HO MAN YEE v. LIAO ZHE AND ANOTHER

HCA 485/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 485 OF 2006

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D E C I S I O N

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Application

1. This is an application by the 1st Defendant against the Plaintiff for an order of account under Order 43 rule 1 of the Rules of High Court (“RHC”).

Background

2. It is a partnership dispute.  On 7 March 2006, the Plaintiff commenced the present proceedings against the Defendants.  Briefly, it was the Plaintiff’s case that he had formed a partnership business of trading cookware with the 1st Defendant in about 1996.  The business went well and expanded to production in PRC and sales in US.  However, in July 2005, the 1st Defendant incorporated the 2nd Defendant.  The Plaintiff found that the Defendants competed with the partnership by using confidential information as well as soliciting its customers and employees.

3. The Plaintiff obtained an interim injunction against both Defendants on 10 March 2006.

4. On 9 May 2006, the Defendants filed their Defence and Counterclaim against the Plaintiff.  The 1st Defendant averred that it was the wrongful conduct of the Plaintiff leading to the dissolution of the partnership on 20 February 2006.  Further, the 2nd Defendant only commenced business after that date. The Plaintiff did not suffer any damages as alleged.  Finally, the 1st Defendant counterclaimed the Plaintiff for an account of the partnership business in US of which the Plaintiff was entrusted to control and manage.

5. The Plaintiff filed his Reply and Defence to Counterclaim on 31 July 2006.  He complained that the Defendants had changed their case.  Throughout the interlocutory injunction proceedings, the Defendants maintained that there was no partnership.  However, they did not argue it further in the Defence. On the other hand, save admitting that he was responsible for the US business, the Plaintiff denied the Counterclaim against him.

6. The parties are now in the discovery stage.  Both of them filed their lists of documents in November 2006.

7. On 1 March 2007, the 1st Defendant took out the present application.  At the substantive hearing on 13 July 2007, Mr. K.M. Chong of Counsel, together with his junior Mr. Daniel Chan, acted for the 1st Defendant and Mr. Dennis Law of Counsel represented the Plaintiff.

8. As a matter of housekeeping matter, leave was granted to the Plaintiff to rely on his 4th affirmation at the hearing.  Mr. Chong further made clear that he only sought for an order under Order 43 rule 1 RHC.  Regarding another relief sought by the application under Order 29 rule 10 RHC, he asked that the same to be adjourned sine die with liberty to restore, pending the account to be given.

Ruling

9. Upon consideration of the evidence authorities and submissions from the parties, I have decided to allow Mr. Chong’s application.  My reasons appear in below.

Reasons

10. The relevant principles under Order 43 rule 1 RHC are succinctly summed up by Chu J. in Hollingworth v Juson [2006] 3 HKC 488.

“	Held, ……
	(1)	It was immaterial that O 43 r 1 was rarely invoked.  In general, if a party was under a duty to account, the court might order an account unless it was satisfied that there was some preliminary question to be tried ……
	(2)	……
	(3)	For the purpose of considering this application, it was not necessary, nor was it appropriate, for the court to conclude on the propriety of the defendant’s dealings with the plaintiff’s finances.  The court only needed to determine whether the defendant had given adequate and full account.  The plaintiff had demonstrated that the defendant’s previous account was inadequate, and that a full consolidated account was called for ……”

11. There is no dispute by the Plaintiff that he is not under a duty to account.  Under the existing pleadings before this Court, a partnership did exist and the Plaintiff was responsible for the US business.  There is no preliminary question to be tried in this respect.

12. While appreciating the complaint by the Plaintiff of the inconsistent stance towards the partnership, I agree that both parties as well as this Court cannot go beyond the pleadings.  The affidavit evidence of the 1st Defendant might affect his credibility at the trial of the present proceedings, but is insufficient to persuade me, in exercising my discretion, not to order for an account in the circumstances.

13. Further, it appears to me that discretion lies on the 1st Defendant in this application.

(a)	As pointed out by Mr. Chong,
	“…… there is justification for D1 seeking an order for an account of the partnership business relating to the 2 USA companies as a goods and cash to the value of over $25 million has been injected by P into these 2 USA companies which were, and still are, being controlled by him and their recoverability have been doubted by the auditors of the Hong Kong companies.  D1 is entitled to know how the alleged loss of the entire sum of $25 million has occurred.”
	(Paragraph 34 of Mr. Chong’s skeleton)
(b)	The auditors of the partnership business have also opined that:
	“However, the evidence available to us was limited because we were unable to obtain sufficient information relating to two subsidiaries, Pacific American Products, Inc., and United Pacific (USA) Inc., so as to assess the recoverability of the amounts due from them amounting to HK$21,413,553 and HK$3,214,851 respectively.  Moreover, there was no adequate information provided to us relating to four subsidiaries, Pacific American Products, Inc., United Pacific (USA) Inc., Yuexinghua Stainless Steel Products Company Limited and Zhao Qing United Pacific Metalware Factory Limited, of which the former two were established in USA and the other two were established in the PRC, so as to assess whether any provision is required in respect of the investments in the subsidiaries which amounting to HK$9,438,000, HK$1,548,000, HK$4,489,200 and HK$5,655,000 respectively.”
	(Auditor’s Report dated 26 August 2005)
(c)	Mr. Law argued that the matter should be left to be decided at the trial.  The Defendants should also account for their profits made.  I respectfully disagree.  Although the trial judge must be a better position than me to deal with the parties’ dispute, it is not right to leave everything until trial if something can be resolved at interlocutory stages.

14. Finally, the parties also had a dispute as to whether the accounts, if I would order them to be provided, should be made in accordance with the practice of Hong Kong Society of Accountants (“HKSA”).  Mr. Law argued that it was not necessary.  Mr. Chong replied that it was to the advantage of the Plaintiff as the practice of US would even be more stringent.  After thoughts, I believe that the reference to the practice of HKSA is not necessary.  On the one hand, the qualification of “true and proper account” is of vital importance and sufficient to impose the necessary standard that the Plaintiff should attend.  On the other, since they are businesses conducted in US, I presume that accounts should have been and should be prepared according to the law and practice therein.

Conclusion

15. In the circumstances, I order that the Plaintiff do, within 42 days of the date of this Order, provide a true and proper account of that part of the partnership business referred to in Paragraph 4 of the Statement of Claim conducted in U.S.A. through (a) the United Pacific (USA) Inc. and (b) the Pacific American Products Inc. and that the same be verified by an affirmation/affidavit to be affirmed/sworn by the Plaintiff.

Costs

16.  Parties have not addressed me on the question of costs.  Nonetheless, applying the normal rule of costs follow event, I make an order nisi that the Plaintiff shall pay the 1st Defendant costs of the application relating to Order 43 rule 1 RHC, including all costs reserved and Certificate of Counsel for hearing on 13 July 2007, to be taxed if not agreed, in any event.  As to the remaining application under Order 29 rule 11 RHC, costs will be reserved.