CHEUNG HAU CHUN v. TO SUET CHUN AND OTHERS

HCA 1259/2015

[2021] HKCFI 264

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1259 OF 2015

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J U D G M E N T

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1.  This is a partnership dispute.

2.  The plaintiff, Mr Cheung Hau Chun (“P”), alongside with the 1^st defendant, Ms To Suet Chun (“D1”), the 2^nd defendant, Mr Cheung Yiu Fai Danny (“D2”), and the 3^rd defendant, Mr Wong Tung Hoi (“D3”) (together “D1-D3”), were partners of a business in the name of Tai Dou Building Contractor (大道建築公司) (“Tai Dou”).  The partnership was constituted by a partnership agreement dated 7 December 2010 (“PA”) entered into between P and D1-D3 (collectively “Partners”). 

3.  The 4^th defendant, Mr Wong Siu Wah Paquet (“D4”), was pursuant to a power of attorney dated 7 December 2010 (“POA”) appointed as attorney of the Partners to carry on the business of Tai Dou. 

4.  P claims against D1-D3 for declarations that the partnership has been dissolved on 15 August 2012, alternatively, 28 September 2012 or 31 May 2015; return of capital of $2,025,000 or damages to be assessed and other consequential relief.  As against D4, P claims damages for breach of the POA, alternatively, an account of all monies received by D4 qua attorney of the Partners. 

5.  D1-D3 and D4 (collectively “Ds”) counterclaim for a declaration that P has been holding his 25% interest in the partnership as a trustee of D3. 

A.  BACKGROUND  

6.  Unless otherwise stated, the following facts are taken from the statement of agreed facts or evidence which are not in dispute.

7.  Tai Dou was first established in March 1963 by the late Mr Lau Yuen To, who was the husband of D1 and the grand uncle of D3 and D4.  Since then, various other persons had become partners of Tai Dou and their names were notified to the Business Registration Office (“BRO”) and registered as its partners.   

8.  Tai Dou held a B Licence for building services contractors issued by the Works Branch of the Development Bureau of the Government, which entitled to tender for and undertake Government’s construction projects for contract sums of up to $300 million. 

9.  D2 is a full time insurance agent.  He has been an authorised signatory of Tai Dou, responsible for signing documents on its behalf.  He has been a good friend of D4 for many years. 

10.  D3 is the younger brother of D4.  He acted as a foreman in respect of the projects undertaken by Tai Dou. 

11.  Since the demise of the late Mr Lau, D4 has been in charge of all the affairs of Tai Dou including soliciting business and submitting tenders for Government works.   

12.  P has since 1992 been engaged in mechanical and construction works (“E&M works”) through a number of companies controlled by him.  These included United-Power Engineering Co Ltd (聯力工程有限公司) (“United Power”) and Pacific Fine Engineering Limited (順明工程有限公司) (“Pacific Fine”).

13.  In 2001, P came to know D4 through the introduction of D4’s uncle.  In 2002, upon D4’s request, P advanced a loan of $200,000 to D4 which was repaid in 2 months. 

14.  Since around 2004/2005, P had become acquainted with D3 and D4 and their father, Mr Wong Ming Robert (“Robert Wong”),  inasmuch that P was willing to provide short term loans to D3, D4 and/or Robert Wong upon their requests.  These included:

(1)  In November 2005, P procured his company to obtain a bank loan of $1.5 million for the use of D3, D4 and Robert Wong, using a village house owned by Robert Wong as security.  The loan was repaid in full in early 2012.

(2)  Between March 2006 and September 2010, P procured United Power to provide 5 interest free loans to Tai Dou to meet its working capital requirements in tendering Government contracts (“5 loans”), all of which were repaid shortly:

Date of Advance	Amount	Date of Repayment
29/3/2006	$700,000	1/4/2006
5/1/2010	$3,900,000	7/1/2010
30/3/2010	$2,000,000	1/4/2010
30/7/2010	$60,000	11/2/2011
10/9/2010	4,000,000	14/9/2010
Total	$10,660,000

(3)  After P became a partner of Tai Dou, he advanced 3 further interest free loans to Tai Dou (“3 loans”), all of which were repaid shortly afterwards:

Date of Advance	Amount	Date of Repayment
30/3/2011	$4,000,000	1/4/2011
26/9/2011	$4,000,000	27/9/2011
29/6/2012	$5,000,000	3/7/2012
Total	$13,000,000

15.  In addition, during the period from 2005 to 2010, D2-D4 through Tai Dou or Chinaway (Union) Construction Co Ltd (華威 (聯合) 建築有限公司) (“Chinaway”), a company owned and controlled by them, sub-contracted more than 10 projects involving E&M works to P’s companies.  Amongst these projects, in respect of the project at Haven of Hope Nursing Home, Chinaway did not pay the contract price to United Power in full, leaving an outstanding balance of around $850,000 (“Unpaid Balance”).

16.  It is P’s case that at the meeting held in the third quarter of 2010, D4 told P that the partners were grateful to P advancing interest free loans to Tai Dou and not suing Chinaway in respect of the Unpaid Balance, and they invited P to become a 25% equity partner of Tai Dou.  It was orally agreed between P and D4 (on behalf of D1-D3) (“Oral Agreement”) that:

(1)  Tai Dou was treated as having a net value of $4,500,000;

(2)  P’s 25% capital contribution (equivalent to $1,125,000) would be paid by procuring United Power to waive the Unpaid Balance and paying the balance of $275,000 in cash;

(3)  D4, who had over $8 million indebtedness at the time, would withdraw as a partner of Tai Dou;

(4)  D4 would be appointed as the attorney of the partners in managing Tai Dou; and

(5)  D3-D4 would appoint an accounting firm to calculate the capital of Tai Dou and handle the change of partners, and would instruct Messrs Wong, Hui & Co (“WHC”) to prepare a partnership agreement and power of attorney for the parties to execute.   

17.  Pursuant to the Oral Agreement, D4 instructed WHC to prepare the PA and the POA.  The PA and the POA were signed by all the parties on 7 December 2010 before a solicitor of WHC.

18.  Under the PA, the Partners agreed as follows:

“1.  The parties hereto (hereinafter called ‘the partners’) shall as from the 23^rd day of August, 2010 be deemed to have carried on and shall continue to carry on the partnership business under the firm name of TAO DOU BUILDING CONTRACTOR (大道建築公司) at … and at such other place or places as the partners may from time to time determine.

2.  The partnership shall continue for the joint lives of the partners unless and until determined as hereinafter provided.

3.  (i) The capital of the partnership for the time being is HK$8,100,000 which was contributed by the partners in the following respective amounts:

[D1] - $810,000

[D2] - $810,000

[D3] - $4,455,000

[P] - $2,025,000

(ii)  If at any time the partners decide to increase the capital of the partnership the amount of the increase shall be contributed unless they shall otherwise agree in the same proportions as they are then entitled to the capital of the partnership.

4.  The profits and losses of the partnership (including profits and losses of a capital nature) shall belong to and be borne by the partners in the following proportions:-

[D1] 10%

[D2] 10%

[D3] 55%

[P] 25%

    100%

5.  (i) Proper books of account shall be kept promptly posted and such books shall be available at all times for inspection by each of the partners.

(ii)  A profit and loss account shall be taken on the last day of March in every year and a balance sheet as at the same date shall be prepared by the partnership accountants, Messrs. Richard S.K. Chan & Co., Certified Public Accountants.

(iii)  Every such account and balance sheet shall be signed by the partners and shall thereupon become binding on them except that either partner shall be entitled to require the rectification of any manifest error discovered in any such account or balance sheet when the same was signed by them.

6.  (i) The banker of the partnership shall be The Bank of East Asia, Limited or such other bankers as the partners may from time to time agree.

(ii)  All partnership monies not required for current expenses and all cheques shall be paid promptly into the partnership bank account and all securities for money shall be promptly deposited in the name of the partnership with the partnership bankers.

(iii)  All cheques on the partnership bank account shall be drawn in the name of the partnership and may be so drawn by anyone of the partners singly.

7.  Each partner shall be just and faithful to the other and shall diligently attend to the partnership business and devote his/her whole time and attention thereto.

8.  Neither partner shall without the consent of the other engage in any business other than that of the partnership or engage or dismiss any employee of the partnership or become bail or surety for any person or lend any partnership property release any debt due to the partnership or except in the ordinary course of business draw accept or indorse any bill of change.

9.  The partnership may be determined by either partner giving to the others not less than one (1) month’s notice in writing.  If either partner shall commit any breach of the terms of this Agreement the other partners shall be at liberty by notice in writing to the offending partner forthwith to determine the partnership.”

19.  By the POA, the Partners irrevocably appointed D4 to be their “true and lawful attorney” to act for them and in their names or in D4’s name to do, perform and transact the following acts, deeds, matters and things or any of them:

“1.  To carry on the said Partnership business and for that purpose to hire lands and buildings to engage servants to manage estates and to purchase stock and implements.

2.  To buy goods to sell pledge mortgage or otherwise deal with or dispose of the movable or immovable property of the said Partnership business.

3.  To bring and prosecute all legal proceedings that may be necessary to protect and enforce the interests and rights of the said Partnership business to defend all legal proceedings brought against the said Partnership business and to proceed to judgment and execution or become non-suit or suffer judgment to go by default or to compromise any such proceedings.

4.  To execute and deliver all deeds or other documents necessary for the purposes aforesaid or any of them or for the management and development of the said Partnership business.

5.  To receive and give receipts for monies due to the said Partnership business to adjust and settle all accounts relating to the said Partnership business to compound debts due to the said Partnership business and to submit to arbitration any dispute directly or indirectly affecting the said Partnership business.

6.  Generally to do all acts necessary or expedient in the interests of the said Partnership business as fully and effectively as we could have done if personally present or as we both collectively could have done.”

20.  It is P’s case that after execution of the PA, he paid the balance of $300,000 to D4 in cash while they were in Macau.  This is denied by Ds. 

21.  It is not in dispute that after P had become a partner of Tai Dou, United Power did not demand, and Chinaway never repaid, the Unpaid Balance.  P says that the Unpaid Balance was waived pursuant to the Oral Agreement, while Ds say that the Unpaid Balance was not and could not be treated as capital injection by P into Tai Dou as it was owed by a separate legal entity (Chinaway), not Tai Dou. 

22.  Ds do not dispute that P has procured the 5 loans and the 3 loans to be advanced to Tai Dou (collectively “Loans”) and that the Loans were used by Tai Dou to meet the working capital requirement for tendering work contracts from the Government.  However, Ds contend that the advancement of the Loans was the mode of cooperation between P’s companies and Tai Dou so as to enhance the prospect of Tai Dou succeeding in its tenders for Government projects which, if successful, would be sub-contracted to P’s companies. 

23.  During the period when P was a partner of Tai Dou, he was involved in (1) co-signing cheques for Tai Dou (alongside with D4); (2) assisting (by himself or through his staff) Tai Dou in obtaining quotations from other sub-contractors required for undertaking the works under the contracts before submitting tenders for such contracts to the Government; (3) preparing tender documents for submissions to the Government; and (4) allowing D4 to use P’s office when dealing with Tai Dou’s business.  No remuneration or rent was ever paid by Tai Dou to P. 

24.  By August 2012, P became dissatisfied with the fact that no dividend had been paid by Tai Dou despite the profits which had been generated from its business in the past 2 years or so. 

25.  On or around 15 August 2012, P informed D4 that he would withdraw from the partnership.  There is a dispute as to whether on this occasion, P requested for return of his share of capital in the partnership and whether D4 (on behalf of D1-D3) agreed to repay the same to P.   

26.  By a notification of change of partners dated 15 August 2012[1] signed by P and Ds and submitted to the BRO, they confirmed that P retired as a partner while D4 became a partner on 15 August 2012. 

27.  On 19 November 2012, Ds entered into another partnership agreement in respect of Tai Dou prepared by WHC which stated, inter alia, that:

(1)  As from 28 September 2012[2], the partners should be “deemed to have carried on and shall continue to carry on the partnership business under the firm name of [Tai Dou]”;

(2)  the capital of the partnership was $8,700,000 which had been contributed by D1 ($870,000), D2 ($870,000), D3 ($3,480,000) and D4 ($3,480,000); and

(3)  the profits and losses of the partnership should belong to and be borne by the partners as to 10% for each of D1 and D2, and 40% for each of D3 and D4. 

28.  According to the information registered at the BRO, the dates of the incoming and outgoing partners of Tai Dou, insofar as they relate to the PA, are as follows:

Name of Partner	Incoming Date	Outgoing Date
D1	9/5/1987	--
D4	13/11/1999	24/11/2008
	15/8/2012	--
D2	10/9/2000	--
D3	25/8/2003	--
P	23/8/2010	15/8/2012

29.  Despite P’s withdrawal from the partnership, he continued to attend to the follow up and rectification works in respect of those projects handled by him whilst he was a partner of Tai Dou.  These included attending the hearing on behalf of Tai Dou in March 2013 in ESS 4560/2013, in which Tai Dou was prosecuted for failure to comply with the safety requirements in the course of the Nursing Home Project.   

30.  At no time did D4 render any accounts or pay any amount, whether by way of distribution of profits or return of capital, to any of the Partners. 

31.  By letters dated 17 December 2014 addressed to Ds, Messrs Oliver C M Chan & Co (“OCC”), on behalf of P, referred to the failure of Tai Dou to pay any profits or capital or to provide any books of accounts to P, and demanded Ds to (1) provide the partnership’s accounts, (2) pay $2,025,000, being P’s share of capital, and (3) inform P of the other amounts payable to P in accordance with the financial statements of Tai Dou by the end of the month.   

32.  Notwithstanding WHC’s involvement in preparing and witnessing the execution of the PA and the POA qua solicitors of the Partners, they responded to P’s demands by letters dated 29 December 2014 stating that (1) P’s claim was “none of [D4’s] concern” as D4 had never entered into any partnership agreement with P; (2) P was a mere trustee of D3 and had no involvement with Tai Dou’s business in this way:

“We are instructed that [P] was named as a partner of Tai Dou Building Contractor (‘the said business’) for the alleged period only as a mere trustee for [D3] and [P] never contributed any capital to the said business, never made responsible for any liability of the said business, never got involved with the management of the said business and never participated as a partner of the said business. We are further instructed that [P] represented to [D1-D3] that his name on record could enhance the chance of success bidding of construction projects by the said business and could also facilitate the said business to sub-contract various construction projects to [Pacific Fine] and [United Power] in which [P] had interest and/or control. For these very reasons, [D1-D3] named [P] as a mere trustee for [D3] and for nothing else.” (underline added)

33.  By letter dated 6 March 2015 to WHC, OCC referred to the fact that WHC had acted for all the parties concerned with the PA and the POA including giving legal advice, preparing, executing and attesting to them and it was inappropriate for WHC to act for Ds, given that they sought to challenge the validity of the PA and POA.

34.  After WHC informed P that they had no instructions to accept service of the writ on behalf of Ds, OCC sent another letter of 23 April 2015 to Ds repeating P’s earlier demands on the basis that he had retired from the partnership with effect from 15 August 2012 or 28 September 2012.  Further, for the avoidance of doubt, P gave one month’s notice pursuant to clause 9 of the PA to terminate the partnership on 31 May 2015[3]. 

35.  In response, D3 (on behalf of himself and D1-D2) and D4 repeated the same assertions contained in WHC’s letters of 29 December 2014. 

36.  In their letter dated 1 June 2015 to Ds, OCC denied all the allegations made by Ds and reminded them that making false declaration or affirmation was a criminal offence under the Crimes Ordinance (Cap 200). 

37.  No further response was made by Ds. 

38.  On 9 June 2015, P issued a writ indorsed with a statement of claim (“SOC”). 

B.  ISSUES

39.  It is P’s case that by virtue of the PA, he became an equity partner of Tai Dou alongside with D1-D3 until he retired from the partnership on 15 August 2012, alternatively, on 28 September 2012 or 31 May 2015.  Upon his retirement, the partnership constituted by the PA was dissolved on the same day.

40.  Although many alternative relief are pleaded in the SOC, at trial, Mr Cheung confirms that P does not pursue his claim for damages for breach of the PA and POA as P has not been provided with any accounts of Tai Dou.  Instead, he focusses on the following claims:

(1)  As against D1-D3: (a) declarations on the date P retired from, and the dissolution of the partnership; (b) return of the capital in the amount of $2,025,000; and (c) accounts and inquiries of the partnership’s transactions, assets and liabilities; and

(2)  As against D4: account and inquiries of D4’s dealing as attorney of the Partners.   

41.  Ds contend that P was a partner “on paper” only and he was a trustee of D3 and, as such, P is not entitled to obtain return of the capital or to enforce any terms of the PA and the POA. 

42.  As Mr Wong confirms in his oral opening, the only basis relied upon by Ds in support of their contention is the “express mutual understanding” allegedly reached between P and Ds at the meeting held at Tai Dou’s office prior to the parties executing the PA and the POA whereby all parties agreed and understood that P would be a partner “on paper” only, and he was a trustee of D3 (“Mutual Understanding”).  In respect of the Mutual Understanding, it is Ds’ case that each of D1-D3 was privy to, and agreed with, the Mutual Understanding, and D4 did not act as representative or agent of D1-D3. 

43.  In his oral opening, Mr Wong (rightly) acknowledges that on Ds’ case, the PA, the POA and the registration at the BRO, to the extent that they described P as a partner of Tai Dou and had been provided to third parties or made available to the public, constituted misrepresentations made by the Partners to such parties. 

44.  The issues which require determination by the Court are:

(1)  Whether P became a partner of Tai Dou pursuant to the Oral Agreement or the Mutual Understanding, and whether P was a partner of Tai Dou in his own right or as a trustee of D3 (Partnership Issue);

(2)  Whether P retired as partner from Tai Dou on 15 August 2012, 28 September 2012 or 31 May 2015 and, if so, whether the partnership was dissolved on the same day (Retirement Issue);

(3)  If the partnership was dissolved upon the retirement of P, whether P is entitled to obtain return of the capital in the amount of $2,025,000, and whether an account and inquiry should be ordered in respect of the partnership’s transactions, assets and liabilities (Partnership Relief Issue); and

(4)  Whether D4 owed any duties to P and, if so, whether he acted in breach of his duties, and whether P is entitled to an account and inquiry in respect of D4’s dealings (Attorney Issue).

C.  DISCUSSION

C1.  Evidence

45.  At trial, only P, D2 and D4 give viva voce evidence. 

46.  I find that overall P is an honest witness who tries to give his evidence in a candid manner where possible.  This is despite the long lapse of time between the trial and the events he is asked about during cross-examination.  His evidence is unshaken on the main issues including the circumstances he was invited to join Tai Dou as a partner, the Loans advanced to and repaid by Tai Dou, the Oral Agreement, how the capital contribution to the partnership came about, how he paid up his share of the capital and his involvements in dealing with Tai Dou’s affairs and projects.  His evidence on these issues are largely corroborated by contemporaneous documents and accord with commercial sense.  I accept the evidence of P insofar as it is inconsistent with the evidence of D2 and D4 on these issues. 

47.  As for D2, I find that his evidence on the Mutual Understanding and the Unpaid Balance to be unreliable.

48.  So far as Mutual Understanding is concerned:

(1)  In his witness statement (“WS”)[4], D2 gave the impression that he had a clear recollection of what had been said by P during a meeting in August 2010 wherein P requested to be named as a “paper” partner of Tai Dou, and how he, D1 and D3 acceded to such request; and it was “only upon the express mutual understanding as stated above[5] that the [PA] was executed”.  D2 said that he never had “any discussion and/or negotiation with [P] regarding the terms and conditions of the [PA]”.

(2)  This is inconsistent with Ds’ case, as pleaded in §2.4 of the Amended Defence and Counterclaim (“D&CC”), that in December 2010, it was orally agreed between P and D1-D3 that P “would be named on paper as a partner of [Tai Dou]”.  There was no reference to P having agreed to be a trustee of D3 in respect of the 25% interest in Tai Dou. 

49.  However, during cross-examination, D2 is unable to say when, where and how P allegedly made the request other than asserting that there was a meeting at Tai Dou’s office between P and Ds during which the Partners talked about the partnership agreement, which was the only meeting he had with P.  This casts doubt on the credibility of what he said in WS (summarised in §48(1) above).  The alleged meeting also does not sit well with the evidence of P and D4, who both confirm that Tai Dou did not have its own office at that time.

50.  When asked by this Court as to whether the parties used the words “paper partner” and whether that phrase was discussed at the meeting, D2 accepts that in fact, there was no discussion at the meeting, and his understanding that P would be a “paper” partner was based entirely on what D4 had told him before the meeting.

51.  D2 says that he has never contributed any capital to, or received any profits distribution from Tai Dou.  Nor has he ever been asked to assume any liability of Tai Dou in his capacity as a partner.  This raises the obvious question as to why D2 considers himself was a real partner whereas P was a “paper” partner.  When this is put to D2, he acknowledges that he has never thought of what distinguishes a real partner from a “paper” partner, other than saying that he is a real partner on the basis that he carried out work for Tai Dou.  Given that P also did much, if not more, work for Tai Dou (see §23 above), the purported reason for contending that P was a “paper” partner cannot be true or correct. 

52.  As regards Unpaid Balance, in his WS, D2 did not deny that the amount was owed and never repaid to United Power, he claimed that this had “nothing to do with” Tai Dou given that D3, D4 and he did not have the “right” to allow P to join as a real partner of Tai Dou or treated him as having contributed $2,025,000 as capital. I am unable to see why the Partners (represented by D4) could not agree to admit P as a new partner and treated him as having contributed $2,025,000 as capital, which was precisely what the Partners agreed under the PA. 

53.  I find that the Partners (acting by D4) agreed to treat the Unpaid Balance as part of P’s capital contribution pursuant to the Oral Agreement.  This is corroborated by, and consistent with, the fact that since execution of the PA, United Power has not demanded Chinaway to repay the Unpaid Balance.   

54.  I turn to the absent witnesses, D1 and D3.  They have not filed any WS or given evidence even though D3 is present throughout the trial.  No explanation has been provided by D1 or D3 as to why they elected not to give evidence in this action. 

55.  Mr Cheung submits that D3 is an important witness in that he was one of the partners and the alleged beneficiary of the 25% interest held by P in Tai Dou.  As such, D3 is expected to have material evidence to give on the Partnership Issue. D3’s absence without explanation is sufficient for the Court to draw adverse inference against him that his evidence would not be helpful to his case (Li Sau Keung v Maxcredit Engineering Ltd & anor [2004] 1 HKC 434 (CA), at 443H-444A). On the other hand, Mr Wong contends that “there is no single piece of evidence privy to [D3’s] knowledge in which by calling [him], the evidence can be further explored” and there is “no material evidence which can only be given by [D3]”. 

56.  I do not accept Mr Wong’s contention. 

(1)  D3 and D1 are defendants in this action.  They were privy to and signed the PA, the POA and the documents submitted to the BRO which described P as a partner of Tai Dou without any qualification or reference to the alleged trust. Faced with these contemporaneous documents, it is incumbent upon D1 and D3 to give evidence to explain why despite their signatures on these documents, the Court should not give full effect to their contents. 

(2)  On Ds’ pleaded case, D1 and D3 were parties to, and therefore have knowledge of, the Mutual Understanding.  In the case of D3, he was the beneficiary of the alleged trust in respect of P’s 25% interest in Tai Dou.  The burden is on D1 and D3 to prove the alleged Mutual Understanding and the alleged trust insofar as they have knowledge of or had involvement in such Understanding and trust. 

(3)  In electing not to give evidence, D1 and D3 are depriving the Court of evidence which is relevant to the parties’ pleaded cases as well as the assessment of the reliability of the evidence given by D2 and D4. 

57.  Where, as here, D1 and D3 elected not to give evidence which are material to the issues raised by the parties, the Court is entitled to draw all reasonable inferences as to what are the facts which they have chosen to withhold.  The principle was stated by Lord Diplock in British Railways Board v Herrington [1972] AC 877 at 930G-931B as follows:

“The appellants, who are a public corporation, elected to call no witnesses, thus depriving the court of any positive evidence as to whether the condition of the fence and the adjacent terrain had been noticed by any particular servant of theirs or as to what he or any other of their servants either thought or did about it. This is a legitimate tactical move under our adversarial system of litigation. But a defendant who adopts it cannot complain if the court draws from the facts which have been disclosed all reasonable inferences as to what are the facts which the defendant has chosen to withhold.” (underline added)

58.  The inference to be drawn must be grounded on the primary facts proved (Nina Kung v Wong Din Shin (2005) 8 HKCFAR 387 at §§185-187, per Ribeiro PJ).

59.  Where the evidence is incomplete and obscure in critical aspects, the silent party’s failure to give evidence may convert that evidence into proof on the matters which are within his knowledge.  As stated by Lord Sumption JSC in Prest v Petrodel Resources Ltd and others [2013] 2 AC 415 at §44:

“… There must be a reasonable basis for some hypothesis in the evidence or the inherent probabilities, before a court can draw useful inferences from a party’s failure to rebut it. For my part I would adopt, with a modification which I shall come to, the more balanced view expressed by Lord Lowry with the support of the rest of the committee in R v Inland Revenue Comrs, Ex p TC Coombs & Co [1991] 2 AC 283, 300:

‘In our legal system generally, the silence of one party in face of the other party’s evidence may convert that evidence into proof in relation to matters which are, or are likely to be, within the knowledge of the silent party and about which that party could be expected to give evidence. Thus, depending on the circumstances, a prima facie case may become a strong or even an overwhelming case. But, if the silent party’s failure to give evidence (or to give the necessary evidence) can be credibly explained, even if not entirely justified, the effect of his silence in favour of the other party, may be either reduced or nullified.’ ” (underline added)

60.  Applying the above principles, I will not treat the evidence of D2 and D4 as evidence in support of Ds’ counterclaim and the defence advanced by D1 and D3 unless such evidence is not in dispute or is corroborated by other credible evidence.  Where I find that P has adduced  sufficient evidence to prove the matters asserted by him and such matters were or likely to be within D1 and D3’s knowledge, I will draw reasonable inferences against D1 and D3 as to the facts which they have chosen to withhold from the Court.

61.  I do not find D4 to be a satisfactory or credible witness.  He has a tendency to say things which suit his purposes without any regard to the objective facts or facts which are indisputable.  I give 2 examples:

(1)  When asked about the Loans which were admittedly paid by P’s companies to Tai Dou and repaid subsequently, D4 insists that they were not loans, but were funds deposited into Tai Dou’s bank account to enhance the chance of Tai Dou winning the tender, which were subsequently returned to P.  D4 even goes so far as to say that as these funds provided by P’s companies were not recorded in writing, they could not be loans.  I am unable to see how D4 can maintain that the funds advanced by P’s companies to Tai Dou were not loans.

(2)  D4 is adamant in asserting that P has not done any work for Tai Dou.  This is despite the fact that D4 is shown documents which show that P has reviewed and co-signed cheques on behalf of Tai Dou for the purposes of paying wages to the employees, other sub-contractors and reimbursing expenses incurred by D4; and attending the hearing of the summons on behalf of Tai Dou. 

62.  As further discussed below, while it is unnecessary to refer to or rely on the evidence of D2, D4 and P when considering the issues I have to decide, if and insofar as their evidence is or may be relevant to a particular fact, I prefer the evidence of P over that of D2 and D4. 

C2.  Partnership Issue

63.  It is well established that where, as here, persons of full age and understanding are bound by the documents they signed unless they can establish a recognised legal basis to disown such documents.  The principles were stated by Ribeiro PJ in Ming Shiu Chung & ors v Ming Shiu Sum & ors (2006) 9 HKCFAR 334 at §§84-87:

“84.  … It is in law highly material to ask how or why the father nevertheless signed the documents. Reliance is universally placed on signatures appended to documents by persons of full age and understanding as signifying the signatory’s assent or adherence to what that document states. Where such a person has signed a document which purports to have legal effect, the law has never regarded it as enough to show that he signed without knowing its contents for the document to be disavowed. It is an everyday occurrence that people sign documents without reading the small (or even the large) print and therefore sign without actually knowing the terms (or all the terms) of the document signed. But they are held to the documents which they have chosen to sign unless there is shown to be a recognized legal basis for concluding that their apparent consent has been in some way vitiated or that reliance on that document by some other person falls into some category of unconscionable conduct justifying relief in equity.

85.  Thus, in Saunders v Anglia Building Society [1971] AC 1004 at 1016, Lord Reid warned against an approach, like that of the Court of Appeal, which inverts the general rule:

‘We find in many of the authorities statements that a man’s deed is not his deed if his mind does not go with his pen. But that is far too wide. It would cover cases where the man had taken no precautions at all, and there was no ground for his belief that he was signing something different from that which in fact he signed. I think that it is the wrong approach to start from that wide statement and then whittle it down by excluding cases where the remedy will not be granted. It is for the person who seeks the remedy to show that he should have it.’

86.  And in Bank of China (Hong Kong) Ltd v Fung Chin Kan (2002) 5 HKCFAR 515 at 533, Litton NPJ acknowledged:

‘… the fundamental principle that, generally speaking, when a person signs a legal document, he or she is bound by the act of signature: As a matter of general law, it is no defence to say that he or she did not understand the contents of a legal document; that person takes the chance of being bound by its terms, as he or she can take the simple precaution of not signing until its contents have been fully explained and understood.’

87.  The vitiating factors at common law include fraud, mistake, misrepresentation, non est factum, duress, undue influence and lack of mental capacity: see, for instance, Blay v Pollard and Morris [1930] 1 KB 628; and Gillman v Gillman (1946) 174 LT 272. To disown a signed legal document, facts constituting the particular vitiating factor relied on must be pleaded and established by the evidence. …” (underline added)

64.  P and D1-D3 signed the PA before a solicitor of WHC who had interpreted the contents to, and witnessed their signatures.  Prima facie, D1-D3 are bound by the contents of the PA. 

65.  In my judgment, the fact that P was admitted as a partner of Tai Dou in the same way as D1-D3 is amply supported by the following matters:

(1)  the POA executed by P and D1-D3 as a deed on the same day and before the same solicitor of WHC.  In the first recital of the POA, P and D1-D3 were described as “all the partners of the partnership business carried on” under the name of Tai Dou (defined as “Partnership business”).  Throughout the POA, references were made to the same “Partnership business”;

(2)  the cheques co-signed by P on behalf of Tai Dou during the time when he was a partner;

(3)  the letter dated 25 April 2012 from the auditors of Tai Dou to the Development Bureau, certifying the deposit of $500,000 into Tai Dou’s bank account by way of increase in its employed capital.  Appended to the letter was a copy of the pay-in slip signed and certified by P and D1-D3 as “partners”;

(4)  the appointment letters issued by Tai Dou in respect of various projects, signed by P and D1-D3 as “股東” (shareholders), which recorded the decision of all the “shareholders” to allow P to manage the projects independently and to assume all the liabilities associated with such projects. As Tai Dou was at the relevant times (and still is) a partnership comprised of 4 partners, the reference to “股東” must be a reference to the Partners;

(5)  the notices on change of partners dated 15 August 2012, signed by (a) P as outgoing partner, (b) D4 as incoming partner and (c) D1-D3 as other incumbent partners, and filed at the BRO; and

(6)  by virtue of ss.11 and 13 of the Partnership Ordinance (Cap 38), P was jointly and severally liable with D1-D3 for all the debts and obligations of Tai Dou incurred, and everything for which Tai Dou became liable, while P was a partner. 

66.  There was nothing in the above contemporaneous documents which suggested or even hinted that P was a “paper” partner or that he held his 25% interest in Tai Dou as trustee of D3. 

67.  The burden is on D1-D3 to plead, and establish by evidence, recognised vitiating factors to disown the PA.  This has not been done.  There is therefore no basis for D1-D3 to resist P’s claim that a partnership comprised of the Partners was constituted by the PA, and that P held his 25% interest in his own right. 

68.  As the Mutual Understanding (and the alleged trust said to have been part thereof), even if established, are not recognised legal basis for D1-D3 to disown the PA, it is unnecessary to make any findings on such allegations.  Nevertheless, as much time and costs have been incurred by P and Ds in respect of such allegations, I shall state the reasons why I consider such allegations to be wholly devoid of merit:

(1)  The Mutual Understanding is inconsistent with all the matters stated in §65 above.

(2)  Neither D1 and D3 have come forth to give evidence in support of the Mutual Understanding.  It is reasonable to infer that if they give evidence on behalf of Ds, their evidence would (a) confirm that the Partners entered into  the Oral Agreement and signed the PA pursuant to such Agreement; and (b) the Partners never discussed or came to any Mutual Understanding. 

(3)  Contrary to the allegations pleaded in the D&CC and stated in the WS made by D2 and D4, under cross-examination, D2 confirms that in fact, there was no discussion or agreement between the Partners on the Mutual Understanding, whether at a meeting held in August 2010 or December 2010 (see §48 above).  It is clear from the evidence of D2 that the reasons cited in his WS as to why P was a “paper” partner viz., (a) P did not pay his share of the capital into Tai Dou; (b) P did not receive any profit distribution from Tai Dou; and (c) P had not been asked to bear any liability of Tai Dou, apply equally to D1-D3. 

(4)  Although D4 tries to depart from what he said in his WS[6] by suggesting, for the first time during cross-examination, that the Mutual Understanding had been discussed and agreed between him and P, and he relayed the same to D1-D3 prior to their meeting with P in August 2010, I do not think his evidence is credible.  It is clear that such evidence only comes about after he has heard D2’s evidence at trial that there was no discussion on the alleged Mutual Understanding at the meeting between Ds and P.   

(5)  Similarly, it is clear from D4’s evidence under cross-examination that the stated reasons as to why P was a “paper” partner also apply to D1-D3.  As far as D4 is concerned, it transpires during cross-examination that the real reason for suggesting that P was a “paper” partner was not because of any alleged agreement or Mutual Understanding. Rather, it was because P was neither a family member of D4 (such as D1 and D3) nor a good friend of D4 (such as D2). 

(6)  D2 confirms that he has no knowledge of the alleged trust.  As for D4, he is unable to proffer any reason as to why P had to hold his 25% interest in Tai Dou as trustee for D3, when D3 himself was a partner of the same partnership.   

69.  For the above reasons, I hold that by virtue of the PA, a partnership was formed between P and D1-D3 to carry on the business of Tai Dou and P held his 25% interest in the partnership in his own right.

C3.  Retirement Issue

70.  It is not in dispute that P informed D1-D3 that he would withdraw from the partnership with effect from 15 August 2012, which was accepted by D1-D3.  This is evidenced by their act in signing the notice to the BRO reporting the changes in partners. 

71.  I hold that P retired as partner of Tai Dou on 15 August 2012 and the partnership between P and D1-D3 was dissolved on the same day.  A declaration on the date of dissolution of the partnership is the appropriate relief (see for eg, Atkin’s Court Forms, 2^nd ed, Vol 30, 1994 Issue, Forms 26-27).

C4.  Partnership Relief Issue

72.  The only point advanced by D1-D3 in opposition to the relief sought by P is that he has never paid $2,025,000 to Tai Dou as his capital contribution and, as such, he is not entitled to obtain the return of his share of capital.  I reject D1-D3’s contention.

73.  First, it was stated in clause 3(i) of the PA that the capital of the partnership was contributed by P as to $2,025,000.  Having agreed to such statement in the PA, D1-D3 are estopped from asserting that P did not make his share of capital contribution to Tai Dou.  The relevant principle is explained by Lord Toulson in Prime Sight Ltd v Lavarello [2014] AC 436, §41, (cited with approval by Lam VP in Asgain Co Ltd v Cheng Ka Yan (No 2) [2018] 2 HKLRD 641, §11).  In summary, a clause can operate as an estoppel if as a matter of construction it amounts to a mutual agreement to treat it as true, and if there are no vitiating factors such as illegality or misrepresentation, then the fact that the parties have willingly so bound themselves is itself sufficient reason for the contract to be enforced.  The mere fact that parties knew that it was false is not sufficient to defeat the effect of the clause.

74.  Second, I accept P’s evidence on the Oral Agreement, specifically that he had been told by D4 (on behalf of D1-D3) that the net value of Tai Dou was $4,500,000 and he had to pay 25% of such value in the amount of $1,125,000 as his share of capital contribution.  I find that P did pay his contribution by procuring United Power to waive the Unpaid Balance and he paid $300,000 cash to D4, who received the same on behalf of D1-D3. 

(1)  It is D4’s (unchallenged) evidence that D1-D3 left the affairs of Tai Dou to him including matters relating to the admission of P as a partner, his interest in, the amount of capital required to be paid and the manner in which such capital was to be paid. 

(2)  It is also D4’s (unchallenged) evidence that in fact, none of D1-D3 has ever paid any capital into Tai Dou and all the amounts were paid by him on behalf of D1-D3, and he decided who should hold what interest in Tai Dou.  Consistent with this state of affairs, D4 (on behalf of D1-D3) agreed to admit P on the basis that he had to pay $1,125,000 as his share of capital contribution, and that such contribution was paid by way of waiver of the Unpaid Balance and by cash payment to D4.

(3)  Having received the capital contribution from P in the manner agreed between D4 (on behalf of D1-D3) and P, it was not open to D1-D3 to assert that P had not paid his capital contribution or that he did not have any interest in the partnership.

75.  However, I do not think that P is entitled to obtain return of capital in the amount of $2,025,000.  On P’s own case, the net value of Tai Dou was $4,500,000, which was $3,600,000 less than the capital stated in clause 3(i) of the PA.  This suggests that at the time P became a partner of Tai Dou, part of the $8,100,000 had either been lost or had been offset by the liability of Tai Dou.

76.  In my view, it is appropriate to order taking of accounts and inquiries in respect of the partnership’s transactions, assets and liabilities during the time when P was a partner, that is, from 23 August 2010 to 15 August 2012 (“Relevant Period”), given that:

(1)  during the time when P was a partner, Tai Dou continued to carry on business and was able to secure some projects awarded by the Government. According to D4’s unchallenged evidence, in respect of the projects which had been sub-contracted in entirety to other sub-contractors (including P’s companies), Tai Dou earned a “commission” at 3% of the contract sums.  As Tai Dou did not have to incur any substantial expenses in its operation, it is reasonable to expect Tai Dou to have generated some profits during the time when P was a partner.  

(2)  No accounts whatsoever have ever been provided by Tai Dou to P.  Nor has D4 ever rendered any accounts of his dealings in respect of Tai Dou’s business, assets or liabilities.   

(3)  An order for taking accounts and inquiries is the usual relief where a partnership has been dissolved (Atkin’s, Forms 26-27). 

C5.  Attorney Issue

77.  At trial, Mr Wong (rightly) does not advance any submissions in opposition to P’s claim, whether in respect of the duties owed by D4 as attorney of the Partners or the relief claimed against D4.  This is unsurprising in light of the following undisputed facts:

(1)  the POA was signed by P and D1-D3, whereby D4 was appointed by all the Partners as their agent to manage the partnership business and affairs;

(2)  since execution of the POA, D4 had been responsible for dealing with all the business and affairs of Tai Dou during the Relevant Period;

(3)  as the agent of the Partners, D4 owed fiduciary duties to P including a duty to account for all his dealings with, and transactions carried out on behalf of the Partners including all the businesses, assets and liabilities of Tai Dou; and

(4)  D4 has never rendered any accounts or provided any financial information pertaining to Tai Dou to P, whether during the Relevant Period or after he withdrew from the partnership.   

78.  Where, as here, the fiduciary relationship is established, the beneficiary or principal is entitled to an account as of right.  An order for an account does not in itself provide P with a remedy, it is only the first step in the process which enables P (the beneficiary) to identify the deficit in the trust fund and seeks the appropriate means by which it may be made good (Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681, at §166-169, 172, per Lord Millett NPJ). 

79.  It is in the circumstances appropriate to order D4 to account for (1) all the dealings, transactions, credit and assets belonging to the partnership for the Relevant Period, and (2) all the debts and liabilities of the partnership, if any, during the Relevant Period. 

80.  In practice, the account which D4 is going to provide may overlap with the taking of accounts and inquiries of the partnership given that D4 was the agent who handled all the affairs of the partnership during the Relevant Period.  As D4 has thus far refused to provide any accounts or financial information covering the Relevant Period to P, despite the many requests made by P, it is necessary to make an order against D4 to ensure that he cannot avoid the obligation to account by shifting the obligation to D1-D3 or Tai Dou.

D.  CONCLUSION

81.  I make the following order:

(1)  a declaration that by virtue of the PA, a partnership between P and D1-D3 was constituted to carry on the business of Tai Dou from 23 August 2010 (“Partnership”), and that the Partnership was dissolved on 15 August 2012;

(2)  a declaration that P held his 25% interest in the Partnership in his own right;

(3)  the following accounts and inquiries be taken in respect of the Partnership for the Relevant Period (i.e. from 23 August 2010 to 15 August 2012):

(a)  all the dealings, transactions, credit and assets belonging to the Partnership for the Relevant Period;

(b)  all the debts and liabilities of the Partnership, if any, during the Relevant Period;

(c)  an inquiry as to what sums have been received by D4 in respect of the Partnership’s business, credit, assets or capital and what have become of them;

(d)  an inquiry as to the whereabouts of the Partnership’s credit and assets received by D4 or Tai Dou during the Relevant Period;

(4)  D4 do provide an account in respect of the matters described in §(3)(a)-(d) above, together with supporting documents,  within 42 days from the date of this Judgment; and

(5)  Ds’ counterclaim be dismissed.

82.  I direct the parties to try to agree on the directions on the taking of accounts and inquiries and submit the same to the Court within 14 days of this Judgment.  If no agreement is reached, P and Ds do lodge their respective proposed directions together with explanatory submissions within 7 days thereafter.  

83.  The parties be at liberty to apply to the Court for the purpose of executing or carrying into effect the terms of Order and for directions on the taking of accounts and inquiries. 

84.  As for costs, I make a costs order nisi that Ds do pay the costs of and occasioned by the action (including all costs reserved) to P on a common fund basis, to be taxed if not agreed.  It seems to me that it is appropriate to order costs against Ds on a higher scale, in light of my findings that Ds have absolutely no basis to resist P’s claims or to raise the alleged Mutual Understanding. As a result of Ds’ allegations raised in their D&CC, much time and costs have been wasted by the parties in what would otherwise be a simple and straight forward claim for dissolution of the partnership.