LO SHEA CHUNG AND ANOTEHR v. KWONG CHEUK HIM AND OTHERS

IN THE COURT OF APPEAL

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J U D G M EN T

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1. The most important issue in this appeal is whether a partnership formed for the purpose of selling vehicles to a Guangzhou company comprised only the two defendant appellants. It was the case of the two plaintiff respondents that they too were partners. The trial judge found that it was a four-man partnership.

2. The question arose in this way. According to the oral evidence given by the plaintiffs, which the trial judge accepted, in about September 1984 the two defendants made overtures to the plaintiffs to see whether that latter pair might be interested in teaming up with the defendants as a quartet to form the Hong Kong side of a joint venture with the Whampoa Agriculture Forestry and Irrigation Service Company of Guangzhou. In either September or October of the same year, the two plaintiffs and the two defendants agreed amongst themselves that the Hong Kong party should be described as "Kwok Wah Motor Development Company". That was the name in which the Hong Kong party finally entered into an agreement with the Guangzhou company for the establishment of a joint venture called the Nan Hua Motor Vehicle Assemblies and Repairs Development Company. In time, the partnership was transformed by the four partners into a limited company, first called the Link Forward Development Ltd., and then the Kwok Wah Development Ltd.

3. It is the defendants' argument that the documentary evidence shows clearly a two-man partnership and not four. For example, the application for business registration dated 28th November 1984 refers to the two defendants as partners and makes no mention of the plaintiffs. This is non sequitur. As the learned trial judge found: "What appears on the face of the application ... is by no means conclusive as to who in reality were the partners. It was simply that Plaintiff 1 and Plaintiff 2 were not named in that application."

4. Other documents were also referred to as being inconsistent with a four-man partnership. In our view once the judge had found, both on credibility and inherent probability that all four parties were partners, his findings relating to events which followed the forming of that partnership fall into place.  Counsel for the defendant appellants invites us to say the documentary evidence is inconsistent with a partnership comprising the plaintiffs and the defendants. We are not prepared to go that far. Whilst it is true that some of the documents might point to a two-man partnership, they are not incompatible with a four-man partnership. The judge's finding was supported by the parties' accountant Mr. Lau Dick Pau, who met the plaintiffs and the defendants in December 1984. Mr. Lau said in evidence: "Both P1 and 2 were there. Two other men were also there. That was the first time I had met them.  They are D1 and 2. They mentioned to me the four of them had a joint venture agreement to sell vehicles to China. ... Then that four said they wanted to carry on the business using a limited company rather than a partnership."

5. On the oral evidence of the plaintiffs and the accountant, coupled with the documentary evidence, the judge was perfectly entitled to come to the view that the plaintiffs and the defendants were partners in a partnership and that the defendants procured the agreement with the Guangzhou company not just on behalf of themselves but also on behalf of the two plaintiffs, the whole idea being that the four of them would form a limited company to take over the contract. Putting it in another way the judge observed that a common sense inference arises that the agreement with the Guangzhou company was entered into for the benefit of the limited company which the plaintiffs and the defendants intended to form. That limited company was Kwok Wah Motor Development Ltd.

6. The judge also found a series of conduct on the part of the two defendants which amounted to a breach of fiduciary duty since they claimed the benefit of the agreement with the Guangzhou company for themselves when the true position was that that benefit belonged to the Kwok Wah motor Development Ltd. The defendants do not deny the conduct complained of but argue that since it was a two man partnership which entered into the agreement, they were entitled to conduct themselves as they did, for their own benefit.

7. Finally Re Northumberland Avenue Hotel Co. (1886) 33 Ch. D. 16 was relied on. It was submitted that as there was no resolution or ratification by either of the two subsequently formed limited companies of "the hotly disputed averment by the Respondents (Plaintiffs) that the Appellants (Defendants) agreed to include the Respondents as un-named co-partners or were happy to give up the benefits of the two-man partnership in favour of the four of them being shareholders in Kwok Wan Limited (sic)," the limited company was in no position to take over the contract. The authority cited would have been relevant if the dispute was between the limited company and the Guangzhou company. It is not relevant to the issue before this court, which deals with the interna1 relationship between the partners themselves.

8. For these reasons we dismissed the appeal with costs.