WANBAO GROUP WASHING MACHINE INDUSTRIAL CORPORATION v. SINO-UNIVERSAL LTD. AND OTHERS

1995, No. A9560

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 9560 OF 1995

__________

__________

_____________________

J U D G M E N T

_____________________

Introduction

1. The Plaintiff brings this action against the 3 Defendants seeking declaration orders and monetary judgment against them on the ground that the Defendants have breached two joint venture agreements; one agreement relating to the sale and purchase of washing machines and the other relating to acquiring a unit at Flat A, 2nd Floor, 8 Nassau Street, Mei Foo Sun Chuen, Kowloon ("the suit property").

Dramatis Persona

2. The Plaintiff is and was a company incorporated in Guangdong, China and has been a manufacturer and exporter of home electrical appliances. It became a part of the Wanbao Electrical Appliances Group Company ("the Wanbao Group") since about 1988 or 1989 and was under the control and supervision of the Wanbao Group in the mainland since then. According to one of the Plaintiff's witnesses, before the Plaintiff came under the supervision of the Wanbao Group, it was under the supervision of the Guangdong No. 2 Light Industries Bureau. After the Plaintiff became part of the Wanbao Group, a company called Shuibao Electrical Appliances Company was set up in Hong Kong to supervise the Plaintiff's activities in Hong Kong.

3. According to PW1 Mai Shao Fang, a Shui Hua Company Limited ("Shui Hua") which was incorporated in Hong Kong, was one of the three partners in the joint venture business together with the Plaintiff and Siu's Firm.

4. PW1 Mai Shao Fang (or Mak Shiu Fong) ("Mak") is a director of the Plaintiff and was its General Manager from July, 1987 to the end of 1989. PW3 Xu Ze An (or Chui Chak On) ("Chui") took over from Mak as the General Manager since about December, 1989.

5. PW2 Pan Ning("Pan") is a director of Shuibao Enterprises Limited. He has been living in the suit property from about October, 1993 to the time when he testified.

6. PW4 Zhang Yong Kang (or Cheung Wing Hong) ("Cheung") took over from Chui and became the Plaintiff's General Manager since 26 August, 1994.

7. The 1st-named 2nd Defendant ("Siu") is a director and shareholder of the 1st Defendant ("the Company") and the sole proprietor of the 3rd Defendant.

8. The 2nd-named 2nd Defendant ("Wong") was one of Siu's staff until 1992.

9. The Company (also called "Hua Zhou" in Chinese) is a company incorporated in Hong Kong. It is the registered owner of the suit property. Its registered shareholders were Siu and Wong. Siu remains as the Company's shareholder but Wong transferred her share to Chui in April, 1993. Chui's share was transferred to a Favourway International Limited ("Siu's Co.") in June, 1995. Wong ceased to be a director in about April, 1992 and her directorship was taken over by Chui and later by Siu's Co. in June, 1995.

10. The 3rd Defendant ("Siu's Firm") was wholly owned by Siu and has been engaged in trading in China. Its business included hotel investments and trading in home electrical appliances which included the Plaintiff's washing machines.

The Plaintiff's Claim and the Counterclaim

11. It is common ground that:-

(a) Mak came to know Siu in the 1980's (in about 1984 or 1985). At that time, Siu was working for an electrical appliance company in Hong Kong which imported electrical appliances from China. The Plaintiff was the ultimate supplier of these goods;

(b) the Plaintiff, through Mak, discussed with Siu regarding the Plaintiff's intention to come to Hong Kong to promote its export business;

(c) the discussions were about engaging Siu to promote the Plaintiff's products as well as setting up a joint venture by incorporating a company in Hong Kong to promote these products.

(1) Case for the Plaintiff

12. According to the Amended Statement of Claim, in about 1987, the Plaintiff and Siu entered into an oral agreement to set up a joint venture business in Hong Kong. The business was to distribute for export the Plaintiff's products and to import raw materials and parts required by the Plaintiff. The Plaintiff was to have a 60% share in this joint venture.

13. Further, in about 1989, the Plaintiff and Siu entered into an oral agreement to purchase the suit property. The Plaintiff's costs of purchase would come from its share of the profits obtained from the joint venture business. It was to have an 80% share in the suit property which would be registered in the name of a Hong Kong company. The Plaintiff would be entitled to use and occupy the suit property free of charge. The Plaintiff contended that the Company was acquired by Siu to hold the suit property which was purchased on 1 May, 1989.

14. The Plaintiff complained that:-

(a) Siu, the Company and Wong failed to transfer the title representing the Plaintiff's share in the suit property to the Plaintiff;

(b) Siu, the Company, Wong and Siu's Firm failed to render to the Plaintiff true or accurate account of the expenses regarding the suit property;

(c) Siu's Firm failed to pay to the Plaintiff a sum representing the Plaintiff's share in the profits of the joint venture after deduction of expenses regarding the joint venture business and/or the suit property.

(2) Case for the Defendants

15. In the Re-Re-Amended Defence and Counterclaim, the Defendants contended although there was a discussion between the Plaintiff and Siu about setting up a joint venture business in Hong Kong, there was a condition precedent that a written agreement must be signed and approved by the mainland authority before the agreement could take effect. Since the written agreement was never signed or approved, there was no binding agreement relating to the joint venture.

16. Further, the suit property was acquired by Siu using his own funds. The original intention was that the Company would become the joint venture company and would let the suit property to the Plaintiff as accommodation for its staff. However, since the joint venture never took effect, the suit property remained solely owned by Siu. There was a licence agreement for the Plaintiff to use the suit property but the Plaintiff has to pay a fee to the Company for doing so.

17. In September, 1991, Chui renewed the discussion of the joint venture with Siu. In 1992, Chui asked Siu to transfer a share in the Company to him pending approval of the mainland authorities. Chui promised Siu that if the approval could not be obtained, the share would be re-transferred to Siu. A share of the Company was transferred to Chui under this agreement. The Plaintiff again failed to obtain approval. Hence, Chui's share was transferred to Siu's Co in June, 1995.

18. In the Re-Re-Amended Counterclaim, Siu's Firm counterclaimed that there was a sum representing trade debts and expenses due from the Plaintiff. Further, the Company counterclaimed for mesne profits and rents for the use and occupation of the suit property by the Plaintiff.

(3) The Issues

19. The main issues are:-

(a) whether the Plaintiff has a 60% interest or share in the profits of Siu's Firm by reason of the operation of the joint venture business;

(b) whether the Plaintiff has an 80% interest or share in the suit property.

20. The answers to these issues depend on whether the Plaintiff can establish:-

(a) 2 joint ventures had been agreed between the Plaintiff and Siu;

(b) whether the Company had been incorporated to hold the suit property for the Plaintiff and Siu.

21. After the issue of liability has been determined, the following issues relating to quantum will have to be considered:-

(a) if the Plaintiff can establish its case relating to the joint venture business, whether there was a sum due to it by reason of the operation of this business;

(b) if the Plaintiff fails to establish its case, whether Siu's Firm can prove its counterclaim regarding the alleged debt;

(c) if the Plaintiff fails to establish its case regarding the co-ownership of the suit property, whether it is liable to pay rent or mesne profits to the Company.

(4) Other Matters

22. Paragraph 29(b) of the Re-Re-Amended Defence and Counterclaim averred that the Plaintiff had no legal right or capacity under PRC law to enter into the alleged joint venture agreement. In his final submissions, Mr. Tong for the Defendants stated that the Defence no longer relied on this defence. The only issue relates to the condition precedent pleaded in the Defence and this is to be determined as a factual issue. There is no need to decide on any question of PRC law.

23. Further, paragraph 26 of the Defence pleading relied on the Limitation Ordinance. However, Mr. Tong did not rely on this defence in his final submissions and informed me that the case was to be decided on the facts. I therefore take it he no longer relies on this defence either.

24. The liability of Wong will be considered separately under the heading "Liability of Wong".

Relevant Documents

25. A total of 10 bundles were used at trial:-

(a) a Bundle of Pleadings and Court Documents;

(b) 7 document bundles were prepared by the Plaintiff. Bundles A and B were called "Core Bundles" and Bundles C to G were called "Agreed Bundles of Documents;

(c) 2 document bundles were prepared by the Defence.

26. The admissibility of these copy documents was not disputed. Further to the above, other documents or lists were produced at trial relating to the issue of quantum. These will be dealt with later under the heading relating to quantum.

27. Some of the above documents may be relevant not only as evidence in themselves but are also relevant to the determination of the witnesses' credibility. I therefore propose to set out the more important documents before dealing with the other issues in this action.

(1) 1989 draft agreement

28. At pp. 2-8 of the Defendants' Bundle was a document which appeared to be a joint venture agreement. The parties agreed that this document was prepared in early 1989 and was intended to be a joint venture agreement but it was yet to be executed. This draft document has spaces for the insertion of the names of the 3 contracting parties (called "Party A", "Party B" and "Party C" respectively). The names of the Plaintiff and Siu's Firm ("Party A" and "Party C" respectively) were already printed at two of these spaces. The name of Party B was left blank. The document was not signed by any of the 3 parties and was undated. Clause 35 of the agreement stipulated that:-

"This [agreement] shall only take effect after each party has signed and the PRC supervising authority approved the same ... ".

(2) Aug 89 account (or the 1st set of Ds' accounts)

29. At pp. 57-66 of Bundle A was a set of accounts handed over by Siu to Mak in about August, 1989 ("the 1st set of Ds' accounts" or "the Aug 89 accounts").

30. This was signed by Siu and dated 26 August, 1989 at the bottom of each page. The heading of the accounts stated they covered the period from February, 1988 to June, 1989. It contained accounts showing the net profit and operating income from sale of washing machines, the Company's balance sheet, accounts showing purchases and expenses on behalf of the Plaintiff, and debts owed by Siu's Firm to the Plaintiff.

31. Particular reliance was placed by the Plaintiff on the last-mentioned accounts (debts owed) in that the monthly mortgage instalment payments regarding the suit property was said to be deductible from the overall debt owed by Siu's Firm. Further, at p. A59 (or A45) of the 1st set of Ds' accounts, the profits were divided among Shui Hua, Siu's Firm and the Plaintiff according to the ratios of 20%, 20% and 60% respectively.

(3) The end of 89 accounts (or the 2nd set of Ds' accounts)

32. Another set of accounts handed over by Siu or Wong to Mak at the end of 1989 ("the 2nd set of Ds' accounts" or "the end of 89 accounts") can be found at pp. 2-15 of Bundle G. This was signed by Siu and dated 11 November, 1989 at the bottom of each page. This set of accounts is similar to the 1st set of Ds' accounts. It also contained the ratio for the division of profits as well as the monthly mortgage instalment payments regarding the suit property.

(4) Application/report from Hong Kong Wanbao to the mainland

33. At pp. 954A-954B, Bundle A was a Chinese document which was undated bearing a chop of Wanbao Electrical Appliances Group Company. It was addressed to the City Economic Committee. Its heading was "Application regarding the merger of (Hong Kong) Sino-Universal with (Hong Kong) Shui Bao Company".

34. Siu said he first saw it in 1989. After that, he discussed it with Mak and this was recorded in the Nov 89 transcript. Siu said he told Mak he disagreed with the merger proposal and as a result the joint venture discussion failed. In his cross-examination, Mak maintained that this was only a report for discussion purposes and did not affect the joint venture.

35. At pp. 973H-S of Bundle A were a letter and a report made to the mainland authorities by Chui regarding the establishment of a Hong Kong company. The letter at p. 973H was a letter dated 4 September, 1991 from Chui. The report at pp. 973I-S was addressed to the Wanbao Group and dated 2 September, 1991. This document will be dealt with in more detail under the heading "Credibility of Witnesses".

(5) Tape transcripts ("the Nov 89 transcript" and "the Jun 95 transcript")

36. At pp. 415-497 of Bundle F was the transcript of a tape recording made by Siu secretly. According to the Defence, this was recorded on 6 November, 1989 at the meeting in the China Hotel ("the Nov 89 transcript"). The persons present included Siu and Mak.

37. At pp. 381-391 of Bundle F was the transcript of another tape recording made by Siu. According to the Defence, this was a recording of a telephone conversation between Siu and Chui on 21 June, 1995 ("the Jun 95 transcript").

(6) Siu's Firm's letter dated 30.12.89

38. At p. 955 of Bundle A was a letter (using the letterhead of Siu's Firm) dated 30 December, 1989 and signed by Siu ("Siu's Firm's letter").

39. It purported to set out the balance of the running account between the Plaintiff and Siu's Firm. The letter also set out the sums due from Siu's Firm to the Plaintiff as well expenses made by Siu's Firm for the Plaintiff. One of the items of expense was "loan principal and interests owed for the Mei Foo flat" amounting to about $1.4 million.

(7) Jan 90 accounts (or the 3rd set of Ds' accounts)

40. At pp. 958-963 of Bundle A was a set of accounts. It was undated and unsigned but there was a fax line at the top of this document showing that it was fax transmitted on 3 January, 1990 ("the 3rd set of Ds' accounts" or "the Jan 90 accounts").

41. Chui testified that this was sent by Siu to him about one week after Siu's Firm's letter dated 30 December, 1989. He said this was to explain Siu's Firm's letter. Chui disagreed with this set of accounts and queried why it differed substantially from the end of 89 accounts. Siu agreed this set of accounts was prepared by him and was an elaboration of the accounts in Siu's Firm's letter.

42. The period covered by this set of accounts was February, 1988 to December, 1989. They related to the accounts between Siu's Firm and the Plaintiff. The ratios for sharing the profits (20:20:60) were set out at p. A960.

(8) Dec 91 Agreement

43. At pp. 974-976, Bundle A was a Chinese Agreement dated 23 December, 1991 signed by Chui for the Plaintiff and Siu for Siu's Firm ("the Dec 91 Agreement"). Its heading was "Agreement regarding the merger of Hong Kong Shui Gang [Kong] Electrical Appliance Manufacturing Industries with Hong Kong Shui Bao Electrical Appliance Industries Limited".

(9) 1st set Mar 94 accounts (or the 4th set of Ds' accounts)

44. At pp. 990-1010 was a set of accounts which was undated and unsigned.

45. According to Chui's testimony, it was prepared by Siu for use at the meeting on 27 March, 1994 between him and Siu ("the 4th set of Ds' accounts" or "1st set Mar 94 accounts"). Chui said he told Siu an auditor would be sent from the mainland to check the accounts. The set of accounts was later sent to the mainland. After it was checked, Chui asked Siu to make adjustments to it. Siu agreed he prepared it and handed it to Chui in March, 1994.

46. This set of accounts related to those between Siu's Firm and the Plaintiff and covered the period from February, 1988 to December, 1989. The same profit share ratios (20:20:60) were set out at pp. A992 and 1010 whereas the mortgage payments for the suit property were set out at pp. A996, 998 and 1002.

(10) 2nd set Mar 94 accounts and Aug 94 accounts (collectively the 5th set of accounts)

47. At pp. 1067-1096, Bundle B were two sets of accounts. Both sets were undated but Chui's initials appeared at the bottom of pp. 1067-1084.

48. According to Chui's testimony, the set of accounts at pp. 1085-1096 was prepared in March, 1994 by Siu ("2nd set Mar 94 accounts"). After this was sent to the Plaintiff's auditing department for checking, a revised set of accounts were made in about August, 1994 which appeared at pp. 1067-1084 ("Aug 94 accounts"). Chui then initialled on these pages to indicate his acceptance of these accounts.

49. Siu said the 5th set of accounts were prepared in August, 1994 by one of his staff, a Ms. Tam Siu Wan as instructed by Chui. However, Siu did not agree to the figures therein.

50. The 2nd set Mar 94 accounts covered the period from February, 1988 to December, 1993. The profit share ratios (20:20:60) could be found at p. B1088 whereas the mortgage payments for the suit property could be found at pp. B1087, 1092, 1095-96.

51. The Aug 94 accounts covered the period from February, 1988 to December, 1993. The profit share ratio (20:20:60) could be found at pp. B1072-73. The loss share ratios (70% for the Plaintiff and 30% for Siu's Firm) for the period from January, 1991 to December, 1993 could be found at pp. 1074-76. Some items said to be "rent" from the suit property were set out at B1071. According to Chui, these were in fact mortgage payments.

(11) Dec 94 accounts (or the 6th set of accounts)

52. At pp. 1157-1200, Bundle B was a set of accounts. It was the accounts covering February, 1988 to the end of October, 1994 and was undated and unsigned("the 6th set of accounts" or "the Dec 94 accounts").

53. According to Chui's testimony, it was given to Chui by Cheung at the end of December, 1994. Later, Chui compared it with the Aug 94 accounts and found Siu had inflated the expenses in the Dec 94 accounts. Siu said this was also prepared in December, 1994 by Ms. Tam who acted upon Chui's instructions.

(12) Share Transfer Forms

54. The share in the Company has been transferred to Chui as the Plaintiff's representative at one stage, but was later re-transferred to Siu. The parties disputed why the re-transfer took place. The Plaintiff contended that Siu deceived Chui into doing so whereas Siu alleged that this followed the Plaintiff's failure to obtain approval for setting up a joint venture. In any event, the relevant share transfer forms can be found at pp. 45-46 of the Defendants' Bundle and pp. 38-47 of Bundle G.

Credibility of Witnesses

55. The Plaintiff called 4 witnesses while the Defence called two. One of the Defence witnesses, Mr. Bai Tao, testified as an expert witness on PRC law. As Mr. Tong for the Defendant indicated in his final submissions that the PRC law issue is no longer relied upon by his clients, there is no need to consider Mr. Bai's testimony.

(1) Plaintiff's Witnesses

56. I find the Plaintiff's 4 witnesses to be truthful and reliable witnesses. Their testimony was in essence the same as the summary set out under the heading "Case for the Plaintiff". Mr. Tong made a number of criticisms regarding their credibility in his final submissions.

57. He argued that a lot of the conversation in the Nov 89 transcript discredited Mak's testimony. I do not agree. I have examined the Nov 89 transcript and found it to be more in the nature of a discussion about a proposal to take over the Company rather than a definite plan to do so. Further, when the suit property was discussed in that meeting, the discussion was conducted on the basis that both the Plaintiff and Siu had an interest in it. The clearest indication of this can be found in the passage quoted below under the next sub-heading "Defence Witness". The gist of the other parts of the Nov 89 transcript was consistent with Mak's testimony regarding the status of the joint venture and the suit property. I find Mak to be a truthful and honest witness and I accept his testimony.

58. As regards Chui's testimony, Mr. Tong sought to discredit him by relying on the last paragraph of a document headed "A report on the purchase of shares of Hong Kong Shuibao Electrical Company Limited by Hong Kong Shuigang Electrical Industrial Limited to establish a Business Department of Shuigang Washing Machine" dated sometime in September, 1991 ("the Sep 91 report"). He relied on the last paragraph of the Sep. 91 report which reads:-

"As to Sino Universal Company Limited, there was all along no permission from the supervising authority and it was just a product out of my unilateral action. Up to now, the beneficial and registered interest of that company totally belongs to Mr. Siu Kai Wah of Hong Kong. As it involves winding up expenses, our company has no right nor is it necessary for us to propose any cancellation opinion. The above explanation as to why I cannot cancel "Shuigang Company Limited", "Sino Universal Company Limited" is hereby submitted to the superior for comments." (pp. 973S of Bundle A).

59. The testimony of the Plaintiff's witnesses was that the original idea was to set up a joint venture company called "Shuigang". However, that name was already commonly used in Hong Kong and so Siu chose the name of the Company. This part of their testimony was not disputed by the Defence.

60. Mr. Tong argued the above paragraph showed that the Plaintiff had no interest in the Company (or the suit property). Further, it showed that no joint venture had been set up. Mr. Tong also pointed out that Chui admitted in cross examination that he was lying to his superior in the Sep 91 report. Based on these matters, Mr. Tong asked me to reject Chui's testimony.

61. It should be noted that the question of permission for coming to Hong Kong to set up a company had been dealt with in an earlier part of the Sep 91 report:-

"Shuigang ... had pursuant to permission letter ... officially established [the office] in December, 1988. However, soon after established there came the drive to tidy up ... At the same time, it was concerned that the name "Shuigang" was identical to the names of many PRC capital Hong Kong companies, the name of "Sino Universal" Company Limited was adopted. .... However, for the purpose of immediately promoting the export of washing machine, [we] first appointed Hong Kong Ever Gain Company Limited ("Shuigang Company" parties) to carry on the business. At the same time, [we] also appointed Mr. Siu Kai Wah of Ever Gain Company Limited to incorporate "Sino Universal Company Limited" in his own capacity for the time being ...

In conclusion, "Shuigang Company Limited" was established with the assistance of Hong Kong Ever Gain ... [it] became a window company ...

Hong Kong Ever Gain ... for reason that they do not know much about "Shuibao ... and they do not like to be involved in the debt of [Shuibao], they objected that "Shuigang ... be merged.

... we therefore hold up the merger ... "

(pp. 976Q-R of Bundle A) (italics and bold type supplied).

I consider these passages to be supportive of Chui's testimony in that it shed light on whether Siu's Firm had been used as a vehicle for the joint venture business. It was apparent from these passages that the Plaintiff might have some difficulties with obtaining approval from the mainland. It was, however, also clear the Plaintiff had already commenced its joint venture business in Hong Kong through Siu's Firm. The Sep 91 report was apparently written to cover up the real situation because in fact Shuigang was not incorporated by then. The joint venture business (if there be) was done through Siu's Firm. The motive of maintaining the status quo was made clear by the last sentence of the last paragraph of the Sep 91 report which reads:-

"The above explanation as to why I cannot cancel "Shuigang ... , "Sino Universal ... is hereby submitted to the superior for comments." (p. 973S of Bundle A).

62. Chui was telling the truth when he admitted he was lying to his superior because, contrary to the above passage, Shuigang was not incorporated. It is unknown why the Sep 91 report needed to be written but the reasonable inference would be at that time there was pressure from the mainland to close down whatever business the Plaintiff might have in Hong Kong. For these reasons, I do not find the Sep 91 report cast any doubt on Chui's testimony. On the contrary, I consider this report to be consistent with the Plaintiff's case.

(2) Defence Witness

63. As stated earlier, Siu agreed that a total of 4 sets of accounts were prepared by him, or by his staff upon his instructions. These accounts were:-

(a) the 1st set of Ds' accounts prepared in August, 1989;

(b) the 2nd set of Ds' accounts prepared at the end of 1989;

(c) the 3rd set of Ds' accounts prepared in January, 1990;

(d) the 4th set of Ds' accounts prepared in March, 1994 (1st set Mar 94 accounts).

There were several special features in these accounts:-

(1) nearly all the accounts commenced on 1 February, 1988;

(2) the ratios for sharing the profits were consistent with the Plaintiff's contention, namely, the Plaintiff's share was 60% whereas that for Siu's Firm was 20%;

(3) the mortgage instalment payments for the suit property were set out in the accounts as part of the expenses.

64. Siu's explanation for these accounts was in short that they were prepared at Mak's or Chui's requests for the purpose of persuading their superiors to agree to set up a joint venture business in Hong Kong. If what Siu said be true, the discussions regarding this matter between Siu and the Plaintiff's representatives (Mak and Chui) as well as between Mak and Chui and their superior(s) would have lasted at least from about 1987 to sometime after March, 1994 (a period of about 6 to 6-1/2 years). During this lengthy period, the superior(s) of Mak and Chui was not interested in this proposal and yet Mak and Chui persisted with their persuasion. I find this to be so inherently implausible that I have no hesitation in rejecting it.

65. In the course of his final submissions, Mr. Tong conceded that there was some conduct on the part of the two parties "towards the joint venture" before 1989. I understood him to be saying that the joint venture had been carried out by conduct from 1987 until then. However, he argued that the joint venture was aborted in 1989 or 1990 because the Plaintiff proposed it to be taken over by Shuibao but that was refused by Siu. In view of the Jan 90 accounts and the 1st set Mar 94 accounts, and the matters set out below, I do not accept the joint venture had been aborted.

66. Siu contended the Nov 89 transcript and the Jun 95 transcript support his case. I have examined the transcript. Save as to the passages set out below, I find it to be equally consistent with the Plaintiff's case as it is with Siu's case.

67. In the Nov 89 transcript, the conversation was in essence related to the subject of the taking over of the Company by Shuibao. The discussion between Siu and the others present was whether it was worthwhile for Siu to agree to the Company to become part of Shuibao. Later, the discussion turned to "the property" which in the context meant the suit property. The relevant part was as follows:-

"Siu:	I find that the real issue, and the biggest one, is the one concerning the property.
Mak:	Yes, yes.
Siu:	As the issue of the property, we bought it at about $920,000, I think. As at June, there was a shortfall of about $100,000. In other words, a loss of about $100,000 is incurred. If we are to cut loss, for example, if I dispose of the property at a loss ... we bought at the price of $910,000 and we could sell it at more than $800,000, I will then incur a loss of about tens of thousands of dollars. Both of us bear part of the loss. ... Are we going to keep and use this property? If you don't use it any more, I suggest we better sell it. If you want to use it, then use it again.
Mak:	I will keep using it. If we are to use it, I will suggest that Shuibao should acquire it."

(p. 424 of Bundle F) (italics and bold type supplied).

The use of the word "we" and the phrase "both of us" is consistent with the Plaintiff's case that the suit property was co-owned by the Plaintiff and Siu, and inconsistent with Siu's case that he was its sole owner.

68. Siu testified he purchased the suit property using his own funds. He said the Plaintiff paid part of the rent by setting it off against the sale proceeds for the goods supplied to Siu's Firm. In 1993 the Plaintiff changed the keys to the suit property and from then on Siu could not have access to it. In his evidence in chief, Siu said he did not take any action because this would mean less trouble for him, for example, the occupants would not bother him if they forgot to bring the key or if there was a water leakage. Again, I find this explanation to be inherently implausible. According to Siu, by 1993, his relationship with the Plaintiff was a pure buyer-seller one because the joint venture did not materialize and the Plaintiff did not have a credit balance with his firm. In these circumstances, it is inconceivable he, as the sole owner of the suit property, should take no action against the Plaintiff for a clear act of trespass since at least 1993.

69. Siu's testimony that the Dec 94 accounts were prepared by Ms. Tam in accordance with Chui's instructions is also unbelievable. In cross-examination, it was put to Siu that there was no reason for Chui to inflate the expenses in those accounts by about $1 million more than those in the Jan 90 accounts. Siu was unable to explain why Chui would instruct Ms. Tam to do so. I also do not find it credible that Ms. Tam, being Siu's employee at the time, would spend time to prepare sets of accounts which did not reflect the true position regarding, and has no relevance to, her employer's business.

70. For the above reasons, I reject Siu's testimony.

Findings of Fact relating to Liability

71. In making the following findings of fact, I bear in mind the burden was on the Plaintiff to establish its claim.

72. I find that:-

(a) an agreement was reached in 1988 between Mak for the Plaintiff and Siu that a joint venture business be set up for the export of the Plaintiff's products and for the import of raw materials and parts into the mainland;

(b) there was an "internal" requirement between those representing the Plaintiff in Hong Kong (such as, Mak and Chui) and their superiors in the mainland that the business in Hong Kong must be approved by their superiors;

(c) however, this "internal" requirement has nothing to do with the said joint venture agreement and there was no condition precedent (as between the Plaintiff and Siu) that this agreement could not take effect until it was approved by the authorities;

(d) the Plaintiff has a 60% interest or share in the joint venture business and therefore will have to be responsible for 60% of its profits and loss (and expenses);

(e) the joint venture business was carried on through Siu's Firm;

(f) judging from the dates of the various sets of accounts, this business commenced in February, 1988;

(g) an agreement was reached in 1989 between the Plaintiff and Siu that the suit property was to be purchased and registered in the name of the Company;

(h) as a result, the Company was acquired for such purpose and the suit property was purchased on 1 May, 1989;

(i) there was an agreement between the Plaintiff and Siu that the Plaintiff could use and occupy the suit property free of charge;

(j) the Plaintiff has an 80% interest or share in the suit property which was registered in the name of the Company;

(k) the share of the Company was transferred to Chui in furtherance of the joint venture agreement and it was later transferred from Chui to Favourway only because of Siu's misrepresentation.

73. On the other hand, I reject the Defendants' contentions, in particular, the following:-

(a) there was a condition precedent that the joint venture agreement needed to be signed and approved before it could take effect;

(b) the business relationship between the Plaintiff and Siu and Siu's Firm was purely a buyer-seller relationship;

(c) the joint venture was aborted sometime at the end of 1989 when the Plaintiff gave up the Company;

(d) the suit property was purchased by Siu using his own funds;

(e) the Plaintiff must inject cash into the Company to buy it from Siu;

(f) the Company was given up by the Plaintiff because it failed to inject the cash as agreed;

(g) there was an agreement that rent or licence fee would have to be paid by the Plaintiff to Siu for using and occupying the suit property;

(h) the Company's share was transferred to the Plaintiff's representatives only to enable them to persuade their superiors to agree to the joint venture;

(i) Chui transferred the Company's share to Favourway because the Plaintiff had given up the idea of a joint venture.

The Point relating to Approval or the Lack thereof

74. As stated above under the sub-heading "Other Matters" (under the heading "The Plaintiff's Claim and the Counterclaim"), there is no need to consider this point in the context of PRC law.

75. As regards the alleged condition precedent that the joint venture agreement needed to be obtained first, I have already found that there was no such condition precedent (as set out under "Findings of Fact relating to Liability" above).

The Limitation Defence

76. Similarly, as state above, this line of defence was no longer relied upon and there is no need to consider it.

77. Even if it was necessary to do so, I find that the Plaintiff's claim has not been barred. This is because a partner's right to claim for sums due under the joint venture does not accrue until after the determination of the joint venture: see Lindley & Banks on Partnership (1995) 17th ed., para. 23-14 and Plaza Co. v. Tso Kar Yin [1959] HKLR 390. As will be set out under the next heading, the joint venture in this action was not dissolved until 20 September, 1995.

Has the Joint Venture been Terminated and if so When?

78. The Defendants have denied the existence of any joint venture agreement. Since I have found that there was a joint venture business and that the Plaintiff has an 80% interest or share in the suit property, this denial may amount to a repudiatory breach of these agreements. If this breach had not been accepted by the Plaintiff earlier, it certainly has been accepted when the Writ of Summons was issued on 20 September, 1995.

79. The modes in which a partnership can be dissolved are provided for in ss. 34 to 37 of the Partnership Ordinance, Cap. 38 (see also Lindley & Banks, Ch. 24). In short, a partnership can be dissolved by expiration of time if entered into for a fixed term (s. 34(1)(a)), by the giving of a notice of intention to dissolve (s. 34(1)(c) and (2)), by bankruptcy or death (s. 35), by illegality (s. 36) or by a decree of the Court (s. 37).

80. Under s. 37(d) of Cap. 38, the Court may decree a dissolution of the partnership 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 to carry on the business in partnership with him.

81. The facts as found in this case fall within s. 37(d). There was no formal application for a decree to dissolve the joint venture agreements. The nature of the action and the relief asked for however make it clear that the Plaintiff regarded itself no longer practicable to carry on these agreements with Siu (whether through the Company or Siu's Firm). In these circumstances, I find it more expedient to make a decree that these agreements were dissolved despite no formal application has been made or included in this action.

82. In view of the circumstances of this case, it is decreed that the joint venture business carried on through Siu's Firm was dissolved on 20 September, 1995.

The Liability of Wong

83. There is no evidence that Wong was liable in her personal capacity. In fact, when I asked Mr. Thomson why Wong was also sued, he submitted that Wong was liable as a trustee because she was a director of the Company.

84. The Plaintiff has not adduced any evidence and there is none to show why Wong should be liable as such merely because she was a director of the Company. The Plaintiff's claim against the Company is that it should be entitled to an 80% share in the Company. This claim has nothing to do with Wong even if she had remained as a director and/or shareholder. This is because it is trite law a director's duty is generally only owed to the Company and he does not own any asset of the Company.

85. For these reasons, the claim against Wong is dismissed.

Quantum/Relief

86. I also accept the testimony of the Plaintiff's witness and reject that of the Defence witness in relation to the question of quantum.

87. Mr. Tong argued that I should not grant the declarations sought by the Plaintiff because it had not come to Court with clean hands. I do not agree. There will therefore be the declaration orders as per paragraphs 1 and 2 of the prayer for relief of the Amended Statement of Claim.

88. Paragraph 3 of the prayer for relief asks for an account of the expenses incidental to the acquisition and maintenance of the Company and/or the purchase and repayment of the mortgage relating to the suit property. Paragraph 4 thereof asks for damages for breach of trust.

89. While I find that an order should be made for the former paragraph (paragraph 3), I do not find that there has been any breach of trust in relation to the suit property. There was a denial of the Plaintiff's interest or share in the suit property but that was a breach of the joint venture agreement and not a breach of trust as such. The trust contended for by the Plaintiff was that the suit property was to be held under the Company's name. This remains to be the case up to today. For this reason, I do not propose to make any order under paragraph 4. In order that the Plaintiff can further address me on this aspect if necessary, there will be liberty for the Plaintiff to restore the hearing in relation to this paragraph.

90. I understand from Mr. Thomson the relief asked for in paragraphs 5 and 5A of the prayer for relief are to be considered together if I should find that there was a joint venture business.

91. In relation to paragraph 5, the Plaintiff claimed that a sum of US$460,165.66 was due from Siu's Firm to it as the net outstanding balance of the price of the Plaintiff's products. The particulars of this claim are set out in a Schedule attached to the Amended Statement of Claim (pp. 12A-I of the Pleadings Bundle). Only 5 items of this Schedule were disputed by the Defence. As stated above, I do not accept the testimony of the Defence witness. I find that the sum claimed by the Plaintiff was the appropriate sum.

92. As regards the question of profits of the joint venture business (that is, the claim made in paragraph 5A), the issues between the parties related to how much expenditure can properly be attributed to the business.

93. The Defence has produced the following documents in relation to the expenses incurred by the joint venture business:-

(a) Bundle E, a bundle of receipts and invoices;

(b) 12 tables, that is, exhibits "D1(1)" to "D1(12)".

94. Mak has produced a list in relation to the documents in Bundle E: see exhibit "P1". In this exhibit, Mak set out the page numbers of the expenses which were:-

(a) to be borne by the Plaintiff;

(b) to be borne by the joint venture;

(c) denied by the Plaintiff;

(d) unaccepted by the Plaintiff and to be proved by the Defence.

95. Chui has produced a similar list in relation to exhibits "D1(1)" to "D1(12)": see exhibit "P2". In this list, Chui set out the items:-

(a) to be borne by the Plaintiff;

(b) to be borne by the joint venture;

(c) denied by the Plaintiff;

(d) unaccepted by the Plaintiff and to be proved by the Defence.

Further, Chui testified that the management fee, Government rent and rates and utilities and other charges (items 4 to 9 in exhibit "D1") were payable by the joint venture only up to March, 1994. From April, 1994 onwards, these sums were payable by Bright Vantage International Limited.

96. The Plaintiff's case regarding the above points are summarized in a table attached to this Judgment. As stated above, I accept the testimony of the Plaintiff's witnesses and reject that of the Defence witness regarding quantum. The items denied by the Plaintiff should not be included as part of the expenses. Since I rejected the Defence evidence, the other items not accepted by the Plaintiff have not been proved to be proper expenses and are also to be excluded.

97. I consider there should be an order for:-

(a) the taking of an account as to the profits and expenses of the joint venture business;

(b) the payment of any sum found to be due to the Plaintiff (or Siu's Firm, as the case may be) upon the taking of such account.

98. When the accounts are taken, regard should be had to the following:-

(a) the said sum of US$460,165.66 being sale proceeds of the Plaintiff's products due and owing to the Plaintiff;

(b) any profits upon re-sale of the Plaintiff's said products by the joint venture;

(c) the aforesaid findings regarding which of the items of expenses should be included in the accounts.

99. There will be interest on any sum found to be due to the Plaintiff at judgment rate from 20 September, 1995 to date of Judgment and thereafter at judgment rate to date of payment.

100. In his final submissions, Mr. Thomson asked me to declare that the Plaintiff is to have an 80% share in the joint venture and to order the Plaintiff to account to the other partner, Shui Hua, the 20% share (out of this 80%). I do not think that I can do so. First, such a claim has never been made in the Plaintiff's pleadings. Further, even if it had been made, I do not think that in the absence of evidence the Plaintiff has the locus standi to do so on behalf of Shui Hua.

101. Mr. Thomson also invited me in his final submissions to order a valuation of the suit property and to order that Siu's share be "bought out" by the Plaintiff. This claim has not been included in the Plaintiff's case either. Full submissions have not been made by the parties regarding this point and I do not consider it appropriate to make such order at this stage. This matter may have to be dealt with further if no agreement can be reached. For this purpose, there will be liberty for the parties to apply for further directions or relief relating to this matter.

Conclusion

102. Judgment is entered in the Plaintiff's favour as set out above and (save for paragraphs 7 and 8 of the prayer for relief) the Defendants' Counterclaim is dismissed. The said paragraphs 7 and 8 are sufficiently dealt with by the above orders and need not be dealt with further. No order will be made regarding these paragraphs.

Costs Order Nisi

103. The parties agreed that a costs order nisi should be made in the written Judgment pursuant to R.H.C. Ord. 42 r. 5B(6). There is no apparent reason why costs should not follow the event. The Plaintiff has been substantially successful in this action. Costs of the action between the Plaintiff on the one hand and the Company, Siu and Siu's Firm on the other are to be paid by the Company, Siu and Siu's Firm to the Plaintiff, to be taxed if not agreed.

104. The costs between the Plaintiff and Wong in relation to the trial before me (as opposed to any costs of preparation) are negligible. Extremely brief submissions were made by counsel on this aspect. To avoid time and effort being unjustifiably spent on trying to separate these costs, I propose that the costs of the trial itself be treated as part of the costs of the action between the Plaintiff on the one hand and the Company and Siu and Siu's Firm on the other (that is, they are to be borne by the Defendants other than Wong).

105. Subject to the foregoing, costs of the action between the Plaintiff and Wong are to be paid by the Plaintiff to Wong, also to be taxed if not agreed.

1995, No. A9560

ANNEXURE TO JUDGMENT