New Company”) was then set up to take up the ironmongery business, in particular the customers and suppliers of the ironmongery business of the Partnership in Ironmongery and Stainless Steel Business all going to the New Company.

18.  According to Chow KH, discussions with Ng WK on how to distribute the value of the Partnership in Ironmongery and Stainless Steel Business were also held. Chow KH had suggested selling the equipment and the vehicles under the ironmongery business of the Partnership given that they were already old and the remaining value low. But Ng WK suggested that Chow KH’s New Company could “borrow” them, and when later, the New Company made money, they could then repay Hoi Kong the rent.

19.  Chow KH also said that to his understanding, after the divorce, he would not have any interest in the remaining stainless steel business.

20.  It might sound strange that a divorced partner would be so kind to “lend” the assets to the other for the latter’s new business. But in my view, it was not so strange here because in fact, even Madam Pang testified that at that time, it was a peaceful divorce, and the relationship between Chow KH and Ng WK remained harmonious. Indeed, both Chow KH’s evidence and Madam Pang’s is that after the divorce, when receiving scrap metal, Hoi Kong would sell the scrap metal to the New Company because Hoi Kong, after the divorce, did not do any ironmongery business anymore.

21.  In fact, Madam Pang’s evidence is largely consistent with Chow KH’s oral testimony set out above. Madam Pang testified that in 2004, Chow KH suggested a divorce of the partnership, and that Ng WK agreed. She also said that it was agreed that the cut-off date would be 15 October 2004, a date which according to Madam Pang the business would be separated, and a date which Chow KH also referred to as the date he started his new business under the New Company. What differs in her evidence from Chow KH is whether the accounts thereafter were settled, and I shall discuss this later under the issue of whether there was the Alleged Oral Settlement Agreement.

22.  Further, by a pre-action letter of 18 January 2012 issued on behalf of Chow KH to Hoi Kong (the “Pre-Action Letter to Hoi Kong”), Chow KH’s solicitors Messrs Cham & Co (“Cham & Co”) demanded payment of HK$1,347,523.74 from Hoi Kong allegedly being Chow KH’s 50% entitlement to the Partnership in Ironmongery and Stainless Steel Business. In that letter, it was clearly stated that “notwithstanding the cessation of the Partnership in Ironmongery and Stainless Steel Business, [Hoi Kong] [has] failed and refused to repay [Chow KH]…” (emphasis added) and then it referred to the balance sheet of the partnership as at 15 October 2004 for accounts. This shows in clear terms Chow KH’s understanding that the partnership had ceased by 15 October 2004.

23.  Given the consistency between Chow KH and Madam Pang in this respect, and the Pre-Action Letter to Hoi Kong, I accept both Chow KH’s oral evidence and Madam Pang’s that on 15 October 2004, there was an agreed divorce of the partnership.

24.  Under this agreed divorce, the substratum for the original Partnership in Ironmongery and Stainless Steel Business, namely, both ironmongery business and stainless steel business under one partnership, was gone. It is agreed that the customers and suppliers of the ironmongery business all went to the New Company. In my view, such agreed divorce clearly means an agreement of dissolution of the Partnership in Ironmongery and Stainless Steel Business on 15 October 2004.

WHETHER HOI KONG WAS ENTITLED TO CHARGE INTEREST AT PRIME RATE + 2% ON THE CAPITAL OF HK$300,000 PROVIDED TO THE PARTNERSHIP

25.  One usually expects that no interest would accrue on capital investment in a business. Be that as it may, if the partners agree that the capital would bear interest, the Court would give effect to such an agreement. The question here is whether there was any such agreement.

26.  The balance sheets of Hoi Kong, which included the assets and liabilities of the Partnership in Ironmongery and Stainless Steel Business, did not include any such interest payable until a revised balance sheet prepared for 2004, which out of a sudden, set out all the interest payable all over the years purportedly having accrued since 1986. When Ms Leung was asked why this was so especially when she said that she had already known in about 1997 or 1998 that the capital would bear interest, she said that because at that time, Hoi Kong or the Partnership did not have sufficient funds to pay up the interest, and so she did not prepare the balance sheets with such interest. This answer is a dishonest answer, belittling the Court’s knowledge of basic bookkeeping. The interests, according to Hoi Kong’s case, had accrued since 1986. Even assuming that Hoi Kong or the Partnership really did not have the funds to pay the interests, the interests should still be debited as interest payables. The payables, though not paid, would help the readers of the balance sheet to understand the financial positions of the company. When confronted with this basic bookkeeping knowledge, Ms Leung, probably knowing that she should not stir up further confusion, had to explain that it was her negligence in failing to record the interest payables. I do not accept this explanation. It is inherently improbable that an accountant would have omitted such basic bookkeeping for years. Further, Madam Pang, according to her own evidence, read the balance sheets whenever ready. It is inherently improbable that if the parties’ understanding was indeed that the capital was interest-bearing, for so many years, Ms Leung would have omitted to record the interest payables and Madam Pang would have failed to notice the omission of the interest payables.

27.  In the same vein, while Ms Leung accepted that the interests should be booked as expenses and shown in the income and loss statements of Hoi Kong, she did not do so until sometime in 2004 or 2005 when she had to work out the figures for the partnership to settle on. She, again, explained that it was her negligence. For the same reasons as stated in the preceding paragraph in relation to the balance sheets, I do not accept her explanation.

28.  Also, in a table prepared by Ms Leung for discussing with Chow KH the accounts of the Partnership in Ironmongery and Stainless Steel Business (the “Table for Discussion”), Chow KH signed on various items of interest; however, for the interest on the capital, a handwritten note was made by Ms Leung of “周生要求取消, 此是合作方式, 不要收取利息”(as well as a handwritten note of “由吳生決定”in respect of the interest on the fund used to acquire the Land, which is an issue to be discussed later in this Judgment). There is conflicting evidence over when this worksheet was given and explained to Chow KH and when Chow KH signed this worksheet. But the minimal agreement over the timing, which would be sufficient for the present purpose, is that the discussion(s) of the Table for Discussion took place after 15 October 2004.

29.  Mr Brian Lo, counsel for Hoi Kong, Ng WK and Shine Wheel, submits that because Ng WK or Hoi Kong was the sole provider of the funds, Chow KH received salaries for his work and would share the profit of the partnership, Ng WK had to bear most, if not all, the risk of the loss suffered by the partnership. Thus, according to Mr Lo, in all probabilities, the parties did agree to interest. However, Chow KH explains that Ng WK and Hoi Kong did not have the necessary network and knowledge for the business and it was Chow KH’s such network and knowledge that Ng WK and Hoi Kong desired so much. Chow KH also explains that it was hard work for him and his team. In my view, there is force in both side’s respective stance. I also note that businesspersons always take risk in setting up a new business (or expanding an existing business).

30.  Having considered the above, especially the (absence of) contemporaneous documents, namely, the balance sheets showing no such interest payable in the past, I find Ng WK has failed to discharge his burden of proof that the capital of the HK$300,000 was interest-bearing.

WHETHER THE RELEVANT PARTIES ENTERED INTO THE ALLEGED ORAL SETTLEMENT AGREEMENT

31.  Chow KH’s evidence is that there has never been any agreement on the figures on which the parties were to settle, while Madam Pang and Ms Leung were adamant that there was.

32.  First, in response to the Pre-Action Letter to Hoi Kong (as well as another pre-action letter issued by Cham & Co to Ng WK in respect of the Land, which I shall mention below when discussing the issues concerning the Land), Messrs KC Ho & Fong (“KCHF”), on behalf of Hoi Kong and Ng WK, issued a letter dated 8 February 2012 (the “KCHF Letter of 8.2.12”)[1] stated, in essence, that the correct calculation should be, rather than Hoi Kong and Ng WK to pay Chow KH, that Chow KH should pay Hoi Kong and Ng WK. In this letter, there was not a shred of indication that there had been any sort of agreement or settlement as to the accounts and/or any figures. Rather, it is clear from this letter that the parties were still disputing over the figures. If there had already been any settlement or agreement as alleged by Madam Pang and Ms Leung, it is inherently improbable that such settlement or agreement would not have been referred to.

33.  Second, even on Madam Pang’s and Ms Leung’s evidence, Ms Leung passed the relevant documents and information to Chow KH in mid-2005 for him to approve, but Chow KH remained silent. Among such documents and information was a typed list of assets with value assigned to each of the assets with some handwritten notes. According to Ms Leung, the typed list was prepared by Chow KH’s side. When she read this list, she had a few values which she disagreed and thus she wrote on the list the values which she thought should be. She also added, again by handwriting, a few items of assets.

34.  According to Ms Leung, because she had waited for quite some time and there was no response, she tried to call him and his response was “得啦！得啦！得啦！”. Eventually, in 2011, Chow KH contacted Ng WK disputing certain figures in the documents and information passed to him. As a result, Ms Leung had to call a face-to-face meeting with Chow KH on 23 December 2011. During that meeting (the “Meeting of 23.12.11”), Ms Leung explained the figures to Chow KH with the Table for Discussion, which she alleged passed to Chow KH earlier on in mid-2005. On the Table for Discussion, Chow KH signed against each of the items under 五金部累積虧損 he agreed, and Ms Leung wrote “OK” to these items as well, except for two items which Chow KH had comments. The first item was the interest on the capital of HK$300,000 provided by Hoi Kong. According to Ms Leung, Chow KH requested to cancel this item, and accordingly, Ms Leung wrote “周生要求取消，此是合作方式，不要收取利息”. The second item was the interest on the funds used to purchase the Land. According to Ms Leung, Chow requested“由吳生決定”. This comment looked strange to me, because the interest obviously was charged upon the request of Ng WK and would be to Ng WK’s benefit, and thus, in all likelihood, Ng WK would have decided he was entitled to interest. Be that as it may, what is clear to me is that Ms Leung did not see fit to write “OK” as she did against the other items. So, although the comment was strange, it is clear to me that there was also some disagreement over this item.

35.  The only other document that bears Chow KH’s signature is a handwritten note dated 23 December 2011 (the “Handwritten Note of 23.12.11”) written by Ms Leung herself and signed by Ms Leung and Chow KH. It was written that:-

“23/12/2011 與周生會議內容

1. 大致上已看完有關財務報告2000/2001年，2001/2002年，2002/2003年，2003/2004年及截至15/10/2004報告。

2. 有關歷年順風圍倉租金 $6000/月給予金周金洪。收租後計算租金收入於周金洪。（收租期依據順風圍倉（即五金部）的租地計），由1/1990起計。”

36.  In this Handwritten Note of 23.12.11, no agreement or settlement in relation to the accounts or figures of the Partnership in Ironmongery and Stainless Steel Business was indicated or mentioned. Point 2 seems to be an agreement in relation to the Land, but Ms Leung alleged that this was only a request by Chow KH and she recorded it down. In any event, this Point 2 does not relate to the partnership but to the Land, and I will come back to this later in this judgment.

37.  All the other documents produced in relation to the accounts were not signed by Chow KH. Ms Leung’s explanation is that because before the 2011 meeting, Chow KH did not seem to be disputing the same, and thus it did not occur to her that she had to ask Chow KH to sign. At the 2011 meeting, because Chow KH had started disputing the figures, she thought fit to ask him to sign. I accept her explanation. However, this explanation does not mean that there had been settlement or agreement back in mid-2005 or sometime later when Chow KH had remained silent on the figures. It was simply wishful thinking on Ms Leung and Madam Pang’s part.

38.  In my view, what happened in 2011 clearly shows that Chow KH on the one hand and Ng WK and Hoi Kong on the other had had never been ad idem as to any settlement. In other words, there was no settlement or agreement at all. Absence of any settlement or agreement also explains why even in KCHF Letter of 8.2.2012, KCHF was still disputing as to who should pay who, and did not mention any sort of settlement or agreement.

WHETHER CHOW KH’S CLAIM FOR ACCOUNT OF THE PARTNERSHIP IN IRONMONGERY AND STAINLESS STEEL BUSINESS HAS BEEN TIME-BARRED

39.  Mr Lo argues that the right to account arose upon the dissolution of the Partnership in Ironmongery and Stainless Steel Business on 15 October 2004, and by virtue of section 4(2) of the Limitation Ordinance, the time for bringing action for account expired on 14 October 2010: see Manning v English [2010] Bus LR D89; also Lindley & Banks on Partnership (12^th ed) §23-36.

40.  Mr Chau urges me not to adopt Manning v English.  He argues that section 4(2) of the Limitation Ordinance does not apply to the right to account upon dissolution of a partnership. He argues that the right to account here is a pure equitable right and thus, applying the ratio of Liu Hsiao Cheng v Wong Shu Wai [2018] 1 HKLRD 1087 at §§18-19, where the Court of Appeal said that limitation period does not apply to “a pure equitable right (as in the case of a claim by a beneficiary against a trustee for account)”. That ratio, as all the ratios in every case, has to be understood in context and with its reasoning. In that case, the Court of Appeal was dealing with the director’s duty to account arising from the breach of his pre-existing fiduciary duties owed to the company.

41.  As Millett LJ (as he then was) explained in Paragon Finance v Thakerar & Co at 408g-j, adopted by the Court of Appeal in Liu Hsiao Cheng v Wong Shu Wai at §20:-

“The explanation for the rule was that the possession of an express trustee is never in virtue of any right of this own but is taken from the first for and on behalf for the beneficiaries. His possession was consequently treated as possession of the beneficiaries with the result that time did not run in his favour against them…

The rule did not depend upon the nature of the trustee’s appointment, and it was applied to trustees de son tort and to directors and other fiduciaries who, though not strictly trustees, were in an analogous position and who abused the trust and confidence reposed in them to obtain their principal’s property for themselves. Such persons are properly described as constructive trustees.” (emphasis added)

42.  Further, at p 415h, Millett LJ pointed out that:-

“A claim for an account in equity, absent any trust, has no equitable element; it is based on legal, not equitable rights…” (emphasis added)

43.  I add that the right to an account here arose not from any pre-existing duties, but from the dissolution of the partnership.

44.  Thus, I, like Manning v English, hold that section 4(2) applies here.

45.  For the sake of completeness, even if the right to account here falls within section 4(7) of the Limitation Ordinance and thus section 4(2) does not apply, I would have no hesitation in applying proviso in section 4(7) so that the limitation period of 6 years would still apply. In coming to such view, I rely on Lee Kwok Wing v Chung Chuen Hei [2012] 4 HKLRD 917 at §62 referring to Paragon Finance v Thakerar & Co [1991] 1 All ER 400 at pp 415-146, both of which were approved by the Court of Appeal in §32 of Liu Hsiao Cheng v Wong Shu Wai:-

“Therefore, in my judgment, even though the plaintiff’s present claim for an account falls within the phrase “any claim.. for other equitable relief” in s. 4(7), the Court shall apply a 6-year imitation period pursuant to the Proviso. That is because, as I have repeatedly noted, the plaintiff’s present claim against the defendant for an account is based purely on contract. Therefore, applying the words of Millett LJ in Paragon Finance Plc v DB Thakerar & Co as cited above (A claim for an account in equity, absent any trust, has no equitable element; it is based on legal, not equitable rights… Where the agent’s liability to account was contractual, equity acted in obedience to the statute…), this Court should apply in this case the statutory limitation period of six years applicable to claims in contract.”

46.  Further, Millett LJ said at p 415h that:-

“Where, as in Knox v Gye, there was no contractual relationship between the parties, so that the liability was exclusively equitable, the court acted by analogy with the statute…”

47.  Therefore, the 6-year limitation period applies to Chow KH’s claim, whether by way of section 4(2) or the proviso in section 4(7) of the Limitation Ordinance.

48.  Mr Chau then argues that the KCHF Letter of 8.2.12 constituted an acknowledgement of the right to account, and thus by sections 23–25 of the Limitation Ordinance, the right to account was revived in 2012 by that letter. I disagree. Section 23 of the Limitation Ordinance provides that:-

“23. Fresh accrual of action on acknowledgment or part payment

(3)   Where any right of action has accrued to recover any debt or other liquidated pecuniary claim… and the person liable or accountable therefor acknowledges the claim or makes any payment in respect thereof, the right shall be deemed to have accrued on and not before the date of the acknowledgement or the last payment…”

49.  Section 23 does not mention any right to an account, but Mr Chau argues that an action to an account is an action to recover debt. I disagree. As rightly observed by Judge Kirkham in Manning v English at §41:-

“The correct approach is as suggested by the author of McGee, Limitation Periods, 5^th ed (2006), para 18.007, namely that an action for an account cannot be a ‘right of action … accrued to recover… any debt or other liquidated pecuniary claim’ within section 29(5) of the 1980 [Limitation] Act [equivalent to section 23 of the Limitation Ordinance]. An action for an account does not fall within the scope of section 29(5): it is neither an action to recover a debt, nor an action to recover any other liquidated pecuniary claim and thus falls outside the scope of section 29(5). In relation to the taking of a partnership account, it seems to me that a claim for payment of a net balance from one former partner to another does not become a ‘debt’ until it has been ascertained by the dissolution account, and thus is not actionable or recoverable until after the account has been taken.” (emphasis added)

50.  Thus, even assuming that KCHF Letter of 8.2.12 constituted an acknowledgment, it would not extend the time limit or revive Chow KH’s right to an account upon dissolution of the partnership.

51.  If I am wrong, the question would be whether the KCHF Letter of 8.2.2012 constituted such acknowledgment. In New World Development Co Ltd & others v Sun Hung Kai Securities Ltd & another [2006] 3 HKLRD 403, in relation to the question of whether a document constitutes such acknowledgment, Ribeiro PJ, delivering the unanimous judgment of the Court of Final Appeal (Bokhary, Chan, Ribeiro PPJ, Mortimer and Sir Gerard Brennan NPJJ), had this to say at paragraphs 90-93:-

“90. First, it is clear that the question is one of construction…

91. Secondly, it is clear that in construing the document relied on, the court will look at connected documents (not necessarily expressly referred to in the document relied on) to ascertain its proper meaning, as where, for instance, an acknowledgment emerges from reading together two or more letters written by the debtor in response to letters from the creditor…

92. Thirdly, the object of the construction exercise is to decide whether, fairly read, the document relied on constitutes an acknowledgment by the debtor of a liability to pay outstanding amounts to the creditor. There is no need for the document to specify the amount of the debt so long as it can be ascertained by other means, including resort to extrinsic evidence, without requiring the parties’ further agreement…

93. Finally, even if the document relied on acknowledges a debt, it is not a sufficient acknowledgment for the purposes of the section if it is accompanied by words which nullify or materially qualify that acknowledgment, for instance by confessing and avoiding the debt or asserting a set-off or cross-claim which renders the document in effect a denial of liability: see, eg, Surrendra Overseas Ltd v Government of Sri Lanka [1977] 1 WLR 656 at p.575.”

52.  The rationale behind the last point about set-off and cross-claim has been set out in Surrendra Overseas Ltd v Government of Sri Lanka [1977] 1 WLR 656 at 573-574 quoting Swann v Sowell (1819) 2 B & Ald 759 at 761:-

“…Now here the party admits the bill to be in his handwriting, but says that he has a set-off to more than the amount. The forbearance on each side may have been mutual, and the case is exactly within the intent of the statute; for during the six years’ delay, the witnesses capable of proving the set-off may be dead, and the party may be as incapable of proving it as in the case where payment is alleged. I think therefore that this declaration is not an acknowledgment of a subsisting demand, and consequently will not take the case out of the statute.”

53.  In the KCHF Letter of 8.2.12, KCHF alleged that it was Chow KH who should pay. In arriving at such a conclusion, KCHF was based on the premise that Ng WK and Hoi Kong had the liability pay Ng KH. This itself may well be taken as an acknowledgment of the liability to account. However, this acknowledgment was qualified by the explanation that Ng WK and Hoi Kong had a cross-claim setting out the calculation such that the end result would be Chow KH to pay. Applying the final point made by the Court of Final Appeal in New World Development Co Ltd & others v Sun Hung Kai Securities Ltd & another, supra at §93 adopting Surrendra Overseas Ltd v Government of Sri Lanka, the KCHF Letter of 8.2.2012, in my view, did not constitute any acknowledgment for the purpose of section 23 of the Limitation Ordinance. The denial of liability would not, as Mr Chau argues, be undermined simply because the reasoning in support of the denial is problematic. The question for the purpose of section 23 of the Limitation Ordinance is whether the document construed objectively constitutes an acknowledgement.

54.  Therefore, Chow KH’s claim for account has been time-barred.

WHETHER THE “NET PROFITS” UNDER THE ORAL PROMISE (BE IT A PARTNERSHIP OR NOT) WOULD INCLUDE RENTAL INCOME

55.  As mentioned above, I think the dispute over whether there was a partnership in relation to the Land is misplaced. Even if there were such partnership, the partners could agree on how a certain asset of the partnership should be shared and used. In the present case, nothing in substance on the duties of partners under the partnership is relied upon. So, whether it was a partnership or not is immaterial. Rather, as clear from the pleadings in my view, the real dispute is whether there was any agreement on how to share the Land.

56.  The common ground between the parties is that Ng WK did make an oral promise to Ng WK, as pleaded in paragraph 6(4) of Ng WK and Shine Wheel’s defence that “if in the future the [Land] could be sold, [Ng WK] would share half of the net profits with [Chow KH]” (emphasis added). In paragraph 3.5 of his witness statement, Ng WK said that“當時我口頭承諾如果將來該地段賺得到利潤，我會分一半給周金洪。”  Of course, Madam Pang does not have any personal knowledge of what Ng WK told Chow KH. Her evidence here is at best hearsay only.

57.  Chow KH’s case is that Ng WK also told him expressly that the rental income would be shared, while Ng WK and Shine Wheel’s case is that the “net profits” was intended to mean sale proceeds of the sale minus costs of the acquisition only.

58.  It is trite that the Court has to construe an agreement objectively. In my view, objectively speaking, absent any specification otherwise, “profits” or “利潤” on a land include rental income, if any. It is particularly so when the land was purchased for investment purpose but not for residential purpose, and it was held by Shine Wheel, which was, on Madam Pang’s evidence, a property holding company set up to hold properties for investment purposes.

59.  One would then query, if the profit here would include rental income, why would Chow KH not demand for the share of the rental income over the years? His evidence is that he did not make such demands because he thought this would be accounted for when the Partnership in Ironmongery and Stainless Steel Business was to terminate. I accept this explanation, especially in the light of Madam Pang’s evidence that even by the time of the dissolution of the partnership in October 2004, the parties’ relationship was harmonious. In any event, according to the Oral Promise, the profit was to be shared only if in the future the Land was sold. Thus, even if Chow KH would make such demands before the sale of the Land, Ng WK was not obliged to pay.

60.  The construction of “net profits” to include rental income is entirely consistent with Point 2 of the Handwritten Note of 23.12.11, which states that“有關歷年順風圍倉租金 $6000/月給予金周金洪。收租後計算租金收入於周金洪。（收租期依據順風圍倉（即五金部）的租地計）, 由1/1990起計。”  As mentioned above, in cross-examination, Ms Leung alleged that this was only a request by Chow KH and she recorded it down. I do not accept such allegation because first, this handwritten note was titled“與周生會議內容”, meaning that it recorded the contents of the Meeting of 23.12.11; second, in contrast, Ms Leung said that Point 1 of the Handwritten Note of 23.12.11 did record what exactly happened during the meeting (as she recorded it to ensure Chow KH would not say later that he did not read the financial statements). It is inherently improbable that when it came to Point 2, she would not specify that it was a request of Chow KH, if indeed, it was a mere request by Chow KH , as opposed to Point 1 which recorded the contents of the meeting, as one would consistently be informed by the title of this handwritten note. I find that Point 2 did record what were agreed between Chow KH and Ms Leung. I do not need to go to the question whether Ms Leung had the necessary authority to agree at the Meeting of 23.12.11. I just take this as a piece of evidence to corroborate that the relevant parties (Ng WK having informed Ms Leung of the Oral Promise as confirmed by Ms Leung herself) understood that rental income would be included in the net profits to be shared.

61.  I thus find that the “net profits” was intended to include rental income.

62.  There is a minor difference over the length of the rental period. Chow KH’s case is that it started from 1 May 1990 and ended on 30 April 1998, while Ng WK’s case is that it started from 1 May 1990 and ended on 11 March 1998. There is no contemporaneous evidence on that. There is no explanation provided for the odd ending in the middle of a month on 11 March 1998. In the premises, on balance, I prefer Chow KH's case that it ended on 30 April 1998.

63.  Chow KH alleged that he had received HK$9,000 in total in cash as the share of the rental income on the Land in 1990. This is denied by Madam Pang. In my view, for such payment of the share of rental income, there must be some sort of documentation. However, there was no such documentation, whether receipts of the rental income or otherwise. I therefore reject Chow KH’s evidence in this respect as unreliable and find that Chow KH did not receive any share of the rental income as alleged.  

64.  As regards the costs of the acquisition of the Land, Ng WK’s case is that he was entitled to charge interest on the purchase price he paid at 2% above prime rate per annum. In this regard, I note that first, this 2% above prime rate per annum has not been pleaded; second, even in his witness statement, Ng WK did not say that under the Oral Promise, it had any term of interest, and third, Ms Leung did not mark “OK” against the item of interest on the funds for purchase of the Land in the table on which according to Ms Leung, he had discussion with Chow KH in 2011.

65.  If the interest was part of the actual costs, for example, the funds for the purchase of the Land were borrowed on mortgage, then I would be more sympathetic to Ng WK’s case on interest. However, the Land was not purchased with any mortgage. Madam Pang’s evidence is that Ng WK had to borrow a bank loan for the purchase of the Land. I reject this evidence because first, there is no document in support, and it is inherently improbable that Ng WK or Hoi Kong or Shine Wheel would not keep the document which would be important to show Chow KH how much interest had been incurred as part of the actual costs; and second, in any event, it is inherently improbable that when purchasing a landed property on a loan, the lender would not require the borrower to mortgage and the borrower would not mortgage the land for lower interest. Further, this 2% above prime rate so happened to be the usual interest rate charged at the other loans due and owing by Hoi Kong, which suggests that this 2% above prime rate was not the costs but some practice adopted by Ng WK or Hoi Kong. Thus, I find that this 2% above prime rate is not part of the costs.

66.  It is one thing that there was such practice, and no problem would arise from such practice when the borrower and the lender would not dispute; it is another thing, like here, whether it is an agreement between the relevant parties, when the dispute between the parties is exactly whether there was any such agreement (rather than whether there was any practice). For completeness, I should point out that Ng WK and Hoi Kong does not run a case of an interest term implied by custom and trade practice. I note that Ng WK and Hoi Kong’s evidence (rather than pleadings) suggests that the interest term was a term of the Oral Promise (as paragraph 13.3 of Ng WK’s Witness Statement states:“根據口頭承諾，從政府收地得到的利潤，即補償金在扣除合共HK$358,240.00的買地支出以及最優惠利率加2厘計算的利息成本後的餘額，一半屬於周金洪，當時由金轉代為持有”. This is not pleaded, and I do reject such evidence as inconsistent with Ng WK’s case and evidence that the interest was part of the costs.

67.  In conclusion, I reject that Ng WK was entitled to charge any interest on the funds used to purchase the Land.

WHETHER THE ORAL PROMISE IS UNENFORCEABLE DUE TO LACK OF CONSIDERATION

68.  In the witness statement of Ng WK, he did not explain why he made the Oral Promise in 1990. In her oral evidence, Madam Pang explained that Ng WK told her that he made the Oral Promise as he encouraged Chow KH to work harder in the Partnership in Ironmongery and Stainless Steel Business. On such evidence alone, it is not clear why Ng WK would suddenly in 1990 (4 years after the formation of the partnership) make such a promise to encourage Chow KH to work harder. But Chow KH’s case and oral evidence supplied the answer – he had indicated to Ng WK that he would like to quit from the partnership, and Ng WK, in order to retain him in the partnership, made the Oral Promise. Upon this Oral Promise, Chow KH stayed in the partnership for the next 14 years until 2004.

69.  I accept Chow KH’s evidence. First, it is consistent with the hearsay evidence of what Ng WK told Madam Pang, consistent in that the Oral Promise was made in exchange for Chow KH to work in the partnership. Second, I only have the hearsay evidence of Madam Pang who heard what Ng WK told her many years ago, while in contrast, Chow KH spoke to his personal knowledge. Third, Chow KH’s evidence is consistent with common sense – it is inherently improbable that Ng WK would out of a sudden make the Oral Promise, and there must have been some request from Chow KH. Chow KH’s evidence of his request to quit the partnership fits well. Fourth, in the latter part of her evidence in cross-examination, Madam Pang did say that the Oral Promise was made to retain Chow KH in the partnership.

70.  There was no fixed term for the Partnership in Ironmongery and Stainless Steel Business. Each partner had the right to terminate it anytime. As a result of the Oral Promise, Chow KH refrained from exercising such right, and though not legally bound, he chose to continue to stay in the partnership. This constituted good consideration.

71.  Thus, the Oral Promise is not unenforceable due to lack of consideration.

WHETHER THE ACTION ON BREACH OF THE ORAL PROMISE HAS BEEN TIME-BARRED

72.  It is not in dispute that the Land was sold (compulsorily under the Government’s resumption) the latest in 1998. Because the Oral Promise did not fix a time when profit sharing should be made, Ng WK and Shine Wheel pleads a defence of limitation, averring that the cause of action started to accrue in 1998 and thus expired in 2004. One may have argued that absent any term as to when the profit sharing should be made, a term of reasonable time would be implied. However, this is not what Chow KH pleads in his Reply. Instead, there is a bare denial only. So, I proceed on the basis that the cause of action did start to accrue in 1998.

73.  On this basis, by virtue of section 4(1) of the Limitation Ordinance, Chow KH’s claim has expired in 2004.

74.  Nevertheless, this is not the end of the matter. Chow KH pleads that the KCHF Letter of 8.2.12 constituted acknowledgment of part of the money claimed by him under the Oral Promise for the purpose of section 23 of the Limitation Ordinance.

75.  Besides being a reply to the Pre-Action Letter to Hoi Kong, the KCHF Letter of 8.2.12 was also a reply to the pre-action letter issued by Cham & Co to Ng WK in his personal capacity demanding profit sharing of the Land. In the KCHF Letter of 8.2.12, as mentioned above, KCHF alleged that it was Chow KH who should pay, and in arriving at such a conclusion, KCHF was based on the premise that Ng WK had the liability to share 50% profits on the Land (although rental income was not included but the interest at 2% above prime rate was included). However, for the same reason as set out in paragraphs 51-53 above, I find that this letter does not constitute any acknowledgement for the purpose of section 23 of the Limitation Ordinance.

76.  In the premises, Chow KH’s claim on the Oral Promise has been time-barred by 2004.

WHETHER ANY DISPUTE UNDER THE ORAL PROMISE HAS BEEN SETTLED UNDER THE ALLEGED ORAL SETTLEMENT AGREEMENT

77.  Given my findings above that there was no Alleged Oral Settlement Agreement, and that the Oral Promise has been time-barred, this question of whether the Oral Promise was part of the Alleged Oral Settlement Agreement is purely academic.

MISCELLANEOUS – INTERESTS ON LOANS

78.  As an aside, in the Table for Discussion, there were other items of interest. It is reasonably clear that those items were related to loans to Hoi Kong, as opposed to the capital of HK$300,000 provided to the Partnership in Ironmongery and Stainless Steel Business and the funds used to purchase the Land. Indeed, some of the loans were loans from Chow KH himself, and interest also accrued on such loans in his favour. In the course of the proceedings, somehow, perhaps in an attempt to undermine the credibility of Hoi Kong’s allegation that the capital of HK$300,000 was interest-bearing, Chow KH denied that interest should accrue on those other loans as well.

79.  These interests have not been pleaded and disputed as issues crystallised by the pleadings. But insofar as necessary, I reject Chow KH’s denial, and find that he did agree to these interests. First, “OK” was marked by Ms Leung against these items, as opposed to the two items mentioned above against which she wrote some notes instead of “OK”; and second, some interests accrued in Chow KH’s favour and it is inherently more probable than not that he did say “OK” (that is, agreed) to those items.

HOI KONG’S COUNTERCLAIM IN DCCJ 5138/2019

80.  Lastly, in DCCJ 5138/2019, Hoi Kong raises a counterclaim for HK$82,741.00 being the amount it alleges to be the correct amount payable by Chow KH upon dissolution of the Partnership in Ironmongery and Stainless Steel Business when the accounts were properly worked out, in line with the KCFH Letter of 8.2.2012. For the reason set out in paragraph 5 above, I would only order account and inquiries. However, as explained above, the right to an account has been time-barred. This time-bar applies equally to Hoi Kong’s right to an account.

ORDER

81.  In the circumstance, I make the following order:-

(1)  Chow KH’s action in DCCJ 5138/2019 and Hoi Kong’s counterclaim therein be dismissed.

(2)  Chow KH’s action in DCCJ 5127/2019 be dismissed.

82.  In respect of costs, I make an order nisi that:-

(1)  Costs of DCCJ 5138/2019 (including any reserved costs) be to Hoi Kong, to be taxed if not agreed, with certificate for counsel.

(2)  Costs of DCCJ 5127/2019 (including any reserved costs) be to the estate of Ng WK, deceased and Shine Wheel, to be taxed if not agreed, with certificate for counsel.