TONG CHOI YAU v. KONG, SIN MAN (also known as SIN MAN KONG, KEN S KONG, KENNETH S KONG and SINMAN S KONG)

HCA 1056/2014

[2019] HKCFI 640

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1056 OF 2014

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J U D G M E N T

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Introduction

1.  The plaintiff claims against the defendant under an agreement dated 18 June 2008 between the plaintiff, Vicstar International Inc (“Vicstar”) and the defendant under which the defendant agreed to pay the sum of US$668,457.01 (“the Debt”) by instalments (“the Agreement”).  According to the terms of the Agreement, Vicstar acknowledged that it owed the Debt to the plaintiff.  The plaintiff assigned the Debt to the defendant, and in return the defendant agreed to pay the plaintiff a sum equivalent to the Debtby monthly instalments from date of the Agreement to end of February 2010. The plaintiff says that the defendant has not paid the instalments.

2.  The defendant denies that he was a party to the Agreement and denies that he had ever executed the Agreement.  He further denies the existence of the Debt as between Vicstar and the plaintiff, that he had never received any notice of the assignment of the Debt whether in his own capacity or on behalf of Vicstar.

3.  This is the trial of the action between the plaintiff and the defendant.  At the heart of the dispute between the parties is whether the defendant actually executed the Agreement.  The background as to the Debt and the relationship between the plaintiff and the defendant and indeed Vicstar is also in dispute.  The background is relevant to the main issue insofar as it sheds light on the inherent probabilities.  Both sides’ versions are diametrically opposed.  There is little common ground between the parties.  It is ultimately a contest of credibility.

The Agreement

4.  The Agreement is expressed to be between the plaintiff defined as “Creditor”, Vicstar defined as “Debtor” and the defendant defined as “the First Assignee”.  (Although there is mention of a “Second Assignee”,such party is neither defined nor actually expressed to be a party.)

5.  The Agreement is a short agreement comprising of just three pages, of which the third page is the execution page.  Although short, it is expressed in formal language of the sort which would normally be associated with the involvement of lawyers in the drafting.  The substantive parts of which are succinctly set out in four paragraphs:

“ 2. Acknowledgement of existing debt

Whereas the Debtor hereby acknowledges that it is indebted to Creditor for the sum of USD668,457.01 in respect of the loan advanced (‘the Debt’).

3. Assignment of the USD668,457.01 of the Debt to the First Assignee

Creditor assigns to the First Assignee absolutely all the rights, claims, titles and interest etc whatsoever Creditor has againstthe Debtor in respect of the USD668,457.01 of the Debt with the following terms and conditions:

The First Assignee shall pay the sum of USD668,457.01 to the Creditor by monthly installments until the end of February 2010

4. Acknowledgment of assignment of Debt

The Debtor hereby acknowledges that due notice has been given for the assignments of the Debt by Creditor to the First and Second Assignees as set out above by signing this Agreement.”

6.  On the execution page, the plaintiff signs as Creditor, the defendant is expressed to sign firstly as director on behalf of Vicstar, and also on his own behalf.  There is expressed to be a witness who also appears to have signed as witness, one Chan Lai Man.

The plaintiff’s case

7.  The plaintiff owned and operated a garment manufacturing company called Daily Fine Industrial Limited (“Daily Fine”).  Vicstar was first introduced by a middleman company called Paway International Limited (“Paway”) to do business with Daily Fine in 2004.  The person in charge of Paway was Mr Cheng Fai Wah (“Cheng”).  Cheng introduced the defendant to the plaintiff as being the owner of Vicstar.

8.  Vicstar would order goods from Daily Fine, with Paway acting as a middleman which would liaise concerning the details of the orders.

9.  Business initially was smooth, but from around June 2006, Vicstar started to delay in its payment for goods ordered from Daily Fine.  By July 2007, Vicstar was indebted to Daily Fine in the sum of US$742,098.01.  Daily Fine refused to continue trading with Vicstar in view of the sums outstanding.

10.  The amount outstanding in favour of Daily Fine was reduced by two payments, one in December 2007 in the sum of US$50,000 and another in February 2008 in the sum of HK$200,000, leaving a sum of US$668,457.01 still outstanding.  In view of the partial payments, the defendant requested the plaintiff to let Daily Fine continue to trade with Vicstar.  However, the plaintiff refused to continue Daily Fine’s trade with Vicstar in view of the substantial sum still outstanding. 

11.  The plaintiff then heard that Vicstar was in great financial difficulties as other suppliers to Vicstar were not being paid and also refused to trade with Vicstar.

12.  In view of this information, the plaintiff contacted the defendantrequesting the defendant make himself personally liable for Vicstar’s debts. The plaintiff offered in return to cause Daily Fine to resume supplying goods to Vicstar.  The defendant accepted this proposal.

13.  As a result, the plaintiff instructed solicitors to prepare the necessary documentation and the Agreement came into being.  It was signed by the defendant while the administrative officer of Daily Fine Miss Chan Lai Man (“Chan”) was standing in the next room which was separated by a glass partition.  The defendant also provided his Hong KongIdentity Card which was inspected by the plaintiff.  After both the plaintiff and the defendant signed, Chan was asked to sign on the Agreement as witness.

14.  Despite the Agreement, Vicstar did not place any further orders with Daily Fine.  The plaintiff attributed this to Vicstar’s poor financial condition.

15.  In order to explain how it came to be that Vicstar’s debt to DailyFine became Vicstar’s debt to the plaintiff (as described in the Agreement),the plaintiff said that in order for Daily Fine to keep doing business with Vicstar, the plaintiff would have to personally support Daily Fine financially. The plaintiff was reluctant to do so, but agreed on condition that his [extra]financial input was guaranteed by Vicstar.  In return, he promised that his monetary input [into Daily Fine] would be used to settle the debt owed by Vicstar to Daily Fine.  Thus came about the debt between Vicstar and the plaintiff in substitution of Daily Fine.

16.  The objective of the defendant making himself personally liable for Vicstar’s debts was achieved by assigning to the defendant the debt owed by Vicstar, and the defendant promising to pay the plaintiff by monthly instalments.

17.  In the end, the monthly instalments did not materialize, hence he commenced the present action.

The defendant’s case

18.  The defendant’s case is different from that of the plaintiff’s in nearly all respects.  The defendant was and is in no way the “owner” of Vicstar.  He was not even a director or shareholder of Vicstar.  He had never been introduced or introduced himself as the boss/owner of Vicstar.

19.  He himself was employed by a well known leisure wear company as a consultant involved in the sourcing of garments from manufacturers based in Hong Kong and the Mainland.

20.  He was asked by his cousin Raymond Kong, director of Vicstar, to help investigate quality problems with garments which were sourced by Vicstar through Paway.  Vicstar supplied garments under the label of “Z Brand” to various department stores in the USA.  They were receiving complaints and had many goods rejected for quality problems.  Raymond Kong who knew that the defendant travelled often to Hong Kong and the Mainland and was very familiar with the garment business, asked the defendant to help Vicstar investigate and find the cause of the problems.

21.  The defendant then met with Vicstar’s suppliers through the introduction of Cheng.  One of the 6 – 7 suppliers he met with was Daily Fine in the person of the plaintiff.  He gathered the information from all the suppliers and then reported back to Raymond Kong.

22.  Prior to this exercise, he had no connection at all with the plaintiff.  He was neither an employee of Paway or Vicstar.  He was not paid to do this investigation which he did simply to help Raymond Kong.

23.  He had never signed the Agreement.  He seldom had contact with the plaintiff.  He did not have any private deals with the plaintiff, nor did he conclude any deals with the plaintiff representing any company.  The plaintiff was an ordinary friend/acquaintance only. 

Consideration of the issues

24.  A number of issues were raised by the parties, including whether the defendant was authorized by Vicstar to acknowledge indebtedness, whether Vicstar had acknowledged the assignment of debt,whether Vicstar owed Daily Fine the Debt, whether express notice in writingof an absolute assignment is required to be given pursuant to section 9 of theLaw Amendment and Reform (Consolidation) Ordinance (“LARCO”), etc.

25.  I do not intend to deal with all of the issues identified.  The issue on which this case is to be decided is whether the defendant executed the Agreement or not. If he did not sign the Agreement, he would not be bound.  There is no allegation of any other agreement except the signed Agreement.

26.  If he did sign the Agreement, he would be bound to pay US$668,457.01 to the plaintiff by monthly instalments over the next one and a half years.  He having signed on behalf of Vicstar, he would not be in position to say that he was not authorized by Vicstar to sign and so he received no consideration.  Similarly, he having acknowledged on behalf of Vicstar the Debt, he could not now challenge the same.  Whether the plaintiff settled the Debt owed by Vicstar to Daily Fine is a matter between the plaintiff and Daily Fine and does not affect the defendant’s obligation under the Agreement.

27.  In considering this primary issue, I am guided by the inherentprobabilities of the case.  There is a lack of contemporaneous documentation to assist in my consideration.  However, this lack of documentation itself is a matter which I take into account.

28.  The burden of proof is on the plaintiff.  The standard of proof is on the balance of probabilities.  I have been referred by the plaintiff’s counsel to the case of Nina Kung v Wang Din Shin (2005) 8 HKCFAR 387at [180] to [185], namely that in weighing up and assessing the probabilities in relation to forgery, the court must bear in mind the seriousness of the misconduct alleged, recognizing that it carries an inherent degree of improbability, and that where the court is invited to reach a conclusion of forgery as an inference to be drawn from circumstantial evidence, such inference must be grounded in the primary facts.

29.  These principles are not in doubt.  However, the application of those principles and how those principles came to be referred to by the Court of Final Appeal must be borne in mind.  The context under which those principles came about was where there was a challenge to the authenticity of a will, based not on direct evidence, but on circumstantial evidence with forensic experts in handwriting playing a major role.  However, the execution of the will was, on the other hand, proved by the direct evidence of an attesting witness.  It was in those circumstances that the Court of Final Appeal made the comments referred to.

30.  In Nina Kung, the person who executed the will was not available to give evidence.  This is to be contrasted with the present case,where it is a contest of the direct evidence between the plaintiff on the one hand and the defendant on the other, as to whether the defendant executed the Agreement.  In other words, it is a “simple” matter of who is the more credible, rather than whether there is sufficient evidence to displace the inherent improbability of forgery.

31.  Having considered the evidence, I am not satisfied that the plaintiff has proved his case to the requisite standard.  In coming to this conclusion, I rely primarily on the inherent probabilities of the case.

32.  On the plaintiff’s case, the Agreement arose because Vicstar owed Daily Fine over HK$5 million for unpaid invoices, and refused to trade anymore with Vicstar.  The plaintiff also heard that Vicstar was in financial difficulties and other suppliers also did not want to trade with Vicstar.  The Agreement was a way to secure the indebtedness, to make sure that the defendant would make himself personally liable to pay, in exchange for which Daily Fine would resume business with Vicstar.

33.  However, this purpose could be achieved by the defendant simply guaranteeing Vicstar’s debt.  There is simply no reason for such aconvoluted arrangement of Vicstar acknowledging that it owed the plaintiffthe Debt (instead of Daily Fine), the plaintiff then assigning the debt to thedefendant, and then defendant agreeing to pay the plaintiff.  The Debt was actually owed by Vicstar to Daily Fine, so the “acknowledgment” was something of a fiction at the time.  There is also no need for the plaintiff (or Daily Fine) to assign the Debt to the defendant.  The Agreement also does not address the one important feature which the plaintiff alleges was the reason why the defendant would agree to such an arrangement, namely the resumption of trading.

34.  The purported explanation by the plaintiff that this was all left to the lawyers who decided on this arrangement does not ring true.  It is difficult to imagine lawyers drafting a complicated agreement when a simple guarantee would suffice.

35.  Furthermore, the reliance on lawyers gives rise to its own evidential problems for the plaintiff.  In answer to interrogatories administered on behalf of the defendant regarding the identity of the lawyerwho was instructed to draft the Agreement, the plaintiff provided the name of a solicitors’ firm and the surname of the person who the plaintiff gave instructions to.  The defendant’s solicitors then wrote to the named solicitors’ firm requesting confirmation from them of the plaintiff’s version. That solicitors’ firm replied that after checking their record, they had not acted for any party to the agreement and had not drafted the agreement.

36.  When the plaintiff was questioned on this issue, he said that itwas his administrative assistant Amy Chan (the same person who allegedly witnessed the execution of the Agreement) who contacted the solicitors.  He further said that he did not decide whether or not to call the person from the solicitors’ firm, or the counsel who had purportedly drafted the Agreement as his witnesses, saying that he provided all the information to his present lawyers and it was not his decision whether to call a particular witness or not.

37.  I find this hard to accept.  The question of the execution of the Agreement was front and center in this case.  It would have been obvious to anyone that any evidence tending to confirm the execution of the Agreement by the defendant would be highly relevant.  Its relevance would be even greater once the solicitors’ firm had denied any involvement in drafting the Agreement, contrary to the plaintiff’s version.

38.  There is also no evidence whatsoever as to why the plaintiff would be satisfied with the defendant’s personal obligation to pay the Debt by instalments at a time when it seems very little was known about the defendant and more importantly his ability to pay.  Given that Vicstar was in financial difficulties, the defendant (who the plaintiff understood to be the owner of Vicstar) would be equally in financial difficulties. If Daily Fine were not willing to trade with Vicstar because of Vicstar’s financial difficulties, why would Daily Fine be willing to trade with Vicstar simply because the person who claimed to be Vicstar’s owner agreed to pay the Debt?

39.  The plaintiff’s version also does not make sense from the defendant’s point of view.  Assuming that the plaintiff’s version were true, the defendant was Vicstar’s owner.  Vicstar was in financial difficulties,owing Daily Fine (amongst others) large sums of money.  The defendant,however, was not personally liable.  Why would the defendant make himself personally liable just on a promise—which was not reduced to a contractual term—that Daily Fine would resume trading with Vicstar?

40.  The issue regarding the indebtedness of Vicstar to the plaintiff instead of to Daily Fine is also problematical.  This was first identified in the Amended Defence, where the defendant put in issue the consideration for the Agreement, contending that the Debt was between Daily Fine and Vicstar, and not between the plaintiff and Vicstar.  The plaintiff’s case, which was set out in the Amended Reply, was that the plaintiff has personally settled the Debt on behalf of Vicstar, so Vicstar owed the Debt to the plaintiff.

41.  In the plaintiff’s supplemental witness statement, it is not entirely clear how the Debt was personally settled, save that the plaintiff said that he had over a period of time settled the Debt. 

42.  The matter was elaborated in the plaintiff’s testimony that in fact, he paid in batches, paying Daily Fine’s suppliers instead of paying the money directly to Daily Fine, which was not the impression that the pleadings or indeed the witness statements gave.

43.  This issue of payment had already been flagged up in application for discovery of the payments.  I do not intend to go to the details of those applications and the plaintiff’s response.  Suffice to say that the plaintiff was unable to produce any evidence of payments, whether to Daily Fine, or to Daily Fine’s suppliers.

44.  The plaintiff’s explanation for this failure was that Daily Fine had been wound up, and all evidence of payments had been given to the liquidators of Daily Fine and so were not in the custody control or power of the plaintiff.  However, no explanation has been given as to whether the liquidators had been asked for copies, and no explanation had been given for the absence of those copies despite an assertion that the bank from which the payments were made had been asked for copies of those documents.

45.  All in all, I do not find the plaintiff’s version convincing.  The defendant’s version, on the other hand is not intrinsically incredible.

46.  In coming to this conclusion, I have not lost sight of the fact that the defendant’s case at trial bears little resemblance to his pleaded case, in that in the Amended Defence, the defendant pleaded that his involvement with the plaintiff was due to a specific Intended Sale and Purchase of garment products which had fallen through.  However, a similar criticism could be levelled in respect of the plaintiff’s evidence regarding how he made payment to Daily Fine.  In the Amended Reply this was said to be by the plaintiff in his personal capacity settling the Debtowed by the Vicstar to Daily Fine.  At trial, this became the plaintiff paying Daily Fine’s suppliers over a half-year period.

47.  It can be said that the evidence in the case, like in most trials, is not perfectly satisfactory.  However, I do find on the balance of probabilities that the plaintiff has not sufficiently proved his case.

48.  For completeness’ sake, I will deal very shortly with one particular point of law raised by the defendant, namely that section 9 of LARCO requires express notice in writing to the debtor in order for assignments of debt to be effectual.  I am of the view that section 9 of LARCO provides that express notice will make an assignment effectual,but lack of express notice does not mean an assignment will be ineffectual. In other words, it is a sufficient, although not a necessary condition.

Conclusion

49.  I dismiss the plaintiff’s claim and make an order nisi that costs of the action are to the defendant, to be taxed if not agreed.  Such order shall become absolute unless application is made to vary the same within 14 days from handing down of this judgment.

50.  Finally, I would like to thank counsel for their assistance, and render my apologies for the time taken in delivering this judgment.