IFS CAPITAL LTD v. HUNG KIN LAM of CHI TAT ENTERPRISE CO (a firm) AND OTHERS

HCA 1080/2007 and
HCA 1081/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSOLIDATED ACTION NOS. 1080 AND 1081 OF 2007

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(Consolidated pursuant to the order of Deputy High Court
Judge Carlson dated 15 October 2008)

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J U D G M E N T

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Introduction

1.  The Plaintiff, which is a company registered in Singapore, provides factoring services to its clients who wish to maintain a regular cash-flow on their invoices issued to their own customers.  It is not necessary to consider the cost of such factoring services save to say that a company or organisation wishing to avail itself of such a facility will be required to pay fees for the provision of this service and also suffer an effective discount on the value of the various invoices that it places with a factoring company such as the Plaintiff, in return for receiving quicker and regular payment on the invoices that it places with the factor than it would expect to receive from its own customers to whom it has addressed its invoices.  As a result of the factoring agreement the debt represented by the invoices is assigned to the factor to whom the debtor is required to make payment.  By doing so the debtor is given a good and valid discharge of its debt under the invoice.

2.  Presently, the precise mechanics of the operation of the factoring agreement which lie at the heart of this action will need to be gone through in some detail.

3.  The action is brought by the Plaintiff against the Defendants to whom a company called EC-Asia International Limited (“EC-Asia”) had purportedly sold and delivered computer components for which EC-Asia had delivered invoices to them.  These invoices were then assigned to the Plaintiff by EC-Asia under the factoring agreement.  The Plaintiff now sues the Defendants as assignee of the debt represented by the invoices.  By way of introduction to the action this brief description sufficiently describes the basis of the case against the Defendants.

4.  It is helpful to begin by setting out the various parties to these two actions which, because of their common features, have been consolidated and tried together.

5.  The Plaintiff, which is part of the Standard Chartered banking group, has provided factoring services of the kind that relate to this action for well over 20 years.  In this matter it has entered into a factoring agreement with EC-Asia, which is also a Singapore company and was once publicly-listed in Australia.  It manufactures and distributes computer processor chips.  Its principal director and CEO was Mr Kelvin Ang who is a very dishonest man and is currently serving a 14-year prison sentence in Singapore as a result of having pleaded guilty to a great many offences of fraud arising out of transactions which form the subject matter and the basis for this action.

6.  Mr Ang had established EC-Asia in 1993.  Its major business was recycling computer memory chips as well as the assembly of computer chips and related parts.  The business grew rapidly and he was able to list it on the stock exchange in Australia.  It traded throughout South East Asia including China, Taiwan and Hong Kong.

7.  One of the companies that EC-Asia traded with was Landwide Tech Limited (“Landwide”), a Hong Kong company owned by a Mr Lo Tak Fuk who by 1994 had become a good friend of Ang’s.  Landwide had been an importer and exporter of electronic components in Hong Kong for many years and in 1998 Mr Lo had also invested in EC-Asia.

8.  As a result of their business relationship Mr Lo introduced Ang to a Mr Hung Kin Lam, now the 1^st Defendant who with the 2^nd Defendant Mr Wu Chih Wen traded as Chi Tat Enterprise Company (“Chi Tat”).  This happened in 1997.  As a result of that introduction some business was transacted between them and EC-Asia in about 2000 involving the sale and purchase of LCD panels.  By 2001 Mr Ang and Mr Hung had got to know each other better and Ang says that he then approached Mr Hung on the basis that EC-Asia and Chi Tat should increase the volume of their business together.  How this was to be done I will relate in a moment.

9.  In 1997 Mr Ang also became acquainted with Mr Simon Yau the owner of Tec Hill Semiconductor Limited (“Tec-Hill”) which is now the 3^rd Defendant.  He says that they had been introduced by a business associate of Ang’s.  Tec-Hill’s business is concerned with the trading of integrated circuits which is what EC-Asia also dealt in.  As a result of this introduction the two companies bought and sold from and to each other, at first on a fairly small scale.  As from 2002 the volume of business began to increase and the two men became well acquainted with each other through these business dealings.

10.  It is as a result of these three business relationships that Mr Ang was able to practise a series of deceptions on the Plaintiff.  There is no doubt that Mr Lo and his company Landwide were aware of these deceptions and that Lo was content that Landwide should be used to assist Ang and EC-Asia in their fraudulent conduct.  As for Mr Hung and Mr Yau and their companies Chi Tat and Tec-Hill the action has proceeded on the basis that they were unaware of Ang’s and EC-Asia’s criminal conduct and of Lo’s and Landwide’s knowing assistance of this conduct.  Accordingly, I will, as I must, proceed on the same basis.

The Factoring Agreement

11.  The relationship between EC-Asia and the Plaintiff started in June 2003.  The Factoring Agreement (“the Agreement”) between the Plaintiff and EC-Asia is dated 20 June 2003 (CB 4-15).  In this regard the formal evidence concerning this Agreement has been provided by Miss Phyllis Chu who was the Senior Manager of the Plaintiff’s Credit Risk Management Department.  She has highlighted the important terms of the Agreement.  These included Clause 2(1) which constituted EC-Asia’s offer to sell to the Plaintiff what was owed to it by its customers, from time to time, and on the terms and conditions set out in the Agreement.  Given its importance I will reproduce Clause 2(1) here and then identify the relevant documentation that is referred to in its various sub-clauses:

“(1)  The Vendor shall from time to time during the continuance of this Agreement offer to sell to the Purchaser all Debts arising from Credit Sales entered into hereafter.  The Vendor will submit to the Purchaser:-

(a)   a schedule in duplicate of the Debts in the form prescribed from time to time by the Purchaser;

(b)   subject to the provisions contained in Clause 2(4), at least two other duly and properly signed copies of its invoices to Customers with whom the relevant Credit Sales have been effected.  The original and copies of all such invoices shall bear a notice to the Customer in a form agreed upon between the parties hereto directing that the proceeds of each invoice shall be paid to the Purchaser, import factor, its Agent or a Bank as may be nominated by the Purchaser and stating that such payment when made in full by the customer shall constitute a valid discharge of such Customer’s obligations to make payment to the Vendor.  All invoices shall show the name and address of the Customer in full, the amount of the Debt and the description of the goods and/or services provided therefor, the date of the invoice and the terms and conditions of sale and of payment hereof;

(c)   in the case of receivables due from foreign customers arising out of the export of goods and/or services, the relevant Bills of Lading and/or other satisfactory evidence of export of the goods or performance of the service as appropriate;

(d)   the relevant receipts or delivery order and/or other satisfactory evidence of the delivery of the goods or performance of the services as appropriate;

(e)   all other certificates and documents pertaining to the Credit Sale or to the delivery of the goods or the performance of the services relating thereto required by the Credit Sale Contract or the law for the time being in force in Singapore;

(f)   true copies of such contracts letters or other documents relating to the Credit Sale as the Purchases may request.”

In relation to these sub-clauses the various documents that are referred to have been put into evidence.

In (a) the “schedule” is what has been referred to as the Schedule of Offer which I will refer to in due course, setting out the invoices that EC-Asia wished the Plaintiff to take-in and have the indebtedness assigned to it.  (b) refers to the tax invoices, all of which have been referred to and produced in evidence and attached to the Schedule of Offer.  (c) is a reference to the Airway Bills or Bills of Lading in respect of customers located outside Singapore, as are Chi Tat and Tec-Hill.  This documentation has also been produced and is in evidence.  (d) concerns the delivery orders which have also been produced.

12.  Clause 2(3) is important because it requires EC-Asia to send a Notice to its own customers in a form approved by the Plaintiff directing payment by the customer to the Plaintiff as the only valid form of discharging the indebtedness.  It is in these terms:

“Subject to the provisions contained in clause 2(4), the Vendor shall submit a Notice addressed to the Customer in a form to be approved by the Purchaser directing that the proceeds of the invoices already delivered or to be delivered shall be paid to the Purchaser, its Agent, Import Factor or a Bank as may be nominated by the Purchaser and stating that only such payment when made in full by the Customer shall constitute a valid discharge of such Customer’s obligations to make payment to the Vendor.”

Clause 4 deals with acceptance of EC-Asia’s offer to assign the invoices to the Plaintiff.  Upon its acceptance of the invoices Clause 4(1) makes clear that the Plaintiff assumes all of EC-Asia’s rights under the invoices:

“(1)   The Purchaser of its absolute discretion and after making such enquiries as it thinks fit may accept the said offer.  The Purchaser may accept the same by communicating its acceptance (verbally or otherwise) to the Vendor or any of its officers or servants.  In the event of the Purchaser rejecting the said offer the Purchaser will return to the Vendor the documents submitted by the Vendor with a notice of rejection thereof.

(2) Upon acceptance of the offer as aforesaid the Purchaser shall be entitled to all of the Vendor’s rights title benefit and interest whether past, present or future in and to the Debt but there shall be no assumption by the Purchaser of any of the Vendor’s obligations in relation to the Credit Sale.”

Clause 15(1) deals with the effect of payments by customers.  As between EC-Asia (described as the Vendor in the Agreement) and the Plaintiff (designated as the Purchaser) such payments are in settlement of outstanding debts in respect of approved sales, that is to say those sales taken-in by the Plaintiff which have been set out in a “Schedule of Offer” relating to invoices properly assigned by EC-Asia to the Plaintiff.  It is only after such payments have gone to settle the approved transactions that any other payments can go to settle unapproved indebtedness.

13.  Really by way of underlining and reflecting the fact that the debt represented by the taken-in invoices had been assigned to the Plaintiff, Clause 15(2) prohibits the acceptance of payment by EC-Asia from its own customers in relation to assigned invoices.  I will set out this clause because on occasion, despite the prohibition, such payments did occur.  Once an assignment has taken place then it is only the Plaintiff, to whom payment must be made, that can give a good discharge for the debt represented by the invoice:

“Save as is hereinafter provided in clause 15(3), under no circumstances shall the Vendor accept payment of any Debt purchased by the Purchaser hereunder.  All and any moneys, cheques, bills of exchange, remittances or other payments or documentary evidence of payment in their original form relating to any Debt purchased hereunder received by the Vendor shall be the absolute property of the Purchaser and shall be physically delivered transferred or given to the Purchaser by the Vendor immediately upon receipt by the Vendor.  So long as the same is in the possession of the Vendor the same shall be held absolutely on trust for the Purchaser.  Where the moneys, cheques, bills of exchange, remittances or other payments or documentary evidence of payment relates to both Debts purchased hereunder and other Debts the full amount thereof received by the Vendor without any deduction will be delivered, transferred or given to the Purchaser who will be responsible to account therefor to the Vendor under the terms hereof.”

14.  Clause 16(1) requires the Plaintiff to provide monthly statements of account, which it did, these are in evidence and form the basis upon which the monetary claim is based.

15.  Clause 24(1) relates to the commencement, termination and variation of the Agreement.  Three months’ notice in writing is required to terminate it, although a number of sub-clauses also provide for other contingencies.  Nothing turns on these details and I therefore need make no further reference to this clause.

16.  Clause 25 relates to what needs to happen to outstanding debt represented by taken-in invoices in the event of termination.  The effect of the clause, which I need not set out here, is that at its option the Plaintiff is entitled to re-assign back outstanding invoices to EC-Asia which will be reflected in the final account between the two parties.

17.  Lastly, it is stated that the Agreement is to be governed by the laws of Singapore in respect of which I have two legal opinions from Singapore counsel as to the validity or otherwise of the claims by the Plaintiff against the Defendants.

18.  It is a fact that whilst the Agreement forms the backdrop and the basis for these actions, the terms and conditions, save as to the validity of the notice of assignment appearing on the invoices, have not provided any cause for dispute.  The quantum of the claims is not disputed and the documentation itself which has been created by the transactions is also not the subject of dispute.  Ultimately, it is the conduct of Mr Ang in relation to his dealings with the Plaintiff and with the Defendants that gives rise to the principal issue in the case which is whether the Plaintiff is entitled to sue the Defendants on the basis of assigned invoices in circumstances where these invoices, for all intents and purposes, were created to mask sham transactions in which either worthless computer chip components were delivered by EC-Asia to the Defendants or, in most cases nothing at all was delivered.  It is to this central aspect of the case which I must now turn.

The basis of the action against the Defendants

(a) Against the 1^st and 2^nd Defendant t/a Chi Tat

19.  In both actions the matter has been pleaded with admirable clarity and economy.  At bottom the claim is put on the basis of the outstanding invoices having been factored by the Plaintiff and the indebtedness represented by them being assigned to it.  The Plaintiff has demanded payment of these outstanding amounts from Chi Tat (to describe the first two Defendants compendiously) and have been met with a refusal.  The total amount of these invoices, appearing as a Schedule to the re-re-amended statement of claim is US$5,935,559.00 (Bundle P1, pages 4 and 6).

(b) As against the 3^rd Defendant

20.  This is the claim against Tec-Hill.  This claim is for US$6,475,000.00.  The plea is an identical one.  The Schedule of invoices is attached to the amended-statement of claim (Bundle P2, pages 32 and 34).

21.  Before I come to the pleaded defences and the Plaintiff’s Reply I must now deal with the perpetration of the fraud on the Plaintiff by Mr Ang.  This part of the judgment will also need to describe in some detail the part played by Landwide in its knowing assistance through its owner Mr Lo, as well as a description of what Chi Tat and Tec-Hill’s staff had done in acknowledging receipt of the various orders reflected in the invoices giving rise to, on the face of it, at the very least a prima facie liability to pay under the invoices subject to the various defences raised by them.

Mr Ang’s fraud

22.  Bundle SC contains 192 charges brought against Mr Ang by the Singapore police to which he pleaded guilty and was sentenced to a total of 14 years’ imprisonment.  Save for very few references to Landwide they all relate to sham sales to either Chi Tat or Tec-Hill in relation to the invoices factored by EC-Asia with the Plaintiff.  There is therefore no doubt that through EC-Asia Mr Ang engaged in a massive fraud against the Plaintiff.  He has been called by the Defendants to give that evidence in the trial by means of a video-link from Changi Prison in Singapore where he is serving his sentence.  His evidence at the trial had previously been largely set out in his witness statements which were made and filed before he had pleaded guilty and been sentenced.  He has confirmed those statements in the course of giving his evidence.

23.  It is sufficient to relate in a general way the scheme employed by Ang to persuade the Plaintiff to pay out to EC-Asia very substantial amounts of money based on invoices which EC-Asia had sent to Chi Tat and Tec-Hill for non-existent goods or, in some cases defective items which for all intents and purposes were worthless.

24.  Having started EC-Asia in 1993 he began transacting business in Hong Kong with Mr Lo and Landwide in 1994.  As his business increased he had come to know Mr Hung and Chi Tat, as I have already related, in about 1997.  In order to give the appearance that EC-Asia had a large customer base and therefore a more substantial volume of business he suggested that Lo, who was very well acquainted with Mr Hung, should suggest Mr Hung that Chi Tat might purchase goods from EC-Asia and then sell these onto Landwide.  These would in fact be nominal sales in the sense that whilst to the outside world the transactions might have appeared to be genuine sales evidenced by all the documentation that one might expect to see on an international sale of goods such as a purchase order, a tax invoice and bills of lading or airway bills, Chi Tat would not in fact receive the goods.  These would only be and were intended only to be paper transactions whilst giving the appearance of increased sales revenue for EC-Asia.

25.  Ang says that Mr Hung agreed to do this provided he had minimal involvement and only in a formal way.  The way it was to work, as I will demonstrate through a sample of the documentation, was by Landwide sending purchase orders to EC-Asia in Singapore using Chi Tat letterhead.  That would be photocopied by EC-Asia’s staff in Singapore, who would cover over Landwide’s fax number and the date and other information appearing at the top of the fax.  This apparent Chi Tat purchase order would be input into EC-Asia’s system for approval.  EC-Asia would then prepare a signed invoice.  Landwide would then fax a signed delivery order bearing a Chi Tat signature and company stamp or chop.  These documents, which on their face represented an apparently legitimate purchase by Chi Tat from EC-Asia, would then be photocopied and sent to the Plaintiff.  Also impressed on the invoice would be the notice of assignment which required Chi Tat to pay the Plaintiff, and only the Plaintiff, who would give a valid discharge of the debt created by the invoiced transaction.

26.  Ang says that the Plaintiff appears to have accepted all of this at face value and paid EC-Asia under the Factoring Agreement.  He has said more than once that for most “purchases” no goods were in fact shipped.  On occasions when goods were shipped, these went either to Chi Tat’s address, to be picked up by Landwide on the same day or, sent directly to Landwide.  All such goods were commercially worthless being defective chips or similar items.

27.  As to payment on these sham transactions, Ang says that he would send the money to Lo who would in turn remit it to Mr Hung’s personal bank account, who in turn would send the amounts stated in the invoice to the Plaintiff, keeping a small service charge or commission for himself, and thereby giving the impression to the Plaintiff that he was paying for the goods purchased by Chi Tat against a Chi Tat purchase order directed to EC-Asia who had delivered the goods to Chi Tat.

28.  Before I consider the documentation by which this fraud was carried out I will set out what Ang’s evidence is in relation to Tec-Hill.

29.  He had known Mr Simon Yau of Tec-Hill since 1997.  As I have already said they had transacted business together on a fairly modest scale at first but gradually increasing over time.  As a result they became better acquainted.  In 2001 Ang introduced Mr Yau to Lo and he told Mr Yau that although EC-Asia and Lo’s company Landwide had regular transactions with each other he wished to transact his business with Landwide through Tec-Hill and in that way increase EC-Asia’s sales revenue.  Ang says that Mr Yau agreed to act as “agent” and to charge a small handling fee of 5 cents per item sold.  This way of doing business involving Tec-Hill started from 2001.  Ang has described the method of business in his witness statement dated 11 September 2008 the contents of which he has adopted.  This is at paragraph 8 [W2/79].  I set it out here using his own words:

“a.    I would contact Tec-Hill to inform them of the description of goods, volume and price of the goods that I was intending to sell to Tec-Hill.  They would send EC-Asia a purchase order.

b.  Upon receiving the purchase order from Tec-Hill, EC-Asia would dispatch goods to Landwide and at the same time issue Tec-Hill a tax invoice and delivery order by fax.

c.  Tec-Hill would sign and return to EC-Asia the delivery order, having confirmed the delivery with Landwide.

d.  Tec-Hill would send a sales invoice to Landwide which would include the charges imposed by Tec-Hill.  Tec-Hill would then settle payments with EC-Asia only when Tec-Hill received payment from Landwide.”

30.  Having established this method of doing business with Tec-Hill for Landwide’s business, in 2003 when he entered into the Agreement with the Plaintiff Ang was able to describe Tec-Hill as a regular long-term and trusted customer to whom EC-Asia had been prepared to sell on credit terms.

31.  Following the start of the Agreement with the Plaintiff Ang was able to persuade it to take-in Tec-Hill invoices on the basis of EC-Asia’s long track record of business with Tec-Hill.

The fraud unravels

32.  As a result of these sham transactions involving both Chi Tat and Tec-Hill, Ang was able to obtain millions of US dollars for EC-Asia which he used to fund its operations and to, he hoped, further expand its business.  A scheme such as this can only work provided enough money is being pumped into the system to provide Chi Tat and Tec-Hill with funds to pay the Plaintiff against the invoices assigned to it.  In respect of this, a running account was maintained by the Plaintiff which Chi Tat and Tec-Hill.  Payments by them against their outstanding balances were, as much as possible, set against outstanding invoices or at least entered to settle part of outstanding invoices in order to keep the amount in an orderly manner.  This functioned satisfactorily for the first few years because EC-Asia as a business was able to produce sufficient cash-flow to pay Landwide which in turn passed on this money to Chi Tat and Tec-Hill to pay against the invoices which EC-Asia had presented them with and which it had assigned to the Plaintiff under the Agreement.

33.  As Ang has explained in his evidence, sometime in 2006 EC-Asia began to suffer severe cash-flow problems with the result that EC-Asia was now unable to remit money to Lo at Landwide who, in turn, could not send any funds on to Chi Tat and Tec-Hill for them to pay the Plaintiff against the assigned invoices.

34.  Inevitably, Chi Tat and Tec-Hill ran into arrears on their accounts with the Plaintiff.  Ang [EC-Asia] had several creditors in addition to the Plaintiff.  He had to explain to all of them that he was having cash-flow difficulties because his own customers were slow in paying him.  He asked them to be patient whilst he tried to resolve his difficulties with his customers.  The Plaintiff gave a little time but by early 2007 it asked Ang to arrange a meeting with his customers, which for the purposes of this case where Mr Lo of Landwide and with Mr Hung of Chi Tat and with Tec-Hill.

35.  The Plaintiff wished to inform itself first-hand of the precise problem, the reasons for it and to meet the individuals behind these companies.  Meetings were arranged in February 2007.  The Plaintiff’s staff flew to Hong Kong with Ang who had beforehand primed Lo, Mr Hung and Mr Yau.  He explained to them that this was merely a courtesy visit and that the Plaintiff wished to be reassured that Chi Tat and Tec-Hill would be paid by their own customers immediately following the Lunar New Year holidays and that as a result they would be in a position to pay-off, or at least reduce, the indebtedness on their accounts with the Plaintiff.

36.  These meetings were minuted by the Plaintiff’s staff, and the minutes are in evidence.  The content of these minutes is significant.  They demonstrate that both Mr Hung and Mr Yau were prepared to go along with what Ang had asked of them in his deception of the Plaintiff and at that stage in hiding the truth from its staff.

37.  By March and April 2007 the house of cards that Ang had created simply collapsed under the overwhelming strain of indebtedness.  At a creditors meeting held in Singapore he was completely forthcoming about what he had done and in April he surrendered himself to the Commercial Affairs Department of the Singapore Police.  They in turn investigated the matter in great detail, which they did on a complaint by the Plaintiff, and after that charged him in the way that I have described leading to his guilty pleas and lengthy term of imprisonment.

The documents by which the fraud was carried out

38.  These are voluminous comprising the purchase orders, tax invoices, delivery orders and in some cases airway bills, together with faxed communications between the Plaintiff and the responsible staff of Chi Tat and Tec-Hill confirming receipt of the invoices assigned by EC-Asia to the Plaintiff.  This documentation is there to be read.  I propose to limit myself to highlighting a few transactions by each of Chi Tat and Tec-Hill.  What this documentation undoubtedly shows by its outward appearance is that a purchase order had gone out from Chi Tat or Tec-Hill, as the case may be, to EC-Asia and that EC-Asia had prepared a tax invoice based on the cost of the purchase order and that this order had been processed by EC-Asia which delivered the goods to Chi Tat or Tec-Hill and that the recipient company had acknowledged delivery and that by this acknowledgement had indicated not only that it had received the goods but that the goods had been delivered in good order.  This acknowledgement appears on the delivery order and also in faxed communications passing between the Plaintiff, to whom the invoices have been assigned by EC-Asia, and the customer, be it Chi Tat or Tec-Hill, who ordered the goods.

39.  I take examples of Chi Tat documentation first which is to be found in Bundle IB1.  Page 0-1 is a Plaintiff document being the “Schedule of Offer” which lists the invoice that EC-Asia wishes to have factored or taken-in by the Plaintiff.  The invoice number is 026826 and its date is 30 May 2006.  The amount is for US$349,920.00 and the credit terms are for 30 days.  So much appears on this form.  The invoice itself is on page 0-2 from EC-Asia to Chi Tat.  It sets out a description of the goods, the amount and the 30-day credit terms as well as the selling price of US$349,920.00.  What is important is the notice of assignment stamped onto the invoice.  It says this:

““Payable to IFS Capital Limited, 7 Temasek Boulevard #10-01 Suntec Tower One Singapore 038987 Republic of Singapore who has acquired this Account.  Remittance is to be made directly to them.

Please pay to Standard Chartered Bank at 5 Battery Road, Singapore 049909 for the credit of Account: 01-0-088528-4 (SGD) or Account: 01-741-0422-7 (USD).  Kindly ensure full payment specification accompanies your payment.  Unless any claims, queries or discrepancies are referred to IFS Capital Limited within fourteen days hereof, all particulars herein shall be deemed to be correct”.”

The efficacy of this Notice has been challenged by the Defendants and this is a matter to which I must return in due course.

40.  Next at page 0-3 is the delivery order also impressed with the notice of assignment which, of course, is another EC-Asia document setting out the delivery address for Chi Tat.  Out of sequence is the purchase order at page 0-4.  This is the purchase order purportedly coming from Chi Tat directed to EC-Asia for these items valued at US$349,920.00.  Page 0-5 is the duplicate delivery order; this copy stamped by Chi Tat to confirm that the goods have been “Received … in good order and condition”.  Page 0-6 is a further copy of the same delivery order also bearing Chi Tat’s stamp confirming receipt of the goods in good order and condition.

41.  At page 0-7 is a fax from the Plaintiff to Amy To, a clerk in the offices of Chi Tat, asking her to confirm that her employer had received the invoice and that the invoice amount is correct.  Page 0-9 is Amy’s faxed reply confirming receipt of the invoice.

42.  An identical documentary process can be seen from pages 0-11 to 0-17.  The documents which I have described appear in these batches each starting with a “Schedule of Offer” through to page 123 of this Bundle.  Each document is self-explanatory.

43.  Bundle IB2 contains identical documents which repeat this process for Tec-Hill.  By way example I go to pages 183-5 to 183-11 of this Bundle.  Similarly, the process starts with the “Schedule of Offer” for invoice number 026843 which is an invoice dated 6 June 2006 and is for US$330,240.00 with 30-day credit terms.  On this occasion, to put it in proper sequence, I go to page 183-8 which is Tec-Hill’s Purchase Order purportedly starting off the transaction.  It is directed to EC-Asia and is signed for Tec-Hill and accepted and signed for and on behalf of EC-Asia.  The invoice is at 183-6 impressed with the Notice of Assignment.  There are copies of the Delivery Order at 183-7 and 183-9 which has Tec-Hill’s company stamp and a signature confirming receipt of the goods in good order and condition.  Finally, there are the confirmatory e-mails at pages 183-10 and 183-11.  At 183-11 Jane Ang, of the Plaintiff asks Candy Wong to confirm whether she had received two new invoices including the one for US$330,240.00 which I am currently considering in this series of documents and Candy replies at the top of the page by saying that she “Confirm (sic)these invoice (sic)”.  And again this process is repeated through to page 301 of this Bundle.

44.  There is no doubt whatsoever that to any reasonable person reading these documents, both Chi Tat and Tec-Hill appear to have ordered the items set out in their Purchase Orders from EC-Asia.  Thereafter, EC-Asia has raised a tax invoice and delivered these items as evidenced by the delivery orders for which Chi Tat and Tec-Hill have acknowledged receipt.  Pursuant to the [Factoring] Agreement these invoices have been taken-in by the Plaintiff as appears in the Schedules of Offer and in each case its staff has by fax sought and received confirmation that the invoices have been received.  All the invoices now sued on bear the Notice of Assignment of the invoice to the Plaintiff requiring payment into the Plaintiff’s nominated bank account which appears in the Notice.

The effect of the evidence

45.  It is submitted on behalf of the Plaintiff by Mr Sanjay Sakhrani that its claim is unanswerable.  It sues on the basis of the assigned invoices, receipt of which has been confirmed, as has in each case receipt of the goods “in good order and condition”.

The defences

46.  At the heart of the defences to this action is the fact that either no goods have been delivered to the Defendants or, at best, on very few occasions, commercially worthless items were sent.

47.  The defences of both Chi Tat and Tec-Hill, whichever way one views then, rely on the fact of non-delivery or worthless unmerchantible delivery for saying that the action against them is not maintainable.  Had it been EC-Asia that was suing for the price of the goods based on these invoices, its case could not begin to get off the ground.  As assignee of these invoices it is submitted, both by Mr Pirie for Chi Tat and Mr Wright for Tec-Hill, that the Plaintiff can do no better than EC-Asia had it brought the claim.

48.  The Plaintiff’s case is that it does not carry the burden of having to prove that the goods were actually delivered or that they were of merchantable quality.  As assignee of the invoices they sue on the invoices themselves.  If the Defendants wish to raise points on proof of delivery or quality they are at liberty to do so but they need to address those complaints to EC-Asia.  Of course, the fact that EC-Asia is now in liquidation and a worthless potential opponent makes it impractical for the Defendants to pursue its liquidator in Singapore on this basis.  On the Plaintiff’s analysis that it must succeed by suing on the assigned invoices, the Defendants could have taken out third party proceedings against EC-Asia’s liquidator and raised Ang’s fraudulent conduct of EC-Asia’s business by these sham transactions to obtain an indemnity in respect of any judgment against them by the Plaintiff.

49.  The most helpful way of proceeding is to take each of the defences in turn and consider the Plaintiff’s response in each case.

Validity of the assignment

50.  Both of the experts on Singapore law are agreed that the Agreement is legally binding and a valid contract.  The Agreement provides for debts owing to EC-Asia to be assigned to the Plaintiff.  For an assignment to be valid there must be compliance with S. 4(6) Civil Law Act of Singapore which requires an assignment to be in writing, not to be by way of charge only and that notice of the assignment must be given to the debtor.  No issue arises on this.  As a result the Plaintiff has the legal right of the debt, all legal remedies for the debt and the power to give a good discharge without the concurrence of the assignor.  It has therefore the sole right to sue and collect from the debtor.

51.  A dispute has arisen on whether the wording of the notice of assignment of the debt appearing on each invoice and other documents as well as on the Customer Statements of Account is sufficiently clear and unambiguous.  I have already reproduced the Notice at paragraph 39 above.  Mr Pirie has relied on the case of James Talcott Limited v John Lewis & Company and Another [1940] 3 All ER 592.  In that case McKinnon LJ at 595H and following held the notice in that case to be insufficiently vague.  It seems to me that the answer to this is provided by the Singapore case of PB International Factor Sdn Bhd v Maya Manufacturing and Trading Company (Private) Limited [1995] SGHC 77 when the judge, Lai J upheld the validity of a Notice that employed wording identical to that used in this case.  The case of Van Lynn Developments v Pelias Construction Company Limited [1968] 1 QB 607 is also very much in point.  The Court of Appeal held that the requirement was that the written notice should be given to the debtor so that he should know to whom to pay the debt.  In that case the fact that the letter which stood as the notice did not state the date of assignment and that it had wrongly stated that notice of assignment had already been given did not affect the validity of the Notice.

52.  It seems to me that this Notice is entirely in conformity with the requirements of S. 4(6) Civil Law Act supra.  This point must therefore fail.

53.  Next, the Plaintiff has to meet a plea that the verification process carried out by the Plaintiff does not comply with clause 4(1) of the Agreement [see para. 12 above].  The clause refers to the Plaintiff making “such enquiries as it sees fit”.  Up to now I have not made reference to the Plaintiff’s verification process save as to what appears on the documentation.  The evidence of verification was given by the Plaintiff’s first witness Miss Teoh Chun Mooi.  It came as no surprise to know that this process was dealt with by the Plaintiff’s operations department.  The first documents sent to the Defendants were from EC-Asia, at the Plaintiff’s instruction, giving notice of the assignment of the debts [CB/16-19 and 21-24] issued to all new customers and accompanied by an Advice of Receipt Form [CB/20, 25] sent by the Singapore Post Office to ensure that the notices had been received by the Defendants.

54.  After that, and once invoices were assigned, the Plaintiff had taken appropriate steps to ensure that the invoices had been received and that these were in order as to the amount and, more importantly, that the goods to which they related had been received in good order.  This, as I have already related, was done by e-mail confirmation in addition, of course, to the endorsements on the delivery orders to signify receipt. Following that process the Defendants received Statements of Account setting out in precise detail the invoices set against their account and the payments made against that account.

55.  It seems to me, and I find as a fact, that the “due diligence” procedures of the Plaintiff in respect of taken-in invoices and in its dealings with debtors cannot be faulted.  The Plaintiff’s staff have asked all the right questions of the Defendants to ensure that invoice and goods have been received to which there were affirmative answers.  Every opportunity has been made available to a debtor such as the Defendants to challenge the amount of the invoice and of the goods that are the subject of that invoice and no challenge or objection has been forthcoming.

56.  It seems to me that the matter really comes to this: the Plaintiff in the usual course of its business has factored invoices worth millions of US dollars from EC-Asia.  It has been deceived into providing this service to EC-Asia by virtue of Ang’s cynical and calculated deception acting in concert at the Hong Kong end with Lo of Landwide whose criminality must be on a par with Ang’s.  Its due diligence procedures, which I have found to be completely appropriate, have failed to detect the fraud until the Defendants had begun to get into serious arrears on their accounts with it.  Whilst it is not pleaded that the Defendants were in any way complicit in Ang’s and Lo’s fraud and the case has not proceeded otherwise, the fact remains that both Mr Hung and Mr Yau were prepared to allow their companies to be used by the other two to present a front that it was Chi Tat and Tec-Hill which were the principals as purchasers of EC-Asia’s products and indeed as very much the instigators of each of these purchases by presenting a Purchase Order which initiated each of these purchases cumulating in the invoices which are the subject matter of the action.  The question therefore is to determine how the law treats the parties to the action, on the one hand the innocent assignee of the invoices and on the other, parties, albeit innocent of any mala-fides, who were prepared to willingly lend themselves as a front, at a small profit for themselves to, as they saw it, help out EC-Asia and Ang, with whom they had by now enjoyed a business relationship for a number of years.

57.  It is really against this view of the evidence that Mr Sakhrani has advanced the plea of estoppel by representation in the Reply to each of the Defendants Defences.  There is no doubt that an estoppel can be raised in a Reply.  The more substantial point is whether, as the Defendants submit, an estoppel can operate in favour of the Plaintiff because all the documents such as the purchase order, delivery note and other documents that evidence the outstanding invoices and the Defendants endorsements on these documents were directed to EC-Asia, they were not representations made to the Plaintiff.  Mr Sakhrani accepts, as he must, that this is so.  Nevertheless, his response to this is to say that the requisite representations from the Defendants to the Plaintiff came from the e-mail confirmations to which I have already referred, from the Defendants to the Plaintiff’s staff when asked about the receipt of the invoices and the goods that related to each invoice and whether these were received in good order.  Additionally, in Tec-Hill’s case there were 4 telephone communications which have not been the subject of any challenge.  The Defendants do not accept that such confirmations can have any standing as representations which can give rise to an estoppel because of a mutual mistake which forms a substantial part of the Defendant’s case.

58.  Mr Sakhrani submits that the five requirements of an effective estoppel of this sort are all present in this case.  These are set out in Phipson (16^th Edition), 5-29:

“(1)   there must be a representation of fact;

(2) the representation must be precise and unambiguous;

(3) there must have been an intention, or some conduct giving rise to a reasonable presumption of an intention, that the other party was to act in reliance on the truthfulness of the representation;

(4) the party relying on the representation must have acted on it to his own detriment;

(5) the misstatement must have been the proximate cause of the detriment or... of the action which caused the detriment.”

Having set these out Mr Sakhrani in addressing the court in his final submission has embarked on a full analysis of all five requirements.  Those submissions appear at pages 14 to 19 of Part A of his written closing argument.  I propose take what he has submitted more shortly.

59.  As to the representations of fact it seems very clear to me that the Defendants were telling the Plaintiff that they were the purchasers of the items appearing in the Purchase Orders, the Delivery Note and most relevantly the Invoices that were addressed to them and that they had received the invoices and that the goods referred to there had been received and were in good order and that no dispute arose on the transactions.

60.  This information, of course, was vital for the Plaintiff which was to take-in the invoices.  It needed to satisfy itself that there was no dispute between the seller EC-Asia and the buyer being one or the other of these Defendants.

61.  The next requirement is that the representation must be precise and unambiguous.  Although, I suspect out of an abundance of caution, Mr Sakhrani has referred me to Woodhouse AC Israel Cocoa Limited SA v Nigerian Produce Marketing Company Limited [1972] AC 741 and to Spencer Bower, Estoppel by Representation (4^th Edition), IV 2.9, it seems to me that this aspect undoubtedly is also made out.  The documents speak with one voice.  “We are the purchasers and we have received the invoices and the goods, and there is no problem with them”.  No other possible interpretation can be placed on their meaning and effect.

62.  The next requirement is that it must be the intention of the Defendants that the Plaintiff was to act in reliance of the truthfulness of the representation.  In this regard two authorities make the matter very clear.  They are the following:

““If whatever a man’s real intention may be, he so conducts himself that a reasonable man would take the representation to be true, the party making the representation would be equally precluded from contesting its truth” per Parke B in Freeman v Cooke (1848) 2 Exch 654, 663

“I do not think it is necessary that the person making the statement should have intended the person to whom he made the statement to act in any particular way upon it: it was enough that it was reasonable as a matter of business for the plaintiff to do what he did as a result of his belief in the defendant’s statement” per Lord Esher MR in Seton, Laing & Co v. Lafone (1887) 19 QBD 68, 72”

63.  It appears to me that nothing could be clearer in this case.  It has been said by Mr Hung and by Mr Yau that they were not involved in these transactions.  They were just helping out.  These were matters which concerned Mr Lo and Mr Ang.  That may well have been what they thought but it really is difficult to imagine a more irresponsible thing to do – to present a façade to the outside world and, more particularly for these purposes, to the Plaintiff that they were the purchasers of all these items which they had ordered through their companies and to pretend it did not really matter and that they should have no liability for what they did.  I had observed to one of them in the course of his evidence that this was like playing with fire.  But it seems to me that in terms of legal responsibility it is far more significant.  A commercial organisation such as Chi Tat and Tec-Hill cannot expect to involve itself in serious commercial documentation such as this and then, for a significant period, be seen to be paying out on the invoices and when put to the test on these very large arrears merely put up their hands, as it were, and say that this has nothing to do with us.  And so, I am satisfied that this requirement is overwhelming satisfied.

64.  The penultimate requirement is that detriment must have been suffered by the representee – by the Plaintiff.  Again this can only admit of one answer which is that the Plaintiff, having been assured by the e-mail confirmations and the telephone confirmations from the Defendants that there was no problem with the invoices and the goods to which the invoices related, took-in the invoices and paid out to EC-Asia under the Agreement.

65.  Finally, the representations must have been the proximate cause of the detriment suffered by the Plaintiff.  It is very plain that the e-mail and telephone confirmations from the Defendants that all was well on the invoices and the goods, resulted in the payment out by the Plaintiff to EC-Asia.  This requirement is therefore also satisfied beyond any doubt.

66.  From this Mr Sakhrani has gone on to submit that estoppel, as a rule of evidence, prevents the Defendants in this case from averring facts to the contrary – in this case non-delivery of the goods or in some cases worthless goods.  The rule prevents such evidence being led.

67.  At this stage it is also worth referring to the meetings held in Hong Kong on 1 March 2007 between the Plaintiff’s staff Mr Ong and Miss Chiu, with Mr Hung and Mr Yau.  It will be recalled that the Plaintiff’s representatives wished to speak to Ang’s customers personally in order to understand the problem as to why arrears had accumulated on the account of Chi Tat and Tec-Hill and when they might expect these arrears to be discharged.  At these meetings both Mr Hung and Mr Yau were prepared to go along with Ang’s lies and they told the Plaintiff’s witnesses that their customers on the Mainland would pay them what they owed after the Lunar New Year holiday and that they, in turn, would then be able to pay off their debt to the Plaintiff.  If ever there was evidence of the worst kind of irresponsibility by these two Defendants it was this.  They were prepared to go along with Ang’s lies and in doing so merely confirmed the version that they were the real purchasers and that the goods had been received and that there was no complaint as to their quality.  If ever there was an opportunity for them to make a complaint as to delivery or quality this was it.  The effect of these meetings was that the Defendants appeared to confirm everything that they had represented to the Plaintiff through the documentation and by the confirmatory e-mails and telephone conversations.

68.  What Mr Sakhrani gets from the estoppel is that where the Defendants have asserted, in the way that I have examined in the preceding paragraphs, that they were the purchasers then the Plaintiff does not need to go further and show actual physical delivery of the goods nor that these goods were of merchantable quality.  It was open to them to complain both as to non-delivery and merchantability at the time and yet, in order to preserve the façade that they were the true buyers declined to do so and at the meeting in early March 2007 continued to engage in precisely the same behaviour.  Insofar as the Defendants seek to rely on the case of Guan Teck General Supplies (Private) Limited v International Factors Marine (Singapore) Limited [1995] SGHC 205, that case cannot assist them on the facts of this case.  The factual situation here is far removed from that which was before Lai J in the High Court of Singapore.

69.  The effect of the evidence when examined alongside the principles relating to estoppel by representation must be that all things have to be judged as they appeared to be.  By that I mean that the Defendants were the purchasers and they are therefore liable under the invoices which they had confirmed to be correct and that the goods which they had purchased had been delivered to them and in good order.

70.  The Plaintiff as assignee of the invoices must therefore have its judgment against the Defendants on these invoices.  The actual arrangements which were made between the Defendants, Ang and Lo are not of the Plaintiff’s concern and cannot affect the outcome of this action as between the parties to it.

Judgment

71.  That is sufficient to dispose of the action.  Quantum is not a matter that presents any difficulty.  I am entirely satisfied that the accounts presented by the Plaintiff as against Chi Tat and Tec-Hill are correct and I will therefore enter judgment in the Plaintiff’s favour against the Defendants in the respective amounts claimed against them.  As to interest, I will award this to the Plaintiff at 1% above prime rate from the date of the writ until judgment and thereafter at the judgment rate until payment.  Because I have not heard the parties on this, the award of interest will be an order nisi.  I will take written submissions to be delivered within 28 days should the parties wish to seek a different form of order or in the event that they cannot agree on the calculation of interest.

The remaining arguments

72.  Really only out of deference to Mr Pirie and Mr Wright, who have invested much effort in advancing other arguments which they say should have resulted in a successful outcome for their clients, I wish to indicate my view on those submissions none of which could have survived Mr Sakhrani’s analysis of the facts as found by me and the applicable legal analysis applicable those facts.

Common or mutual mistake

73.  This aspect was central to Mr Pirie’s final speech.  The principle can be stated shortly:

“Common mistake cases are ones in which the parties, though genuinely agreed, have both contracted in the mistaken belief that some fact which lies at the root of the contract is true (5-005, Chitty on Contracts, 30^th ed);

If mistake operates at all, it operates so as to negative, or in some cases to nullify, consent.  Mistake nullifies consent when it prevents the parties from reaching agreement; and it nullifies consent when the parties reach agreement but that agreement has no legal effect because it is based on a fundamental mistaken assumption (115.090, Halsbury’s Laws of Hong Kong (2007 Reissue)).

It is submitted that the mistaken parties were the Plaintiff and the Defendants as the customer.  In such circumstances Mr Sakhrani’s response is unanswerable.  He correctly submits that a “mistake” can only vitiate a contract where the mistaken parties have entered into a contractual relationship together.  Nevertheless, the situation here is that no contract exists between the Plaintiff and the Defendants. The contract, as such, would have been between EC-Asia as seller and the Defendants as buyer.  The suit by the Plaintiff is as assignee of the invoices.  The doctrine of mistake can have no application on these facts.  See Salinger 4-01 and 9-44.

Fraud

74.  The other main plank to the defence is Ang’s fraud which both Mr Pirie and Mr Wright have sought to emphasise.  Their instructing solicitors have gone to considerable trouble to have Ang give evidence of his fraud by video-link from Changi Prison where he serving his sentence.

75.  The question is whether Ang’s fraud can in some way operate to negative the estoppel by representation upon which, in my judgment, this case has fallen to be determined in the Plaintiff’s favour.  The fact of the matter is that the Defendants’ representatives were quite prepared to and did sign, chop and thereby affirm the documentation which gave them the appearance of being the buyer which they confirmed to the Plaintiff by e-mail and telephone confirmation and indeed subsequently, at the meetings of 1and 2 March 2007.

76.  Any suggestion that the Defendants staff signed the documents and gave their confirmation ignorant of the true facts cannot assist them.  The words of Lord Wilberforce in Gallie v Lee [1971] AC 1004, at 1027 B-C are apposite in these circumstances:

“Secondly, a man cannot escape from the consequences, as regards innocent third parties, of signing a document if, being a man of ordinary education and competence, he chooses to sign it without informing himself of its purport and effect…(1026C-F)

In my opinion, the correct rule, and that which in fact prevailed until Bragg’s case, is that, leaving aside negotiable instruments to which special rules may apply, a person who signs a document, and parts with it so that it may come into other hands, has a responsibility, that of the normal man of prudence, to take care what he signs, which, if neglected, prevents him from denying his liability under the document according to its tenor.  I would add that the onus of proof in this matter rests upon him, i.e., to prove that he acted carefully, and not upon the third party to prove the contrary…”

In the same vein and, if anything, more relevant to the facts of this case are the remarks by Scott LJ (as he then was) in Norwich and Peterborough Building Society v Steed [1993] Ch 116, 125 E-H, which given their importance I set out in full:

“We have been referred to Hunter v. Walters (1871) L.R. 7 Ch.App. 75; National Provincial Bank of England v. Jackson (1886) 33 Ch.D. 1; King v. Smith [1900] 2 Ch. 425 and Gallie v. Lee [1971] A.C. 1004.  In each of these cases the victim of a fraud had signed⁶ a document not understanding what he or she was doing.  In each case an innocent third party had for value acquired rights under the document.  In each of these cases the existence of the doctrine of non est factum was affirmed, in each the acceptable limits of the plea was discussed, in none was the plea allowed to prevail.  It is easy to understand why the plea is likely to be unsuccessful.  A person who signs a document at the request of another puts into circulation a document on which, depending on its contents, others may reply.  Where a fraudster has tricked, first, the signer of the document, in order to induce the signature, and then some third party, who is induced to rely on the signed document, which of the two victims is the law to prefer?  The authorities indicate that the answer is, almost invariably, the latter.  The signer of the document has, by signing, enabled the fraud to be carried out, enabled the false document to go into circulation. [Emphasis added]

In Gallie v. Lee [l971] A.C. 1004, 1015, Lord Reid said that the doctrine of non est factum:

“must be kept within narrow limits if it is not to shake the confidence of those who habitually and rightly rely on signatures when there is no obvious reason to doubt their validity.”

And, at p. 1016B: “there must be a heavy burden of proof on the person who seeks to invoke this remedy.”   In the same case Lord Wilberforce said, at p. 1027:

“a person who signs a document, and parts with it so that it may come into other hands, has a responsibility, that of the normal man of prudence, to take care what he signs, which, if neglected, prevents him from denying his liability under the document according to its tenor.”

In each of the authorities to which we were referred, and in particular in Gallie v. Lee, the doctrine of non est factum is explained in different words by different judges, but with a striking uniformity of concept and of emphasis…  He went on to add, at p. 1027:

“As to persons who are illiterate, or blind, or lacking in understanding, the law is in a dilemma.  On the one hand, the law is traditionally, and rightly, ready to relieve them against hardship and imposition.  On the other hand, regard has to be paid to the position of innocent third parties who cannot be expected, and often would have no means, to know the condition or status of the signer.  I do not think that a defined solution can be provided for all cases.  The law ought, in my opinion, to give relief if satisfied that consent was truly lacking but will require of signers even in this class that they act responsibly and carefully according to their circumstances in putting their signature to legal documents.”” [Emphasis added]

It seems to me inconceivable that any relief could be forthcoming to the Defendants on the basis of Ang’s fraud where Mr Hung and Mr Yau were quite prepared to go along with his request to do what they did without any proper enquiry, whereas the Plaintiff, on my finding, had made all proper requests for information from the Defendants as the documentation shows.  If one of two innocent parties is to suffer it ought to be the Defendants whose cavalier and reckless approach to Ang’s request has enabled his fraud to succeed for as long as it did.

Del credere agent?

77.  It seems to me that there is no basis for saying that such an agency existed.  To attach this sort of respectable label to these Defendants is wholly misconceived.  There simply is no evidence of agency in this case between Landwide (Lo) and the Defendants and certainly not a del credere agency.  One only needs to read the definition of such agent to realise this:

“A del credere agent is one, who usually for extra remuneration, undertakes to indemnify his employer against loss arising from the failure of persons with whom he contracts to carry out their contracts.  A del credere agency may be inferred from facts showing that the agent was charging an additional commission for risk.  Such an agent need not be appointed in writing, the agreement not being an agreement to answer for the debt, default or miscarriage of another within the meaning of the Statute of Frauds (Halsbury's Laws of England, 5^th Edition, Vol.1, para 13)

78.  Once the Defendants could not provide an answer, as in my judgment they have not, to the estoppel which the Plaintiff has pleaded in its Reply, the Plaintiff was bound to succeed as in my judgment it has.

79.  Nothing else that either Mr Pirie nor Mr Wright have addressed me on can affect the outcome to the action.

Conclusion

80.  I will therefore enter judgment for the Plaintiff against the 1^st and 2^nd Defendants jointly and severally in the sum of US$5,935,559.00 and against the 3^rd Defendant for US$6,475,000.00 together with interest as indicated in paragraph 71 above.  There will also be an order nisi that the Plaintiff should have its costs of the action paid by the Defendants to be taxed on a party and party basis if they cannot be agreed.

81.  In closing may I say how grateful I am to all counsel for the very thorough and helpful way in which they have conducted their cases.