XCHRX PERENNIAL CABLE (H.K.) LTD. v. POPBRIDGE INDUSTRIAL LTD.

HCA13354/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.13354 OF 1999

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J U D G M E N T

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The appeal

1. The plaintiff obtained summary judgment from the Master against the defendant for $1,062,953.40 with interest. The defendant now appeals against that decision.

The plaintiff's case

2. The plaintiff's case is based on the price of goods sold and delivered by the plaintiff to the defendant.

The defendant's case

3. The defendant's case is that the plaintiff cannot sue the defendant because the plaintiff is merely an agent for Perennial Investment (HK) Limited ("Perennial"). Mr Wong, counsel for the defendant, relied on Chitty on Contract, 28th Ed., para.32-082, in which it was said that an agent is prima facie neither liable nor able to sue on an agreement into which he enters in a representative capacity. Further, it is argued that Perennial is liable to the defendant for damages for breach of a Subscription Agreement.

Facts

4. The facts of the case are these. Perennial is a subsidiary of Perennial International Limited ("International"), a listed company controlled by one Mr Victor Mon ("Mr Mon"). International has two other subsidiaries, namely the plaintiff and New Technology Cable Limited.

5. Perennial had entered into a Subscription Agreement with the defendant and acquired 15% of the shares of the defendant for $4.5 million. Under the terms of the Subscription Agreement, Perennial was to arrange banking facilities of $9 million for the defendant. The defendant at that time was in financial difficulties because one of its bankers had withdrawn facilities granted to it. The defendant is a designer and manufacturer of high technology products. It did not have at that time sufficient funds to purchase components for products.

6. Perennial had delayed in arranging for the banking facilities. It was stated by the defendant that Mr Mon, who sat as a director representing Perennial in the board of the defendant, suggested that as a temporary alternative to providing the $9 million facilities, Perennial would purchase components and resell them to the defendant. The defendant agreed to Mr Mon's suggestion. The defendant stated that subsequently it was revealed that Mr Mon, on behalf of Perennial, had nominated the plaintiff as its agent to handle the material purchasing. No separate discussion about the terms of the material purchase was made with the plaintiff.

7. The defendant complained that the plaintiff was too slow in ordering the materials for the defendant. As a result, Mr Mon arranged the plaintiff to supply blank forms to the defendant so that the defendant could type out the orders to be sent to its suppliers.

The documents

8. In support of its claim, the plaintiff relied on a Purchase Order dated 12 April 1999 issued by the defendant to the plaintiff for the supply of materials. The vendor was described as the plaintiff and the materials were to be shipped to the defendant. The plaintiff also relied on the invoices issued by the plaintiff to the defendant. The invoices were issued by the plaintiff to the defendant for payment after the components purchased by the plaintiff were delivered. The plaintiff charged a handling fee on top of the purchase price. The plaintiff used to be the supplier of the defendant before the Subscription Agreement. Mr Mon said in his affirmation that the plaintiff supplied their purchase order forms to the defendant simply to speed up the ordering process. The negotiation of price with the supplier and the buyers and signing of purchase orders were carried out by the plaintiff.

Who are the contracting parties?

9. There is no dispute by the defendant that materials had been supplied to it and not paid for. The dispute is who were the parties to the contract for the supply of materials. All the contemporary contract documents were between the plaintiff and the defendant. There was never any agreement or discussion that the plaintiff was acting for Perennial when it transacted with the defendant.

10. Whether the plaintiff was an agent for Perennial is of course a question of fact. We are here dealing with a commercial transaction handled by commercial people and I must say that the defendant's case on agency is built on the flimsiest grounds. It is said that at the board meeting, Mr Mon suggested that Perennial could help the defendant by purchasing and paying bills for components. As submitted by Ms Eu, SC, counsel for the plaintiff, this could hardly become a binding contract between the two parties.

11. Ms Cheng of the defendant stated that Perennial asked the defendant to issue the Purchase Order for the materials to the plaintiff. The defendant followed its instructions and submitted the order to Perennial. This does not advance the defendant's case that the contract was between the defendant and Perennial.

12. Mr Wong argued that in the minutes of the meeting, whenever the word "Perennial" appears, it refers to Perennial and not the plaintiff because Mr Mon attended the meeting in his capacity as a director of the defendant representing Perennial. Quite apart from the argument that, as a matter of law, a director owes fiduciary duty to the company and does not represent the shareholder who nominated him to the board, the fact remains that all Mr Mon had said was Perennial could help the defendant by purchasing and paying the bills for the components. From this, a case can hardly be made out that the plaintiff was not the contracting party with the defendant.

Mistake by Mr Mon?

13. Mr Wong referred to the minutes of the meeting of 23 March 1999 in which it was recorded that Mr Mon confirmed that :

"He was trying to shorten the process of ordering through Perennial by letting Popbridge to use Perennial's letter head and send order directly to all suppliers."

Mr Wong argued that it appears that Mr Mon intended to provide Perennial's order forms and not that of the plaintiff. By sending the forms of the plaintiff, either Mr Mon had made a mistake and sent the wrong forms, or that he had regarded and used the plaintiff's forms as Perennial's forms. In the latter possibility, Mr Wong argued that the plaintiff had been used as Perennial's agent.

14. The evidence does not allege any mistake. On the materials disclosed in this case, I think it really is a speculation to suggest that there was a mistake or that somehow Mr Mon used the plaintiff's forms as the forms of Perennial.

Other arguments

15. Mr Wong further submitted that even if the contract was between the plaintiff and the defendant, the defendant's obligation to repayment was conditional upon Perennial providing the banking facilities. The defendant did not even say in its evidence that this was its understanding. In my view, the alleged condition can hardly get off the ground.

16. A further point was raised about the actual contract between the parties. It was questioned whether the Purchase Order of 12 April 1999 was the contract and what was the term of the payment. The plaintiff's case is clear that the claim is for the price of the components under various invoices dated 26 March 1999 and 22 April 1999, and confirmed by the defendant's Purchase Order. The defendant can hardly say it does not know the basis of the plaintiff's claim.

No credible defence

17. In my view, the defendant has not raised a credible defence that it did not have a contractual relationship with the plaintiff.

Dispute on the Subscription Agreement

18. The defendant complained that Perennial had failed to arrange for the banking facilities. The dispute it has with Perennial cannot be used as a set-off to the plaintiff's claim. The merits of the dispute between Perennial and the defendant on the Subscription Agreement should be best determined when the case dealing with the dispute is tried. But it appeared under the Subscription Agreement, that Perennial was only required to use its reasonable endeavours to obtain the banking facilities. It appeared from the letter of 22 March 1999 from International to the defendant, Perennial had made an arrangement with the Heng Sang for the new bank facilities but the facility was conditional upon the defendant producing its audited account. This matter is also dealt with in the minutes of the meetings. It is not disputed by the defendant that it had not signed the auditor's account. This being the case, the defendant's argument that Perennial was in breach of the Subscription Agreement appears to be based on very weak grounds. But as I have said, the matter should best be dealt with when that case is being tried.

19. Mr Wong submitted that the real dispute between the parties is that Perennial tried to gain control of the defendant by acquiring the remaining shares of the defendant at a nominal sum. Irrespective of the dispute on the shareholding, the defendant really has no defence to the plaintiff's claim for the unpaid goods.

Conclusion

20. Accordingly, the appeal is dismissed with costs to the plaintiff.