LAM WAI NA v. LAM WAI YU

HCA280/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.280 OF 2004

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J U D G M E N T

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1. The plaintiff is the elder sister of the defendant.  The plaintiff’s claim is principally concerned with a dispute over the ownership of Ying Long Beauty Saloon (“Ying Long”).  The defendant is now the sole proprietor of Ying Long.  Ying Long commenced business on 28 February 1993.  The plaintiff and the defendant were registered as the only partners.  The plaintiff retired from the partnership on 11 July 2002.

2. Mr C.Y. Li who appeared for the plaintiff did not dispute my analysis that on the plaintiff’s case there was a valid contract under which the plaintiff retired from the partnership and the effect of the contract was that she had transferred all her rights and obligations in the partnership to the defendant and that was so although no monetary consideration was involved.

3. By a summons dated 17 March 2004, the plaintiff applied for summary judgment against the defendant in respect of her claims for “damages and loans as pleaded in paragraphs 23, 24, 25 and 26 of the Amended Statement of Claim …” in the sum of HK$3,778,331.  The sum of HK$3,778,331 was made up of the figure of $3,588,331 which was described in paragraph 23B as the actual value of the plaintiff’s share in the partnership and the sum of HK$190,000, said to be loans made by the plaintiff to the defendant on divers occasions after 11 July 2000.

4. However, it is the plaintiff’s case that the transfer was procured by the misrepresentation of the defendant “that the partnership had all along been non profitable since 1995” — see paragraph 7 of the Amended Statement of Claim.  In paragraph 22 of the Amended Statement of Claim it was also pleaded :

“	(e)	The Defendant intentionally concealed and/or failed to provide with the accurate and/or correct financial status of the partnership to the Plaintiff at the time of the transfer and/or sale of the Plaintiff’s share of interest to the Defendant
	(f)	The Defendant has concealed and/or deprived of the Plaintiff’s entitlement to the sums as pleaded in Paragraphs 15, 16 and 17.”

5. In this context, I should also mention that in one of the first letters written on the plaintiff’s behalf dated 10 November 2003, the reason given by her for her withdrawal from the partnership which I quote verbatim was as follows :

“Regrettably with you wrongful representation to our client that the withdrawn of the partnership of the Business could enable our client no need to bear any tax liabilities.  So our client withdrawn the partnership on 3^rd June 2000.”

6. It is the plaintiff’s case that the representation is untrue, that the business was profitable.  The plaintiff’s case is that she came to know that the representation was untrue in 2003 in the course of the Inland Revenue Department’s investigation into the tax position of Ying Long for the period 1995/1996 to 2000/2001.

7. The plaintiff relied on an accountant’s report prepared by Messrs Lau, Cheung, Fung & Chan (“LCFC”) Certified Public Accountant dated 8 April 2003 (“the report”).  According to this report the revised accessible profit for the relevant period was $4,185,389.  Also in Appendix 5 of the report there was set out a list of properties held by the defendant on behalf of the plaintiff which included :

(1)     10/F, Blue Pool Mansion, 60 Ventris Road, Hong Kong; 

(2)     Flat 6, 2/F, Block E, Ventris Place, 19-23 Ventris Road, Hong Kong; and

(3)     Flat C, 6/F, 1 Humbert Street, Mei Foo Sun Chuen, Hong Kong.

8. And that in Appendix 6 in relation to a property said to be beneficiary owned by the defendant namely, Flat A , 1/F, 55 Hau Wong Road, Kowloon City, Hong Kong, the downpayment of HK$1.2 million was stated in the report as having been paid by the plaintiff.  Also in paragraph 5 of the report, it was said “The elder sister had also gifted, lent or given monies to Ms Lam for living or as reward for taking care of her child with the former boy friend”.

9. The report ended with this word :

“7.2 Proposal

Ms Lam had been highly corporative with us in the revision of the financial statements.

For this reason, we strongly recommend that additional tax be assessed with interest payable to the IRD but no penalty is levied on the Saloon.”

10. I should also mention the report was prepared on the basis that the plaintiff was a partner in Ying Long until 11 July 2000.

11. However, the defendant’s case is that the plaintiff was never a partner.  And this is what she said in paragraph 27 of her 1^st affirmation which was filed on 7 May 2004 :

“In or about 1992 and 1993, knowing that I was extremely resolved to set up my own beauty business and was in fact negotiating with Ying Long’s predecessor, Ying Long Beauty Saloon Limited, the Plaintiff requested repeatedly and strongly that her name be added to Ying Long as one of the owners with a view apparently to, which she had never told me though, building up confidence in herself again and showing it off to friends and relatives.  Out of natural love any my compassion towards her, I without any hesitation agreed to let her name be added and registered as one of the purported partners thereof in February 1993 when I registered commencement of business in the Business Registration Office, on the basis that she would not hold or acquire any interest or equity in Ying Long, as I myself contributed all the initial and working capitals for the business and committed myself full time thereto, from 9:00 a.m. to 9:00 p.m., Monday to Saturday, with holidays excepted, working without breaks round the year.”

12. The plaintiff was at first unable to say how much she contributed to Ying Long although later she said she contributed half of the capital of $800,000.  However, the defendant’s case was that the capital required was only $400,000 which she was able to pay.  The evidence from the defendant was that she sold her flat in King Lung Street in 1992 for $1,280,000, a property which she bought in 1990 for $680,000.  So she had more than enough money to acquire Ying Long on her own.  She had also produced some documents tending to show that she had paid $400,000 for Ying Long.  Mr C.Y. Li criticized the quality of the defendant’s evidence relating to the purchase of the business of Ying Long.  However, I must say that on this part of the case the defendant’s evidence is much more satisfactory than the plaintiff.  In any event, I do not think this is a matter on which I can say that the defence is incredible.  Now, if the defendant’s case is not incredible then a large part of the plaintiff’s application for summary judgment must fail. 

13. Nor do I agree with Mr C.Y. Li’s submission that the defendant had failed to refute or deny the report specifically.  I think her evidence on this is very clear and she had stated it on oath, namely, that her sister was never a partner.

14. Now, the plaintiff’s claim included a claim which arose out of the alleged indebtedness of Ying Long to her $665,285.  But that was the subject of a waiver dated 24 April 2003 in Chinese signed by the plaintiff whereby she agreed to abandon her claim to this sum.  Now, the defendant’s version relating to this can be found in her 1^st affirmation at paragraph 71 :

“One day in March/April 2003, I recall, I again on request of the staff of LCFC attended its office for signing certain accounts and documents for submission to IRD.  I was greeted by one Ms. Candy Ho of LCFC who patiently explained and interpreted each and every documents and accounts before asking me to sign what need be signed by me for submitting to IRD, as the other staffs of LCFC did the same on other occasions.  On one very item she explained to me that struck me with caution and caught my attention was that which served to confirm that I owed a debt of HK$665,285.00 to the Plaintiff.  At that junction I retorted instantly that it was in fact the Plaintiff who did owe me money instead of my owing her the said sum of HK$665,285.00.  I then explained to her briefly about the background of the facts regarding the properties including Prop 1 and Prop 2 as set out in paragraphs 42 and 68 hereof and finally I sought her professional advice on what to do if I signed those documents/accounts prepared by her/LCFC whereby the sum of HK$665,285.00 was, inter alia, confirmed to be owed by me to the Plaintiff.  My concern was that such confirmation, if signed by me, though not reflecting the true financial position between the Plaintiff and I, might well constitute a legal basis on which the Plaintiff might make claim against me in respect such sum of money, notwithstanding that the chance of the Plaintiff’s doing so would be less than minimal.  On hearing my concern, Ms Candy Ho then gave me the following advice : — 

(a)   the part of sale proceeds from the sale of Prop 2 deposited into Ying Long’s bank account, whether or not the same was reported to IRD to be my money or the Plaintiff’s money, should normally not attract profit tax or penalties as they were not income arising from carrying out of the business of Ying Long, provided that proper documents and evidence be produced to prove the same; and

(b)   fully aware of the transactions of Prop 1 and Prop 2 that I had explained to her, Ms Ho strongly recommended me to get the Plaintiff sign a confirmation to the effect that she would waive to claim for the said sum of HK$665,285.00 against Ying Long/me, which sum in fact and in truth was never owed by me to the Plaintiff, and she said she would prepared such confirmation for the Plaintiff to sign.”

15. Part of her allegation was confirmed by Ms Candy Ho in her affirmation which was filed on behalf of the plaintiff dated 9 June 2004 and Ms Ho said at paragraph 12(iii) :

“I recommended the Defendant to get a confirmation from the Plaintiff to the effect that she would waive to claim HK$665,285.00 from Ying Long.”

16. The plaintiff’s version is at paragraph 30 of her 1^st affirmation:

“In fact, in order to prevent me from claiming against Ying Long on the sum of HK$665,285.00 which Ying Long owed me, the Defendant had instructed LCFC to prepare a waiver letter for my execution.  As I was not aware of the legal implication of the same I did put my signature on the said letter.  The Defendant then represented to me that I was required to sign this letter in order to assist her to satisfy IRD.  I did as she told me.  But she had not given me a copy of the said letter. …”

17. Again on such evidence, I am not satisfied that the defence is incredible.  Mr C.Y. Li’s submitted that in any event the waiver was given without consideration therefore the debt was still due and payable. 

18. As I understand the defence, the defendant denied the indebtedness.  And that she relied on the waiver as evidence that she was never indebted.  So she was not just relying on the waiver.

19. As for the rest of the claim, namely, the loan of $190,000 that had been denied by the defendant and I do not think I can say that her defence is incredible.

20. For the above reasons, the plaintiff’s appeal against the order of the learned master giving unconditional leave to the defendant to defend must fail.

21. I should add that there were various other matters which was argued before me and raised in the affirmations which runs to about 140 pages.  However, I do not think it will be helpful for me to deal with them in my judgment because it seems to me that the appeal can be disposed of on the simple basis that I have indicated above.

22. However Mr C.Y. Li argued that the learned master was wrong in ordering the plaintiff to pay the costs before the learned master.  He said the learned master erroneously thought that the plaintiff’s claim included a claim for fraud and hence outside Order 14.

23. On analysis the plaintiff’s claim against the defendant is in the nature of a claim for damages for misrepresentation.  It will be recalled that the plaintiff ceased to be a partner in the year 2000.  The reason for her ceasing to be a partner had been explained by the defendant in her 1^st affirmation at paragraph 38(b).  According to her that was because an employee of Ying Long sustained injuries during work as a result of which she had to receive medical treatment at the Queen Elizabeth Hospital for nine months and, according to the defendant, it was because of this potential claim that the plaintiff decided to withdraw her name from the business registration on 11 July 2000.  She also made the point that if the plaintiff was indeed a partner and if the plaintiff was right in saying that the business had not been profitable since 1995 she would have asked the plaintiff to contribute her share of the loss. 

24. In any event, the effect of the plaintiff’s case is that she gave up her half interest in the partnership in the year 2000.  Mr Li accepted that but for the misrepresentation that was a binding contract.  So basically the plaintiff’s claim against the defendant is a claim for damages for misrepresentation.  The misrepresentation must have been either innocent, negligent or fraudulent.  Innocent misrepresentation would not give rise to a claim for damages.  Although under section 3(2) of the Misrepresentation Ordinance, Cap.284, the court may, in lieu of rescission, award damages.  There was no claim for rescission.  No particulars of negligence has been given in the Amended Statement of Claim.  It seems that the plaintiff’s claim against the defendant was based on fraudulent misrepresentation.  Mr Au who appeared for the defendant submitted so.  However, Mr Li said the pleading had not effectively pleaded fraud.  I must say the Amended Statement of Claim has not been well pleaded.  I do not think the pleader really understood the nature of his claim.  I think the pleader purported to plead a case of fraudulent misrepresentation but has not succeeded in doing so.  Be that as it may, I am here concerned with the costs of the application below and as Mr Au submitted the learned master decided against the plaintiff on the further ground that the defendant had shown that there were triable issues.  Under Order 14, rule 7 the court may award costs against the plaintiff “if it appears to the court that the plaintiff knew that the defendant relied on the contention which would enable him to unconditional leave to defend”.  Or if the application was persisted with after the defendant’s affidavit see e.g. 14/7/4 Hong Kong Civil Procedure.  In this case, the defendant’s defence was apparent from the correspondence prior to the commencement of the proceedings.  See for example the letter written on her behalf by her solicitors Messrs Hau, Lau, Li & Yeung dated 18 December 2003.

25. In all the circumstances, even if I have a discretion to exercise in relation to the costs below, I would order the costs below to be borne by the plaintiff in any event.

26. So far as this appeal is concerned, the appeal is dismissed.  As for costs, I make an order nisi that the defendant is to have the costs of the appeal, to be taxed if not agreed.

27. The defendant has also by a summons dated 16 September 2004 sought to adduce additional evidence for the purpose of appeal.  In the result, it was unnecessary for me to deal with the summons.  The defendant accepted that she has to bear the costs of that summons and I order accordingly.