WONG KAY CHUEN PIUS v. CHU CHUK KEUNG

HCA 6372/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 6372 OF 1997

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J U D G M E N T

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Introduction

1. The background facts leading to this action are undisputed and can be summarised as follows. The Hong Kong Housing Authority wanted to install closed circuit television systems in the common areas (such as the lift lobby) of about 60 public housing estates. Shun Cheong Electrical Engineering Co. Ltd. ("Shun Cheong") was the main contractor of the said project. The defendant was one of the sub-contractors and responsible for supplying, affixing and placing monitor racks (to house the television sets) and equipment cabinets (to house the related equipment) at those housing estates. In order to fulfil that obligation, the defendant contracted with the plaintiff for the purchase of the said monitor racks and equipment cabinets under 2 agreements. The goods themselves were manufactured by a supplier in the mainland, one Nan Hai City Hua Dian Engineering Co. Ltd. (南海市華電工程有限公司) ("Hua Dian") in Nan Hai City. Hua Dian was sometimes called simply "Hua Dian Engineering Co. Ltd." (華電工程有限公司) in some of its own documents produced at trial.

2. The plaintiff claims in this action that all the goods under the said agreements were duly delivered and the defendant failed to pay the outstanding price. On the other hand, the defendant claims that the agreements were terminated by consent and the plaintiff has been fully paid (if not overpaid). The defendant further claims that the goods delivered by the plaintiff were defective and the defendant suffered loss as a result. A counterclaim was put forth based on those claims. The defendant also alleges that the plaintiff was overpaid.

The Parties' Pleaded Case

3. The plaintiff's pleaded case can be summarised as follows. The first agreement (called the "Oct 96 agreement" in this judgment) was entered into between the parties in about early October 1996. The agreement was concerned with the sale of 300 equipment cabinets (HK$3,400 each) and 316 steel monitor racks (HK$700 each) at a total price of HK$1,241,200 ex Nan Hai. Another agreement (called the "Feb 97 agreement" in this judgment) was entered into in about February 1997 for the sale of 47 monitor racks at a price of HK$32,900.

4. The goods (namely, 300 equipment cabinets and 363 monitor racks in total) were duly delivered between 6 December 1996 and 4 April 1997. Partial payment was made by the defendant leaving an outstanding balance of HK$712,100.

5. The defendant's pleaded case is briefly this. The defendant was only able to collect 145 equipment cabinets and 297 monitor racks under the Oct 96 agreement (at a value of HK$700,900). Despite the incomplete delivery of goods, the plaintiff asked for full payment under that agreement in about mid-February 1997. The defendant refused the request and the parties agreed that the Oct 96 agreement should be terminated with immediate effect. The parties also agreed that the defendant would then be at liberty to purchase the remaining goods under the Oct 96 agreement from Hua Dian directly. HK$710,000 was paid by the defendant in total under the Oct 96 agreement.

6. The defendant then entered into the Feb 97 agreement in early February 1997 with the plaintiff for the supply of 47 monitor racks. Two or three days after the execution of the document which evidenced the Feb 97 agreement, the plaintiff again asked for full payment thereunder. The defendant also refused that request and it was agreed that the Feb 97 agreement was to be terminated and the defendant be at liberty to purchase the goods from Hua Dian. Nothing further was due and owing to the plaintiff.

7. Thereafter, the defendant placed orders directly with Hua Dian for a total of 155 equipment cabinets and 66 monitor racks between 21 February and 4 April 1997. Full Payment in the sum of HK$569,000 was made by the defendant to Hua Dian. Although it is not material to the issues herein, it would appear if the price paid was HK$569,000, the number of monitor racks should be 60 (rather than 66). The price of 66 monitor racks (together with 155 equipment cabinets) should be HK$573,200 (and not HK$569,000).

8. The defendant contends that the plaintiff had breached the Oct 96 agreement. The plaintiff also failed to duly pay Hua Dian resulting in Hua Dian refusing to release the goods to the defendant in about late December 1996. The defendant has to undertake to Hua Dian to make payment on the plaintiff's behalf. As a result, HK$186,500 was paid by the defendant on 10 and 20 April 1997.

9. Further, the goods supplied by the plaintiff were defective resulting in loss to the defendant. The loss as assessed by the defendant is about HK$157,300.

10. The total amount of payment made by the defendant to the plaintiff is also disputed by the parties. At the end of the trial, the plaintiff accepts that HK$657,130 has been paid, leaving an outstanding balance of HK$616,970. On the other hand, the defendant claims that HK$710,000 was paid directly to the plaintiff, HK$569,000 was paid to Hua Dian when the defendant collected goods from Hua Dian and another HK$186,500 was paid to Hua Dian for the plaintiff. Hence, all together HK$896,500 (710,000 + 186,500) was paid either to (or for) the plaintiff by the defendant. No counterclaim was brought for the over-payment until the Re-Re-Re-Amended Defence and Counterclaim was filed on 3 May 2001 (nearly 4 years after the action was commenced).

Credibility of Witnesses

11. The determination of the disputes in this action turns largely on an assessment of the credibility of the witnesses respectively called by the parties at trial.

12. Witnesses for the plaintiff included the plaintiff and Mr Ng Kwan Shek ("Ng"). Ng was the defendant's former site foreman and supervisor engaged by the defendant to assist in the closed circuit television system project.

13. Witnesses for the defendant included the defendant, Mr Cheung Lap Ping ("Cheung") and Ms Yip Chui Han ("Yip"). Cheung is the person in-charge of Hua Dian and Yip was the defendant's former personal assistant. According to Yip's testimony, her duties included the administration work of the defendant's business and she also prepared documents such as purchase orders, delivery orders and cheques for the defendant.

14. The witnesses' credibility will be discussed under the headings below as and when appropriate. For the avoidance of doubt, although this aspect is discussed under separate headings below, credibility has also been assessed globally by considering the totality of the evidence adduced before the court. Further, the burden falls of course on the plaintiff to prove his claim.

15. Overall, I find the plaintiff's witnesses to be truthful and reliable but find the defendant's witnesses to be either untruthful or unreliable. I have already considered the criticisms levied by defence counsel against the plaintiff when so concluding.

16. Before dealing with the issues specifically raised at trial, and while still on the subject of credibility, Cheung's position is different from the other witnesses in that he has signed several documents in the nature of witness statements at different times. There was firstly a 3-page document dated 6 December 1999 in Chinese which was prepared at the plaintiff's request. This was followed by another Chinese document dated 29 March 2000. Lastly, Cheung signed a 6-page witness statement in Chinese (dated 14 March 2001) at the defendant's request. Cheung's versions of events differ not only from the plaintiff's witnesses, they also differ in his said statements.

17. In the 6 December 1999 "statement", Cheung regarded the plaintiff to be Hua Dian's purchaser all along. In particular, Cheung said in the document:-

"於大概３月下旬，[被告]突然致電給我，要求直接跟我安排提取貨尾 ...

我和[被告]並不認識，而且貨尾是[原告]跟我訂的，所以我覺得[被告]的要求很不合理 ...

我只好打電話给[原告]，告訴他事情的始未。幸好，他也了解到我司的難處。所以，他不反對我安排[被告]到本廠提取貨尾 ...

另外，在[被告]付貨款之前，他曾要求我補簽２張訂貨合同，我為收貨尾的款項只好簽下 ...

[被告]總共向我司付出大概１０萬人民幣作為提取貨品的款項。本人現再次確認這筆款項是我司代[原告]收取，用來支付[原告]欠我司的部份貨款。"

On the other hand, in the 29 March 2000 "statement", Cheung stated inter alia that Hua Dian had entered into 2 agreements with the defendant, one was on 18 February 1997 and the other was on 4 April 1997. In the 14 April 2001 statement, Cheung said (at para. (10) thereof and from (14) onwards) that since mid-February 1997, Hua Dian dealt directly with the defendant regarding the payment and delivery of goods. Cheung said since then, the goods were ordered by the defendant directly.

18. I consider Cheung has contradicted himself in the above documents regarding whether there was/were any direct agreement(s) between Hua Dian and the defendant. I do not find him to be a credible or reliable witness for this reason (in addition to other reasons set out below).

Was the Retention Money Due and Payable?

19. It is undisputed the parties signed a Chinese document headed "PURCHASE ORDER" dated 25 October 1996 which, according to the plaintiff, evidenced the Oct 96 agreement. It was provided inter alia that 5% of the purchase price (HK$1,241,200), namely, HK$62,060, was to be retention money and only payable 3 months after all goods have been delivered. Similarly, the Feb 97 agreement was evidenced by a "PURCHASE ORDER" dated 17 March 1997 (but which does not contain the same terms).

20. The defendant argues that the part of the plaintiff's claim relating to payment of the retention money was premature at the time when the writ herein was issued, namely, 16 June 1997. This is because (so the defendant contends) according to the plaintiff's own case, the last batch of monitor racks was only delivered on 21 March 1997 and the last batch of equipment cabinets on 4 April 1997. The 3-month period has not yet expired when the writ was issued.

21. On the other hand, the plaintiff submits that although this was one of the written terms, the subsequent dealings between the parties (as disclosed in the evidence adduced at trial) shows that the parties did not follow strictly the written terms. For example, despite the provision in the Oct 96 agreement that the instalment payments were only due 45 days after delivery and presentation of an invoice, payments were actually made without any invoice.

22. In view of the court's acceptance of the testimony of the plaintiff's witnesses and the findings (set out herein), I agree with the plaintiff's argument.

Were the Agreements Terminated by Consent?

23. This issue took up a considerable part of the trial. Quite some time was spent on the examination and cross-examination of witnesses, namely, the plaintiff on the one hand and the defendant and Yip on the other regarding this aspect. The testimony of Cheung is also relevant to this issue. I do not find the version given in the testimony of the defence witnesses to be credible for the following reasons.

24. First, it is undisputed that the defendant, through Yip (the defendant's then personal assistant), signed (and acknowledged receipt in) an undated delivery note prepared by the plaintiff. Two versions of this document were produced at trial: the plaintiff's copy was dated 8 January 1997 and the defendant's copy was undated. There is also dispute as to when the delivery note was signed: the plaintiff testified it was signed in March 1997 (and the date was inserted mistakenly) while Yip said it was signed in January 1997. The contents of the document are however undisputed and the relevant part read:-

DELIVERY NOTE DETAIL QTY 儀器鉄柜 249 PCS. 電視吊柜 318 PCS.

[The Chinese characters and quantities were hand-written whereas the other parts were printed or typed].

25. It is common ground that, although there was an agreed time for completing the delivery of all the goods under the Oct 96 agreement, it was intended that the goods would be delivered in lots as and when they were ready for collection at Hua Dian. There was no fixed schedule for the delivery of goods under the Oct 96 agreement whether as to time or quantity. It is also common ground that the goods under the Oct 96 agreement were in fact delivered in lots. The quantities of (as opposed to the dates when) the lots delivered are undisputed and "Appendix I" attached to this judgment shows the details for each lot. The number of goods actually delivered between 6 December 1996 and 13 March 1997 tallies with those set out in the delivery note. The delivery note could not have been prepared before 13 March 1997 (let alone in January 1997) because the quantities to be delivered were not known in advance.

26. With the above in mind, I find that the delivery note must have been signed by Yip (for the defendant) to acknowledge the goods delivered some time after about 13 March 1997. I therefore accept the plaintiff's testimony when he said the delivery note was signed in mid-March 1997.

I reject Yip's testimony to the effect that the document was "pre-signed" in January 1997 (when only 145 cabinets and 297 racks were delivered) upon the plaintiff's promise that the (then) outstanding goods would be delivered in due course.

27. The fact that Yip signed the delivery note in mid-March 1997 makes the defendant's story that the Oct 96 agreement and Feb 97 agreement were terminated well before mid-March 1997 incredible. In addition, the defendant's story that the Oct 96 agreement was terminated in mid-February 1997 is also unconvincing for another reason.

28. According to the defendant, shortly after the alleged termination of the Oct 96 agreement, he decided to enter into the Feb 97 agreement with the plaintiff. By then, the defendant has already been collecting lots of the goods under the Oct 96 agreement from Hua Dian. The Oct 96 agreement was allegedly terminated because the plaintiff wrongfully asked for full payment of the purchase price before the delivery of all the goods had been completed. When the parties agreed to the termination of the Oct 96 agreement, allegedly it was also agreed that the defendant could purchase goods from Hua Dian directly without the need to go through the plaintiff. In these circumstances, there was no conceivable reason why (and hence it is inherently implausible that) the defendant would still enter into the Feb 97 agreement.

Delivery of the Goods

29. There is no dispute that 104 equipment cabinets and 21 monitor racks were collected by the defendant from Hua Dian between 21 February and 13 March 1997. There is also no dispute that 51 equipment cabinets and 45 monitor racks were collected by the defendant on 21 March and 4 April 1997. The dispute is whether they were supplied under the Oct 96 agreement and Feb 97 agreement, or under a direct agreement made between the defendant and Hua Dian.

30. Because I found that the 2 agreements made between the plaintiff and defendant had not been terminated as alleged, it follows that the goods collected by the defendant since 21 February 1997 were collected pursuant to the said agreements. Further to this, I reject the defendant's case for the following additional reason.

31. Cheung agreed in his testimony that Hua Dian's delivery notes had several copies, one of which was for the retention of the customer. In this action, that would be the plaintiff and/or the defendant. He also agreed the customer copy of the delivery notes were given to, and retained by, the plaintiff. This is another reason for accepting the plaintiff's evidence.

32. Accordingly, I find that the defendant's collection of the goods from Hua Dian only reflected the parties' agreed mode of delivery under the Oct 96 agreement and Feb 97 agreement. I do not accept the defendant's assertion that this evidenced the said 2 agreements have been terminated by consent of the parties. The fact that the delivery notes were signed by the defendant is therefore not of much significance.

33. I also find that the lots of goods delivered were as set out in "Appendix I" (both as regards quantities and dates).

Was there Direct Sale and Purchase between the Defendant and Hua Dian?

34. Apart from what has been set out above, there is another matter which indicates that the defendant's case is not credible. The defence has adduced and relied upon 2 documents, respectively dated 18 February 1997 and 4 April 1997, which purported to be the contracts between the defendant and Hua Dian. These documents were admitted by the defendant and Cheung to have been signed only after this action was commenced. The plaintiff asks the court to note that the 2 documents were only discovered by the defendant in August 1998.

35. I do not find that there was any direct sale and purchase between the defendant and Hua Dian.

How Much was Paid by the Defendant to the Plaintiff?

36. It is undisputed that HK$470,000 has been paid by the defendant to the plaintiff on 5 occasions. The following payments are however disputed: the alleged payment of HK$30,000 on 10 January 1997 and of both HK$200,000 and HK$10,000 on 1 February 1997.

37. The defendant's story that the disputed payments were made was supported by the testimony of the defendant and Yip. The defendant and Yip differ as to the circumstances under which the payment was made to the plaintiff on 1 February 1997. The plaintiff contends that the endorsement of the HK$200,000 cheque by the defendant makes the defendant's case incredible. The defendant explained that the plaintiff was in a hurry on that day. He therefore paid the plaintiff HK$10,000 by cash and he went to the bank to withdraw HK$200,000 while the plaintiff went elsewhere. The defendant testified that he paid the plaintiff HK$200,000 later that day in a restaurant in Yip's presence. According to Yip, however, she went to the bank together with the defendant and the plaintiff to withdraw HK$200,000. If the plaintiff were in the bank, there was no apparent reason why the cash cheque was not endorsed by him, but by the defendant.

38. There is also a problem with the defence case regarding the payment on 10 January 1997. According to Yip, it was the practice that she would need the plaintiff to sign on a copy of the cheques payable to him. The HK$30,000 cash cheque was however not endorsed by the plaintiff. The defence has not produced any copy cheque which has been signed by the plaintiff either.

39. I do not accept the defendant's case relating to the disputed payments. The parties' respective case on payment made by the defendant to the plaintiff is set out in "Appendix II" for ease of reference. By reason of the aforesaid matters, I find that the amount which has actually been paid is as contended for by the plaintiff (see the sums under the column "Plaintiff's case" in "Appendix II").

How Much was Paid by the Defendant to Hua Dian?

40. The plaintiff accepts there were 2 payments to Hua Dian made by the defendant for the plaintiff: RMB99,360 and RMB102,740. The alleged payment of HK$186,500 is however in issue.

41. The defendant relies on 5 receipts as evidence of the disputed payment. I agree with the plaintiff's criticism of these documents because, although they were apparently issued by Hua Dian on different occasions, their reference numbers were sequential. The explanation of the defence is that these receipts were issued by Hua Dian from a receipt book specifically for the defendant is unconvincing. I do not accept such an explanation.

42. The plaintiff also criticizes the defendant's allegation (at trial) that HK$186,500 was paid to Hua Dian pursuant to the defendant's personal guarantee given in return for goods delivered on 8 and 10 January 1997 on the ground that this was not mentioned in the "Further Answer to Further Request for Further and Better Particulars of the Re-Amended Defence and Counterclaim dated 4 November 1997" (itself dated 4 August 1998).

43. This part of the defendant's case is also not accepted.

Defendant's Counterclaim

44. As stated earlier, apart from the claim for over-payment, the counterclaim is based on alleged defects in the goods supplied by the plaintiff. I note that the alleged defective goods were supplied by the same manufacturer, namely, Hua Dian. Rather strangely, despite the alleged defects, the defendant continued to obtain the goods from Hua Dian even after he terminated the 2 agreements with the plaintiff.

45. Altogether 10 items of complaint about the goods were relied upon by the defendant. They are set out in the table below.

46. By and large, the plaintiff does not dispute the existence of the items of complaints as such but denies that he should be held responsible. For example, in relation to:-

(1) item (a) (rusting of screws);

(2) item (c) (incorrect size of the mounting bracket for fixing screws);

(3) item (d) (improper hinge of doors of equipment cabinets),

the plaintiff's case is that they were trivial defects which were rectified at minimal costs. Item (b) was caused by vandalism or naughty children. Item (g) was the result of rough handling by the workers. Item (i) was not part of the plaintiff's responsibility.

47. In relation to liability, I accept the testimony of the plaintiff's witnesses, especially Ng, and reject the evidence of the defence. The defendant also relies on documents, such as letters of complaint from the Housing Authority and Shun Cheong. I accept Ng's explanation about these documents (set out in Ng's witness statement). Counsel for the plaintiff also argues that the anchor bolts complained of were not supplied by the plaintiff and that the problem about the fixing screws was admitted by the defendant to be uncommon. I also accept these arguments.

48. The over-payment claim has already been rejected earlier under the headings "How Much was Paid by the Defendant to the Plaintiff?" and "How Much was Paid by the Defendant to Hua Dian?". I therefore conclude that the defendant has failed to establish liability regarding the counterclaim.

(1) Quantum of Loss of the Counterclaim

49. Even if the defendant were able to establish liability, he would still have failed to properly establish his loss. The sum claimed is in effect an estimate without independent support because the defendant said in his testimony that he did not keep any wage record about the counterclaim until this action was brought. I agree with the plaintiff's criticism that the wage records and particulars of pleading in support of quantum were only provided at a late stage: both were produced or given in May 2001.

Conclusion

50. Judgment is entered against the defendant in the sum of HK$616,970. The counterclaim is dismissed.

Costs

51. There is no apparent reason to depart from the usual rule that costs should follow the event. There will be a costs order nisi pursuant to RHC Ord. 42 r. 5B(6) that costs of the action be paid by the defendant to the plaintiff to be taxed if not agreed. To avoid doubt, costs of the action include costs of the plaintiff's claim and those of the counterclaim. The plaintiff's own costs are to be taxed in accordance with the Legal Aid Regulations.