At the beginning, in this case, we may identify two issues needed to be discussed. The first one is whether Kwan or Lau&Kwan Co. would be liable for the debt incurred by Lau. The second issue is whether Lau&Kwan Co. has established a place of business in Hong Kong.
In the light of s.7 of the Partnership Ordinance, “acts of every partner, who does any act for carrying on in the usual way business of the kind carried on by the firm, bind the firm and his partners, unless the partner so acting has no authority to act for the firm in the particular matter”. That is, Lau and Kwan are both liable for the debt owing to Cheung & Co., Kwan has not been informed though.
Thus, for Cheung & Co. to be able to hold the partnership liable for the debt incurred by Lau, she may need to prove that the followings are being satisfied: (1) The purchase of silk by Lau had been done in relation to the business (sale of antique) of Lau & Kwan Co. (2) The purchase of silk must be such as would be usual for carrying on that business in the usual way; and (3) The act must be done by Lau as a partner, and so understood by Cheung & Co.
If the above requirements are all satisfied, the firm (and Kwan) “will be bound even though the activities of the individual partner constitute a fraud on his co-partners, unless the third party is privy to the fraud.”, as clearly stated in sections 8 and 17 to 18 of the partnership Ordinance. First and foremost, in Polkinghorne v Holland , the plaintiffs and the defendant are partners in a business. Their business had finally incurred a huge loss as the defendant has made a one-side investment decision. It was held that the all the partners were liable for the debt. "His partners are responsible, notwithstanding that it is done fraudulently and for his own benefit, as the investment advice was within the 'usual course of business' of that firm" The Lord explained.
Therefore, for Lau and the creditors to hold the partnership liable for the debt, they had better to give evidence that the purchase of the silk is related to the business, say, the silk is a New Year gift send to its major clients. Conversely, Kwan may claim that the purchase of the silk is not related to the business, and the silk is only for Lau’s own enjoyment instead.
On the other hand, in Goldberg v Jenkins, the court held that the borrowing of money by a partner at an extortionate rate of interest (60% per annum) was “an unusual transaction” and the lender “ought to have been put on inquiry that the partner would not have authority.”
Thus, for Lau (and the creditors), they may claim that purchasing silk is “an usual transaction”, say, sending silk as gifts to clients is their usual business practice. In the contrary, Kwan has to prove that this is not a usual transaction to send silk for business socializing. Furthermore, to hold the partnership liable, Lau and the creditors have to prove that the purchase of the silk is an act done by Lau on behalf of the partnership or as a partner, and this is understood by Cheung & Co.
Last but not least, the possible remedy available to Kwan is the dissolution of the partnership and suing Lau for breach of the partnership agreement and his duties (fiduciary) as a partner.
In accordance to the section 332 of the Company Ordinance, a non-Hong Kong company is “a company incorporated outside Hong Kong which established a place of business in Hong Kong.” ,whereas section 341 defines a “place of business” to “include a share of transfer or share registration office and provides that any office stated in Sch 24 is excluded.” Whether a company has “established a place of business” is always a question considered by court.
In the leading case The Artemis v Artemis Transportation Corp (1983), the court has suggested 3 matters to be considered in proving the existence of a “place of business”: (1) The acts relied on to show that an agent is carrying...