HONG KONG AND OVERSEAS DEVELOPMENT COMPANY LIMITED v. YEUNG FAT CONSTRUCTION COMPANY

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS NO. 2520 of 1985

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JUDGMENT

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Background

1. The plaintiff is the owner of 11 town houses which were built for it by the defendant in Mount Austin Road. As is so often the case there were disputes between the parties and those concerning the quality of the construction were submitted to Mr Stewart King on the 12th November 1982. Mr King made an interim award and on the 8th March 1985 he made a final award in favour of the plaintiffs in the sum of $1,135,000. The award stated, however, that the amount should be paid to the respondent (the plaintiff in these proceedings) at a future date to be fixed by the award of a subsequent and separate arbitration to be done by Mr A.R. Hamilton. On the 24th March 1984 the matters still in dispute, but incorporating Mr King's award, were referred to Mr Hamilton for further arbitration, and on the 1st September 1985 Mr Hamilton issued an interim award and on the 1st November 1985 a final award in the sum of $3,335,150 in favour of the plaintiff.

2. The matter at issue, however, arises from the fact that at the time the original building contract between the plaintiff and the defendant was signed Mr Peter Kong was not a partner of the defendant firm and he only became a partner on the 27th January 1984 i.e. after the initial referral to Mr King but prior to the referral to Mr Hamilton.

The case for the Plaintiff

3. It is the case for the plaintiff that an arbitration award forms a separate and new cause of action and there is an implied agreement by the persons referring the dispute to arbitration to comply with any award made. As Mr Peter Kong was a partner of the defendant firm at the time of the referral to Mr Hamilton, he is personally liable for the amount of Mr Hamilton's award. They point out, in particular, that the reference to Mr Hamilton dated the 24th March 1984 was signed by Messrs Denton, Hall & Burgin "for and on behalf of the claimants", and that in July 1985 an originating summons was taken out by the Defendant as a Plaintiff and they are described as 'Yeung Ching-lam and Kong Tat Fat Peter trading as Yeung Fat Construction Company (a firm)'. This was a summons seeking to register the claimants' points of claim against the property as being a lis pendens within the meaning of the Land Registration Ordinance. They say that the arbitration before Mr Hamilton was conducted in the name of the defendant firm of which, at that stage, Mr Peter Kong was a partner. There is also a letter, exhibited to the plaintiffs' solicitors' affidavit, dated the 7th September 1984 addressed to Messrs Denton, Hall & Burgin, signed by both Mr Norman Yeung and Mr Peter Kong which refers to the arbitration proceedings pending between 'our firm' and the plaintiffs. This letter, however, goes on to say that Messrs Denton, Hall & Burgin are authorized to receive full instructions from Mr Norman Yeung and to pay to him all proceeds recovered in the proceedings. Mr Yeung is also to be solely responsible for all their costs.

The case for Mr Kong

4. It is the case for Mr Peter Kong firstly that as he was not a party to the contract he is not liable for any liability arising out of it, pursuant to section 19 of the Partnership Ordinance. The judgment is founded on the award, the award is not binding on Mr Peter Kong as he was not involved and therefore the judgment is also not against him. It is argued that the crucial point may well be the date when this matter was referred to arbitration in view of the fact that there were two such referrals. If the relevant date is the referral to Mr King then that was done prior to Mr Peter Kong joining the defendant firm and therefore he could not be liable. References are also made to correspondence between the solicitors for the parties in which it was made clear that while Mr Peter Kong had become a partner in the defendant firm, it was on the basis that he was not to be liable in any way in respect of any award made against the firm in relation to the building contract for the 11 town houses. It is argued for the defendants that this is a matter which should not be decided on summary proceedings but there should be a proper trial with full discovery of all relevant documents

Decision

5. The fundamental principle is that a partner is not liable for debts incurred before he joins the partnership. This is because when a new partner joins it is a fresh partnership but here there was no partnership at all until the 27th of January 1984.

6. The first question here is when did the Plaintiff's right of action arise, before or after the partnership was formed. In Agromet Motoimport Ltd. v. Maulden Engineering Co. (Beds) Ltd. (1985) 2 AER 436 Otton, J. had to consider the question of from what date did the 6 years allowed by the limitation act 1980 run when there had been a dispute referred to arbitration and an award made. He held that the cause of action begins to run from the date of the breach of the implied term to perform the award and not from the date of the accrual of the original cause of action. At p.433 he said:

"I am satisfied that I can and should adopt the approach of Mustill and Boyd. In my judgment the action on the award and the action to enforce and award is an independent cause of action. It is distinct from, and in no way entangled with the original contract were the breach occurring from it as reflected in the award".

I accept that as being correct.

7. Here there is the complication that there were two referrals, one before and one after the 27th of January 1984. This was a building contract entered into by Mr Yeung. There these disputes concerning poor workmanship, referred to Mr King and for delays, referred to Mr Hamilton, but it was one contract and I consider, that while it may well be arguable, the relevant dare of referral for the purposes of this application is when it went to Mr King i.e. 12th November 1982.

8. The plaintiff's argue however that Mr Peter Kong has also made himself liable by ratification and point in particular to the action which was brought in the names of the two partners seeking registration of their claim as a lis pendens against the land. I do not think there has been any such ratification. In a letter from the plaintiff's solicitors dated 23rd February 1984 they said "according to our records Yeung Far is a sole proprietorship owned by Mr Norman Yeung. Would you please let us know how, in the event of a transfer of the business, you would propose to deal with has rights and liabilities under the agreement which his given rise to the present disputes" ("Young'' is a clear typing error and should be "Yeung").

9. To this the defendant's solicitors replied on 27th February 1984 as follows : "we are instructed that Mr Norman Yeung has taken in a partner with 50% share of the proprietorship. However a condition of the partnership is that Mr Norman Yeung remains fully liable for any profit or liability arising under the contract at 5 Mt. Austin Road. "

10. There was no further correspondence indicating that the plaintiffs did not accept that position until July 1985 when the plaintiff endeavoured to register a charging order against a flat belonging to Mr Peter Kong. It was then claimed that as the arbitration before Mr Hamilton and the litigation had been carried out in the defendants firm name since 27th January 1984, both partners were liable.

11. I am satisfied that when the dispute was referred to Mr Hamilton it was on the basis of the letter from the defendant's solicitors of 27th February. The plaintiffs were then informed that Mr Peter Kong was not assuming liability for the contract and they did nor dissent from that. To constitute ratification that Mr Peter Kong was subsequently assuming such liability would, in my view, require a clear statement from him of that change. It is true that proceedings were brought and carried on in the names of both partners and an affidavit was sworn by Mr Yeung on 17th July 1985 stating that the arbitration was between the plaintiff and the then partnership but I do not consider that was an acknowledgement that the position regarding Mr Peter Kong had altered from what was stated in February 1984. I would require an affidavit or other document from Mr Kong before coming to that conclusion. In my view there must be an agreement or ratification by the new partner with the creditor before he becomes liable for debts incurred before he joined. By a letter dated 31st May 1985 the defendants solicitors stated that the position as stated on 27th February 1984 had not changed. This letter was in reply to a letter from the plaintiff's solicitors asking why accounts had been signed Mr Yeung as "sole proprietor" of the defendant firm. There seems to be no reply to that letter and I consider that the plaintiffs accepted only Mr Yeung was solely responsible for the debt.

12. I am satisfied that I should refuse leave to issue summary execution against Mr Peter Kong.

13. I will hear counsel as to any other order I should make.