LAL IMP. EXP. S. A. v. UTANIKO (HONG KONG) LTD

DCCJ 1907/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1907 OF 2010

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JUDGMENT

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1.  This is a sales of goods dispute between the plaintiff and the defendant.

BACKGROUND

2.  The plaintiff is a corporation incorporated in the Republic of Paraguay carrying on trading business.  Mr Lal Pardesi (“Lal”) is the president of the plaintiff who is based in Paraguay.

3.  The defendant is a company incorporated in Hong Kong.  Mr Deepak Balani (“Deepak”) is the defendant’s sole director.  It carries on the business of import and export of manufactured goods.  Deepak has been in the import and export business for over 28 years.  Deepak is based in Hong Kong.

4.  Harry Chan & Co. Ltd. (“HCC”) is a Hong Kong company which acted as the buying / financing agent of the plaintiff in Hong Kong.

5.  Mr Shadi Farhart (“Shadi”) is a person based in Paraguay.  The defendant alleges that he was a business partner of the plaintiff although Lal claims that he has never held out to any person or party that Shadi was the plaintiff’s business partner.  Lal also claims that Shadi did not have any authority to enter into any contract or to give any instructions on the plaintiff’s behalf. 

6.  Mr Gary Keswani (“Gary”) is also based in Paraguay.  He allegedly has told Lal that he worked for the defendant.  This is denied by the defendant who says that Gary has never been an employee or agent of the defendant and hence has no authority to enter any contract on its behalf.  Gary himself says that he worked for a company called Superior Standards Enterprises Limited and received his salary from a person by the name of Mahesh Mirchandani (“Mahesh”).  Mahesh used an email address which bears the same name as the defendant.

7.  Monica Shahani (“Monica”) is a staff of the defendant based in Hong Kong who was responsible for handling all the shipment and documentary matters in this transaction.  She was in regular contact with Gary, Deepak and Mahesh by emails throughout this transaction.  She reported directly to Deepak either through emails or in person.

8.  The plaintiff claims for the return of a sum of US$65,040.00 it paid to the defendant for goods ordered under a contract made with it in Paraguay in November 2009.

The plaintiff case

9.  The plaintiff claims that by an oral agreement made in about November 2009 (“the Oral Agreement”), as evidenced by a sales confirmation dated 20 November 2009 (“the Sales Confirmation”), the plaintiff agreed to buy and the defendant agreed to sell 800 mobile phones with 1,600 TF cards in a total consideration of US$65,040.00.  The plaintiff claims that the Sales Confirmation was varied in late December 2009 or early January 2010 as evidenced by a commercial invoice issued by the defendant on 5 January 2010 with number 5639/09 (“the Commercial Invoice”).  It is stated in the Commercial Invoice that the plaintiff was the buyer of the mobile phones and the TF cards.

10.  Pursuant to the Oral Agreement, the plaintiff duly made full payment to the defendant in the total sum of US$65,040.00 through HCC:-

(1) a cheque dated 7 December 2009 in the sum of US$12,000.00 in favour of the defendant; and

(2) a further cheque dated 8 January 2010 in the sum of US$53,040.00 in favour of the defendant.

11.  The plaintiff claims that as the total payment is in the exact amount demanded under the Commercial Invoice and since the defendant has confirmed that HCC had made full payment for the said invoice, a valid contract had been entered between the plaintiff and the defendant.

12.  The plaintiff further claims that, in breach of the Oral Agreement, the defendant failed to deliver the goods to the plaintiff at all.  And despite repeated requests made to the defendant, the defendant failed to deliver the goods to the plaintiff or refund the paid price of US$65,040.00.  The plaintiff further claims that, on 10 May 2010, the plaintiff accepted the defendant’s repudiation and now sues against the defendant.

13.  The plaintiff alternatively alleges that there is total failure of consideration in the contract for sales and therefore the plaintiff is entitled to recover the full amount of money paid to the defendant.

The defendant’s case

14.  The defendant does not dispute that it has received the full purchase price.

15.  However, the defendant avers that:-

(1) the defendant was aware that Shadi, an alleged business partner of the plaintiff, was working with the plaintiff to purchase the goods in question and the plaintiff was merely providing Shadi with the finance for the purchase;

(2) Shadi was the real buyer in the contract as varied in about late December 2009 or early January 2010 but not the plaintiff;

(3) in pursuance of the order received, the defendant made a payment of US$8,100.00 to a factory called Shenzhen Jin Zhen Hang Technology Company Limited (“the Shenzhen Factory”) from the US$12,000.00 the defendant had received from HCC;

(4) when the defendant received the further payment of US$53,040.00, Shadi instructed the defendant to cancel the order with the Shenzhen Factory allegedly because the market conditions for the goods had deteriorated. Shadi further instructed the defendant to use the further sum received to pay for certain other goods that Shadi had ordered with another factory in China;

(5) the defendant asserts that the plaintiff was aware of such instruction made by Shadi but the plaintiff did not tell the defendant not to comply with Shadi’s instruction;

(6) therefore, from the balance of payment of US$53,040.00, the defendant transferred US$52,608.61 to another factory in China as agent of Shadi and retained the remainder of US$431.39 for the plaintiff;

(7) hence the defendant says that it is now holding a total sum of US$431.39 to the plaintiff’s order; and

(8) the US$8,100.00 has been retained by the Shenzhen Factory as compensation due to the termination.

The plaintiff’s reply

16.  The plaintiff’s response in relation to the above assertions of the defendant is as follows:-

(1) the plaintiff did not merely finance the purchase of the goods, but he was the real buyer of the goods with a view to make a profit by resale;

(2) the plaintiff did not authorize Shadi to make decision on its behalf over the goods, and the plaintiff did not hold out to the defendant that Shadi had authority to do so; and

(3) the plaintiff did not know that Shadi had instructed the defendant to cancel the order with the Shenzhen Factory; because the plaintiff had no knowledge of transfer out of US$52,608.61 by the defendant when it was so transferred on 26 January 2010.

EVIDENCE ADDUCED BY THE PARTIES

17.  During the trial, the parties have called the following witnesses to testify on their behalf:-

(1) Lal gave evidence for the plaintiff.  He also made two affirmations for his earlier application for summary judgment and one witness statement;

(2) The defendant called its director Deepak.  He made one affirmation for the earlier summary judgment application and one witness statement;

(3) The affirmation of Gary has been included in the trial bundle.  However, no witness statement of Gary has been filed despite leave was given to the defendant to do so.  He was not called to give evidence during the trial; and

(4) Monica and Mahesh were not called to give evidence.

Lal’s evidence

18.  Lal adopted the contents of his witness statement and the two affirmations as his evidence-in-chief during the trial. In essence, Lal told the court that he first met Gary in or about 2005.  They were both Paraguay residents.  Gary introduced himself as working for the defendant who could supply various types of goods to interested buyers.  Gary told him that the person in charge of the defendant is Deepak.

19.  Although there had been talks between the plaintiff and Gary (allegedly representing the defendant) in the past, no previous transaction had ever been concluded before the present contract. However, Lal states that, through his introduction, in or about May 2008, HCC had purchased quantities of padlocks and remote control cars for re-sale from the defendant.  On that occasion, the defendant was also represented by Gary. Thus, he was led to believe that Gary was the business representative of the defendant in Paraguay.

20.  Lal first met Shadi in 2005.  He had previous dealings with Shadi by selling goods to him before.  Shadi and Gary knew each other and he believes that they had “business talks” amongst them before.  He also believes that the defendant had business dealings with Shadi before.

21.  Lal denies that Shadi was a business partner of the plaintiff.  Lal states that he had never held out to any person or party that Shadi was the plaintiff’s partner.  Further, he denies that the plaintiff had ever provided financing to any person or party, including Shadi, for purchasing goods.

22.  In November 2009, Shadi called him on the telephone first and Gary attended his office later.  Shadi informed Lal that the defendant had through Gary offered to supply mobile phones and spare parts at an attractive price.  However, he did not have the financial capacity to purchase the goods. Shadi suggested Lal should talk to Gary directly and obtain the order from the defendant.  He assured Lal that the plaintiff would be able to make good profits out of the deal.  Lal told Shadi that if the plaintiff purchase the goods, he would either sell them to him on a cash basis or he would sell them in the open market.  In the latter case, he would give some monetary benefits to Shadi as introductory fee. 

23.  Lal denies that Shadi had ever asked him to become the financier of the deal.  He says that he was not helping Shadi to buy the goods.  He is adamant that it was the plaintiff who wanted to buy the goods directly from the defendant and wanted to make profits out of it.  Besides relying on the words of Shadi, Lal also went out to the market to check the price of the goods himself and talked to other customers about those goods.  After talking to those people, he was satisfied that profits could be made out of the purchase.

24.  Initially, Gary told him that Shadi had wanted to process this order by himself but he did not have the money required.  Lal says that Shadi tried to manipulate the situation by trying to put down his name as the buyer in the initial sales confirmation with the defendant on 18 November 2009[1].  He rejected this immediately by sending an email to Gary and Monica (which was not copied to Shadi) on 19 November 2009 by stating the following:-

“Urgently please accept the deposit 10,000 US$ (sic) for this order and also kindly change the customer name as Lal Imp Exp.

Please reissue the same sales confirmation with this changes. (sic)”

25.  On 20 November 2009, upon receiving no reply from Gary and Monica, Lal re-sent the same email to them (again without copying to Shadi) asking them to reply as soon as possible so that he could process the order on that day.

26.  As a result, the Sales Confirmation dated 20 November 2009 was prepared by the defendant with the plaintiff named as the buyer.  This was subsequently signed by Lal on behalf of the plaintiff in its capacity as buyer.  The Sales Confirmation contained almost exactly the same terms as the one Shadi had signed purportedly as buyer on 18 November 2009[2].

27.  It should be noted that the goods and the price stated under the 2 abovementioned sales confirmation were exactly the same, namely, 1,100 pieces of mobile phones (of various models) with sim cards (“the Ordered Goods”) at the price of US$61,216.38.

28.  On or about 7 December 2009, upon the request of the defendant, the plaintiff, through its buying agent HCC, paid a deposit of US$12,000 for the Ordered Goods.

29.  Lal says that in or about late December 2009 or early January 2010, the defendant had, through Gary, confirmed that 600 pieces of mobile phones (with model #8900), 200 pieces of mobile phones (with model #W-300) and 1,600 pieces of TF cards (“the Goods”) were ready for shipment.

30.  Although the quantities and unit price of the goods quoted by the defendant were different from those stated in the Sales Confirmation, Lal says that the plaintiff had accepted those changes and asked the defendant to issue the invoice for the Goods after he had personally checked the market condition himself.  As a result, the Commercial Invoice dated 5 January 2010 was issued to the plaintiff.  The amount charged under the invoice was at US$65,040 as contrast to the sum of US$61,216.38 stated under the Sales Confirmation.

31.  Lal says that Gary had told him about the changes to the goods on the telephone before he attended his office.  Gary told him that he had talked to Shadi about the matter and reportedly Shadi also recommended Lal to buy those goods.  Lal however denies that Shadi had given instructions to the defendant to change the order as he did not have the authority from the plaintiff to do so.  Lal however did not rely on the recommendation of Shadi only.  He claims that he made urgent enquiry himself about the market condition by visiting some potential customers in the market.  After satisfying himself that a profit could be made out of the Goods, he then asked the defendant to issue the Commercial Invoice.

32.  The plaintiff then provided shipment particulars to the defendant and chased the defendant to ship the Goods to Paraguay by air.

33.  On 8 January 2010, the plaintiff through HCC paid the balance price in the sum of US$53,040 to the defendant.  An official receipt for that sum was issued by the defendant to HCC on the same day.

34.  However, upon finding that the defendant had not delivered the Goods to the plaintiff, the plaintiff authorized its buying / finance agent HCC to chase after the Goods.  Lal claims that throughout the transaction he had never authorized Shadi to represent the plaintiff or make any decision on behalf of the plaintiff in relation to the Goods. 

35.  After repeated chasing for the Goods which were never delivered to the plaintiff, Lal then asked Gary where the plaintiff’s money (which was paid through HCC) had gone.  It was then that Gary sent him an email on 24 March 2010 with the following contents:-

“Dear Mr Lal

Please find enclosed the money that we transfered to shadi…tot (sic) he account which he asked us and i will speak with him as i am talking with him everyday and will come to your office to solve this issue. This is the proof for you as to where this money had gone and you can ask shadi on this…

rgds

gary.”

36.  The bank document attached to the email showed that a sum of US$52,588 was transferred at the defendant’s order to a company called Begin Industrial (HK) Co Ltd (“Begin Industrial”) on 25 January 2010.

37.  Upon discovering the unauthorized use of the monies paid by the plaintiff to the defendant for the purchase of the Goods, Lal sent an email to Deepak to complain.  In the email dated 25 March 2010, Lal specifically pointed out that the defendant’s transfer of the monies paid by the plaintiff to another supplier of Shadi was without their knowledge or consent:-

“Dear Mr Deepak

It means whenever we can finance to your customer for certain sales confirmation. YOU HAVE RIGHT TO TRANSFER OUR MONEY TO YOUR CUSTOMERS ANOTHER SUPPLIER ACCOUNT WITHOUT OUR INFORMATION OR CONFIRMATION.

IS IT RIGHT ??

AND THEN WE WILL BE RESPONSIBLE TO COLLECT MONEY FROM HIM ???

I think you want to willfully misunderstand yourself to cover your COMPANY MISTAKE on this whole scenario.

MY DIRECT AND SIMPLE, QUESTION TO YOU OR YOUR COMPANY IS

WHEN WE SENT MONEY OR FINANCE FOR PARTICULAR SALES CONFIRMATION, THEN HOW COME YOU USED MONEY OF THAT SALES CONFIRMATIOIN TO pay ANOTHER SUPPLIER OF SHADI??? WITHOUT ASKING TO US OR WITHOUT INFORMATION TO US.

Mr Deepak, i hope you understood and have not misunderstand the whole scenario of this question.

A simple, question??

Tks-Lal”

38.  The reply email Lal received from Deepak on the same date was blunt and far from satisfactory as Deepak simply stated that:-

“(T)he right and correct way for you right now is to pressure Shadi to pay up.”

39.  On 26 March 2010, Lal received an email from Gary disclosing an earlier email that he had sent to Deepak (which was not copied to Lal) to explain the situation.  In this earlier email to Deepak, Gary admitted that he had made the mistake of trusting Shadi and for not checking with Lal about the transfer of the fund to another supplier first.  He also made the mistake of not to re-confirm about this with Lal before the transfer. It is clear from the contents of the email that Lal had no knowledge about the transfer of the funds by the defendant to another supplier as instructed by Shadi.

40.  For the sake of completeness, it would be useful to produce this important email written by Gary to Deepak in full here:-

“DEAR DEEPAK

WE ARE PUTTING PRESSURE ON SHADI TO PAY FOR THIS MERCHANDISE EVERYDAY I AM IN HIS OFFICE ASKING HIM FOR THE MONEY, BUT IN MEAN WHILE IS IT POSSIBLE TO RENDER THIS FAVOUR OR REQUEST OF MR LAL TO HARRY CHAN TO JUST CALM HIM DOWN…MEANWHILE WE KEEP PUTTING THE PRESSURE TO SHADI TO GET THE MONEY AND HAVE THE GOODS SHIPPED.

LOOK FORWARD FOR YOUR REPLY

RGDS

GARY.

(I GUESS WITH THE PROBLEM WE HAD WITH THE FACTORY AND SHADI AND THEN TRUSTED HIM AND SENT THE MONEY OUT TO HIM THINKING THAT HE HAD SPOKEN TO HIS FINANCER MR LAL ABOUT THE TRSNFR WHICH HE DID NOT DO AND I ON MYSIDE HERE DID NOT INFORM LAL AS THE PRESSURE OF SHADI WAS ON OUR HEAD AND THE FACTORIES PRESSURE I GUESS I MADE THE MISTAKE THAT I DID NOT RE-CONFIRM THE TRSNFR WITH LAL AND HAD YOU TO SENT THE TRSNFR TO SHADI TO ANOTHER COMPANY).  [underline added]

Best Regards

Gary.”

41.  Lal claims that he had no knowledge at all about the transfer of the sum of US$52,588 to Begin Industrial and the purported “cancellation” of the contract for the sale and purchase of the Goods.  Prior to the disclosure of the documents and emails exchanged between the defendant and Shadi by the defendant, Lal had never come across those documents or emails. He claims that he was kept completely in the dark by the defendant and Shadi about the cancelling of the order with the Shenzhen Factory and using part of the plaintiff’s money to pay another manufacturer who had nothing to do with the Goods ordered under the Sales Confirmation.  Those emails were not addressed or copied to him.

42.  In a revised sales confirmation No 5362/09 dated 10 December 2009 (“the Revised Sales Confirmation”), purportedly issued by the defendant to the plaintiff, a signature which was not Lal’s (but appears to be that of Shadi’s) appeared under the column of “Buyer”.  It did not contain the company chop of the plaintiff which was required by the document.  The goods and the price stated were exactly the same as those stated in the Commercial Invoice.

43.  Lal claims that he was totally unaware of the unauthorized “transfer of money” to Begin Industrial until on or about 4 March 2010.  He denies that Shadi had told him so.

44.  There was a meeting held at the plaintiff’s office on 11 March 2010 where Shadi, Gary and Lal were present.  Lal claims that, when confronted by him, Shadi admitted that the “transfer” was made without his knowledge or approval.  Further, Gary admitted his mistake/failure in seeking Lal’s confirmation before making the transfer.  Initially, Shadi agreed to repay the sum of US$53,000 by the end of March 2010.  However, shortly before 21 March 2010, Shadi informed him that he could not repay as promised.  Hence, from 22 March 2010 onwards, Lal, on behalf of the plaintiff, started to make demand through various emails to the defendant asking it to repay the money which had purportedly and wrongfully transferred to Begin Industrial without its authority.

45.  Under cross-examination, Lal denies that in January 2010 he knew that the Goods would be delivered to Shadi.  Further, he denies that he had accepted that the defendant would be in breach of the agreement by delivering different goods.  According to him, it is common practice that when a factory is not able to deliver the goods in time, they would suggest the buyer to accept the changes to different goods.  Under such situation, either he would accept the changes or he would wait; or alternatively, the trading company would return his deposit.

46.  In this case, he says that he has accepted the changes and agreed to pay a greater price as he found out that the selling price had also increased in the market.

47.  Under cross-examination, Lal states that he did not know exactly whether it was Shadi who gave instructions to the defendant to pay Begin Industrial or it was Gary and Shadi acting together to do so.  He himself has definitely not given any instructions to either Gary or Shadi to do that.

48.  He also states that he had chased Gary for the delivery of the Goods in January and February 2010 whom he would regard as the representative of the defendant in Paraguay.  On those occasions, Gary gave different excuses for the delay until he told Lal during the first week in March that he had used the money to pay Shadi’s supplier.

49.  He states that even if he had found out about the money being used for other goods and that the transaction might be profitable, he would not participate in the scheme as that would be helping Gary and Shadi to cheat.  He claims that he has never accepted that the Goods would be delivered to Shadi or to the order of Shadi.  He also denies that he had a contract with Shadi and that he was the financial agent of Shadi.

Deepak’s evidence

50.  Deepak is the sole director of the defendant. He is a resident in Hong Kong and has been in the export and import business for over 28 years.  He started his business life by working in the family business with his father and brother.  When the family business was divided up in 2010 between him and his brother, he took over the defendant company.

51.  In this transaction, he states that the defendant received instructions from Gary informing him that he has a customer in Paraguay who wanted to order some goods from them.  The customer was identified by Gary as Shadi.  On 9 November 2009, the defendant received a detailed specification of the goods Shadi wanted to order and on the same date they prepared a sales confirmation no 5362/09 in respect of the order.  The sales confirmation was for the Ordered Goods at US$61,216.38.  The sales confirmation was sent to Gary and was signed by Shadi.

52.  Deepak does not dispute that on 19 November 2009 the defendant received an email from Lal asking them to accept the deposit of US$10,000 for the order and change the customer’s name to that of the plaintiff’s[3].  

53.  Deepak states that apart from this email Lal did not give the defendant any further instructions and did not state whether he was the principal contact person and that the defendant should communicate through him in respect of this order.

54.  In an email on 20 November 2009 by Gary to Deepak, Monica and Mahesh (which was not copied to Lal), Gary tried to explain the following to the defendant:-

“Please see you have received this mail from Mr lal, he is in charge of this order, Shadi is Mr lal client and mr Lal owes money to Shadi so Mr Shadi made this order with us and informed Lal and Mr Lal will make us all the payment for us in china, so i want you to re-issue the S/c and send one copy to Mr Lal and copy to me and he will sign and send the same to you and when you send the S/c copy to Mr Lal ask him who you should contact to get the deposit money…(he has one person in china whom he will tell you to contact so that way you can get the money”

55.  According to him, at all times, it was Shadi who had provided details of the order to the defendant and Lal did not provide any information as to what goods to be ordered.  He claims that, other than agreeing to pay for the order, Lal was not involved in the placing of the order at all.

56.  On 20 November 2009, the defendant amended the sales confirmation by changing the name of the buyer to that of the Plaintiff’s without changing the contents in the rest of the order. 

57.  He does not dispute that it was Lal’s Hong Kong agent/financier HCC (and not Shadi) who paid the defendant the deposit of US$12,000 on 7 December 2009.

58.  Deepak says that on 7 December 2009, the defendant received an email from Gary (which was not copied to Lal) stating that Shadi wanted to change the order to the Goods subsequently stated in the Revised Sales Confirmation.  Deepak says that in this email Shadi has allegedly asked them if they had received the deposit of US$12,000 from HCC as confirmation for the order.   

59.  The defendant issued the Revised Sales Confirmation 5362/09 to reflect the amended order.  The invoice value of the Revised Sales Confirmation was increased to US$64,988.  He claims that the Revised Sales Confirmation was duly signed by the plaintiff and returned to the defendant, although he did not say anything about why the signature was different from that appeared in the Sales Confirmation signed by Lal and was without the company chop.

60.  On 5 January 2010, the defendant issued the Commercial Invoice in respect of the Revised Sales Confirmation in the sum of US$53,040 being the total price of US$65,040 (including a US$32 documentation fees) less deposit of US$12,000 which the defendant had already received from HCC.

61.  Deepak says that on 8 January 2010, HCC, presumably on the order of Lal, paid the defendant the sum of US$53,040 in full settlement of the revised order.  Deepak says that this clearly shows that the plaintiff was fully aware of the revised order; that the order had been amended by Shadi and Lal had accepted the revised order.  He further says that the original order had been revised by Shadi without any input from or involvement of Lal, which indicates to him that Shadi was the ultimate buyer and not the plaintiff or Lal.

62.  He further states that, upon receipt of the revised order, the plaintiff had at no time questioned why and how the original order had been changed or by whom.  According to him, it is reasonable to expect the plaintiff to raise query on any matter if the order was not in accordance with Lal’s requirement upon receiving the Commercial Invoice.  By saying and doing nothing and by making full payment, Deepak considers that Lal had confirmed the instructions of Shadi and also “tacitly confirmed that Shadi was authorized and entitled to give detailed instructions to (the defendant) and make amendments to the order”.  On that basis, he believes that Shadi was entitled and authorized to handle the order on his own without Lal’s specific written approval and that the defendant was authorized to accept instructions and amendments from Shadi.

Gary’s affirmation

63.  Gary did not give evidence.  He has previously filed an affirmation for the summary judgment application taken out by the plaintiff in the same proceedings.  The contents of the affirmation are self-serving and have not been tested by the plaintiff by way of cross-examination.  Despite having plenty of notice and earlier indication through its counsel at the aborted hearing in May 2013 that it would seriously consider calling Gary to give evidence, the defendant has failed to produce him as a witness at the trial.

64.  As Deepak has confirmed in his evidence, there was and still is a close connection between Gary, Mahesh and the defendant. They are still in contact and in fact working in different transactions together. Thus the defendant could have easily arranged Gary to come to Hong Kong to give evidence if it wished to.  The defendant chose not to do so.  As can be seen below, Gary is a material witness in this case.  There are a lot of explanations he needs to give on material events in this case, whether they are related to what he said or done.  I do not accept the defendant’s explanations, provided by counsel in the defendant’s outline opening, namely, that it was due to (i) the disproportional amount of his travelling expenses in comparison of the amount claimed; and (ii) the facts are clearly established by the contemporaneous documents, that Gary was not called.  Reasonable amount of travelling expenses for witnesses travelling from overseas can always be recovered as part of the costs of the proceedings through taxation.  Further, as will become obvious later in this judgment, there are a lot of gaps and inconsistencies in the contemporaneous documents, in particular the email communications between Gary and the defendant, which only he could provide the answers.

DISCUSSION

General Comments on credibility of witnesses

65.  Before I go into the discussion on the different issues in this case, I would like to make some general comments regarding the credibility of the 2 witnesses who have given evidence at the trial.

66.  On the whole, I find Lal as a truthful and honest witness.  He was able to provide a clear and cogent account as to what took place during the transaction.  Although subject to very thorough and skillful cross-examination by the defendant’s counsel, his evidence in my view remained unshaken and intact.  He struck me as an upright and decent businessman.  I believe him when he said that the plaintiff was not the financier of Shadi and had never authorised Shadi to act on behalf the plaintiff.  I also believe him when he said that the plaintiff had never held out to the defendant or anybody that Shadi had authority to do so.  Further, I believe that the plaintiff was the real buyer of the Goods with a view to make a profit out of the transaction.  It is clear that the real rogue in this case is Shadi and the plaintiff was a victim of his calculated acts.

67.  On the other hand, I find Deepak a much more guarded and cautious witness.  Although I would not go as far as saying that he deliberately lied to the court when giving evidence, it is clear that he was not completely upfront regarding the true relationship between Gary and the defendant.  He was very careful in keeping a distance from Gary on one hand and consciously played down the role of Gary in the whole transaction on the other.  He tried to paint a picture that Gary was someone not closely associated with the defendant when the evidence suggests otherwise.  He also tried to put all the blame at the door of Shadi without providing satisfactory explanations as to some of the glaring omissions made by the defendant and some of the suspicious acts done by Gary.  All that he was interested in was the defendant would receive payment for the Goods.  He did not care much about where the instructions had come from, least to check with the plaintiff whether it had authorized the acts of Shadi.  In my view, some of the answers he gave under cross-examination are not compatible with sound commercial practice and some would even go against common sense.

68.  Hence, where there exists any discrepancies between the evidence of Lal and Deepak, I would prefer the evidence of Lal than that of Deepak.

Issues in dispute

69.  Based on the statement of claim and the defence, the parties had, on 11 January 2013, agreed a statement of issues in dispute. However, that has since been taken over by events, including the amendments made by the plaintiff to the statement of claim at the original trial dates in May 2013.  Hence, the parties agreed to adopt the list of issues prepared by the defendant at the beginning of the adjourned trial in October 2013.  In making my findings in this case, I shall, as far as I could and with some necessary modifications where appropriate, follow those issues agreed by the parties. They are:-

(1) Did the defendant enter into a contract with Shadi for the sale of a quantity of mobile telephones?

(2) If the answer to (1) above is in the affirmative, was the plaintiff providing Shadi with the financing to purchase the Goods?

(3) Has the plaintiff proved that Gary acting on behalf of the defendant and Lal acting on behalf of the plaintiff entered into a binding oral agreement for the sale of the Goods?

(4) Did Shadi instruct the defendant to cancel the order for the Goods?

(5) If answer to (4) above is in the affirmative, was the plaintiff aware of such instruction?

(6) Did Shadi instruct the defendant to use part of the money paid by the plaintiff for the Goods ordered by Shadi?

(7) If the answer to (6) above is in the affirmative, was the plaintiff aware of such instruction?

(8) If the court finds that (a) the defendant was instructed by Shadi to cancel the order for the Goods and (b) the plaintiff was at the material time not aware of such instruction, did Shadi have actual or ostensible/apparent authority to give such instruction to the defendant on behalf of the plaintiff?

(9) If the court finds that (a) the defendant was instructed by Shadi to use part of the money paid the plaintiff for the Goods to pay for other goods ordered by Shadi and (b) the plaintiff was at the material time not aware of such instruction, did Shadi have actual or ostensible/apparent authority to give such instruction to the defendant on behalf of the plaintiff?

Findings on different issues

Issue 1: Did the defendant enter into a contract with Shadi for the sale of a quantity of mobile telephones?

70.  In my judgment, the defendant did not enter a contract with Shadi for the sale of the mobile phones and TF cards.  The reasons are as follows.

71.  First, I do not accept for a moment that Shadi was the ultimate purchaser of the Goods and the plaintiff was merely the financer in the transaction as alleged by the defendant.  While it was Shadi who had first approached the defendant through Gary, indicating that he wanted to purchase the Ordered Goods, it is clear that he did not have the financial means to do so.  It was then that he approached Lal for taking over the deal. It is clear that Lal had intended to be the buyer of the Ordered Goods right from the beginning as he corrected Monica through the 19 November 2009 email[4] that the plaintiff was the real buyer and not Shadi.  From the time when the defendant amended the Sales Confirmation to substitute the plaintiff as the buyer of the goods[5], it must be obvious to the defendant that it was the plaintiff and not Shadi who was the true buyer of the goods.

72.  I do not accept Gary’s explanation provided to the defendant in his email on 20 November 2009[6].

73.  Whatever Gary might have said to the defendant regarding what he believed to be the relationship between Lal and Shadi, I would be very slow in accepting that for 2 reasons: (1) that email was never copied to Lal and therefore he did not have the opportunity to contradict whatever information Gary tried to feed the defendant; (2) the defendant has chosen not to call Gary to testify at the trial despite given ample of time and opportunities to do so.

74.  It is now well established law that adverse inferences can be drawn against a party who fails to call a material witness to give evidence at trial or fails to produce material evidence on matters peculiarly within the knowledge of a party and that party might be expected to have material evidence to give on the issue: see Ng Choi Sang v Chu Yu Tim [2009] 4 HKLRD 747 at 757-759; Kao Lee & Yip v Koo Hoi Yan [2003] 3 HKLRD 296 at para 34; and Wisniewski v Central Manchester Health Authority [1998] Lloyd’s Re Med 223 at 240.

75.  I accept Lal’s evidence that it was the plaintiff who had entered the contract with the defendant in this case for the Goods.  All along it was the plaintiff and not Shadi who was the buyer of the Goods. The defendant was well aware of this right from the beginning when Lal insisted that the plaintiff should be stated in the Sales Confirmation as buyer and not Shadi.  I find that Gary, as agent of the defendant based in Paraguay[7] (and not merely a broker as alleged by Deepak), was well aware of this but chose not to relay this to the defendant.  Instead, he wrote a number of misleading emails to the defendant, including the one on 20 November 2009 (which were not copied to Lal or the plaintiff), trying to make them believe that Lal was only the financier of the deal and not the true buyer.  The defendant could have easily found out the situation by sending an email to Lal to confirm this but it had never done so.  All it was interested in was to receive the payments from the plaintiff or its finance agent.  It did not seem to care much about who was the actual buyer of the Goods.

76.  I further accept and find as a fact that Lal did conduct some independent market research and has satisfied himself that a profit could be made before committing the plaintiff to purchase the Ordered Goods.  I also accept Lal’s evidence that he was told by Gary in late December 2009 or early 2010 that the Ordered Goods had been changed to the Goods and he accepted those changes after making independent enquiry on the market condition himself.  The changes were reflected in the subsequent Commercial Invoice issued by the defendant.  Hence, in my judgment, a valid Oral Agreement was made between Lal on behalf of the plaintiff and Gary on behalf of the defendant for the Goods as pleaded by the plaintiff in the amended statement of claim.

77.  In the aforesaid circumstances, I find the defendant did not enter a contract with Shadi for the sale of the Goods.  In truth and in fact, I find the contract was entered between the plaintiff as buyer and the defendant as seller in this case.

Issue 2: Was the plaintiff providing Shadi with the financing to purchase the Goods?

78.  In my judgment, the plaintiff was not playing the role as financer of Shadi in purchasing the Goods.  I find the plaintiff was the true buyer in the case.  I come to this view for several reasons.

79.  First, if the plaintiff was merely the financer and not the buyer of the Goods, there was in my view no reason why Lal had to correct Monica when Shadi tried to manipulate the situation by asking the defendant to insert his name as buyer in the initial sales confirmation dated 19 November 2009.  By insisting that the plaintiff’s name to be inserted as buyer, Lal was aware that it carried all the legal responsibilities (and benefits) as buyer in the transaction. 

80.  Second, in my view, Lal did not have to bother himself with making any independent market research or enquiry before committing the plaintiff to the contract if the plaintiff was merely providing Shadi with the financing to purchase the goods.  As a financer, Lal did not have to concern himself with whether Shadi would likely to make a profit out of the transaction at all.  All he needed to worry about was Shadi’s ability to repay the loan.  Hence, I find the act of Lal in making independent research or enquiry, whether for the Ordered Goods or for the Goods, was more consistent with the plaintiff being the true buyer rather than a financier.

81.  Third, the only person who had ever presented to the defendant that Lal was the financier and not the buyer was Gary himself[8].  As said, Gary was the defendant’s agent in Paraguay.  Although there is no direct evidence on this, the circumstances suggest that Gary knew that Lal was not the financier but the real buyer.  The fact is that Gary was not in court to explain why he believed Lal was the financier and not the real buyer when Lal’s emails both on 19 and 20 November 2009 made it clear that it was the plaintiff who was the buyer and not Shadi.  In my view, the defendant could have easily found out from Lal through email to confirm his true identity in the transaction but they did not.  They chose to believe the words of their own agent instead.  In the circumstances, I think the court is entitled to draw adverse inference against the defendant that Gary knew well that the plaintiff was not the financier of Shadi but the true buyer.  More likely than not, I believe that Gary was colluding with Shadi and was up to no good himself.   

Issue 3: Has the plaintiff proved that Gary acting on behalf of the defendant and Lal acting on behalf of the plaintiff entered into a binding oral agreement for the sale of the Goods?

82.  On this issue, the defendant submits that the plaintiff has failed to prove its case that an oral agreement (as pleaded in the amended statement of claim) has ever existed.  While the defendant admits that there was a contract for the sale of the 800 mobile phones and 1,600 TF cards, it says that the plaintiff has failed to establish that it was a party to the contract.

83.  The plaintiff on the other hand states under the answer to the further & better particulars dated 8 August 2013 that it became a party to the contract as a result of an oral discussion between Lal and Gary and Gary was the person who had made the oral agreement on behalf of the defendant.

84.  Thus, the central question for the plaintiff to establish is whether Gary was an agent of the defendant and therefore had the actual authority from the defendant to conclude the contract on its behalf.  If Gary did not have the actual authority from the defendant to do so, then whether Gary had the apparent or ostensible authority to negotiate and conclude any contract on behalf of the defendant.

85.  Actual authority is the authority which the principal has given the agent wholly or in part by means of words or writing (ie express authority) or is regarded by the laws as having given him because of the interpretation put by the law on the relationship and dealings of the two parties (ie implied authority): see Bowstead on Agency (19^th ed) §3-003 at p112.

86.  Apparent or ostensible authority arises when a person (expressly or impliedly) represents that another person has authority to act on his behalf.  Under this doctrine, the principal who made such representation may be bound as against a third party by the acts of that other person within the authority which that person appears to have, though he had not in fact given that person such authority or had limited the authority by instructions not made known to the third party: see Bowstead on Agency (19^th ed) §3-004 at pp 112-113.

87.  It is trite that authority can be inferred from the conduct of the parties and the circumstances of the case: see for example Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480; Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549.

88.  Mr Colin Wright, counsel for the defendant, submits that Gary’s role was merely to introduce customers to the defendant in Paraguay and to pass on communications from and to the defendant.  He had no actual authority to enter into any contract on behalf of the defendant.  He further submits that the evidence does not establish that Lal was led to believe that Gary was the defendant’s representative in Paraguay as a result of any representation made by the defendant.  He further submits that even if Lal had been led to believe by the defendant that Gary was the defendant’s business representative, that would not be the same thing as a representation by the defendant that Gary was authorized to conclude binding contracts on its behalf.

89.  Mr Wright relies on a passage in Freeman & Lockyear, supra at p 505 Diplock LJ stated that “where the agent upon whose “apparent” authority the contractor relies has no “actual” authority from the corporation to enter into a particular kind of contract with the contractor on behalf of the corporation, the contractor cannot rely upon the agent’s own representation as to his actual authority”.

90.  That is true.  However, the passage went on to say that the commonest form of representation by a principal creating an “apparent” authority of an agent is by conduct, namely, by permitting the agent to act in the management or conduct of the principal’s business (op cit at 505).

91.  The evidence given by Lal, which I accept, is that Gary had actually represented himself as someone who was working for the defendant who possessed the necessary authority from the defendant to negotiate the terms and to enter into contract with the plaintiff.  Although prior to the Oral Agreement, no successful transaction had ever been concluded between the plaintiff and the defendant, through Gary’s introduction, the plaintiff’s buying/finance agent HCC did purchase goods from the defendant before. 

92.  Deepak does not deny this.  He says that it was possible that in May 2008 HCC had purchased the padlocks and remote control cars from the defendant, but more likely in the capacity as financier rather than buyer.  But he does not deny the fact that HCC was introduced by Lal to the defendant.  He simply says that he cannot remember.  He however admits, for that particular purchase, the defendant was represented by Gary.  He also does not deny that there might have been negotiations between the plaintiff and the defendant through Gary before but with no actual transaction being concluded.  He simply cannot remember but says it would be possible as the defendant was “open for business”.

93.  Deepak in his evidence denies that there was any relationship between Gary and the defendant.  To him, Gary was a trading broker who earned a commission by introducing clients to the defendant in Paraguay and Brazil.  He was not on the defendant’s pay-roll.  Deepak admitted however that he would allow brokers or overseas agents like Gary to handle documents like sales confirmations on the defendant’s behalf.  The defendant would send the documents to those brokers or overseas agents for execution by the overseas buyers so long as those documents have “no monetary value”.  He would not however allow any broker to conclude the sale without any of the defendant’s clarification. 

94.  Given the evidence revealed during the trial in this case, I am of the view that it lies ill in the mouth of the defendant to say that Gary did not have the actual authority of the defendant in entering into negotiations with the plaintiff on the Sales Confirmation in November 2009 and the subsequent conclusion of the contract through oral confirmation with Lal. 

95.  In the light of the evidence related to the court by Lal, I do not believe that Gary was merely a broker as Deepak would like the court to believe.  From the evidence, it is clear that Gary worked under Mahesh who was closely associated with the defendant.  According to Deepak, Mahesh was based in Paraguay until about 9 years ago when he was invited by the defendant to base himself in Mainland China as its broker/representative there.  Deepak says that Mahesh has been in this line of business with them for a long time.  In his own words, Mahesh oversaw “the whole operation in sales of the defendant’s company”.  Eventhough he is not a director or shareholder of the defendant, he would be receiving commission for any orders that he successfully brought to the defendant, including orders from “brokers” like Gary who worked under him.  When he moved to China in 2004, Mahesh decided to share part of his business with other “brokers” in Paraguay and Gary was one of them.  In this transaction, it was Mahesh who would be paid by the defendant and he would share his commission with Gary.  If everything went smoothly, Mahesh would have received 16 to 20% of the defendant’s profit as his commission in this case.  However, Deepak does not know how much Mahesh would in turn pay Gary as the defendant did not pay Gary directly.  Thus, Deepak admits that Mahesh would have a financial interest in any sales through Gary since the time when Gary took over the operation of Mahesh in Paraguay.

96.  The fact that Mahesh was closely associated with the defendant can be found in the fact that he used an email address with the name of utaniko_ltd@xxxxx.co.uk.  The defendant was fully aware of this and has never attempted to stop him from doing so.  Although Deepak tries to play down the significance of this in his evidence, in my view, it would have been obvious to anybody dealing with Mahesh that he was an agent of the defendant and not merely as a broker.  A fortiori, Gary who has taken over his operation in Paraguay, should be treated as the same.

97.  Deepak does not deny that the defendant has dealt with Gary in the same way as it had dealt with Mahesh prior to his move to China in 2004.  However, Deepaks claims that they only felt comfortable working with Gary when he was under the supervision of Mahesh.  Hence, this explains why all the email correspondence from Gary was copied to Mahesh in this transaction.  Deepak further admits that Gary was under the supervision of Mahesh in the whole process.  Throughout this transaction, according to Deepak, in all terms and conditions, Gary would go to Mahesh and Mahesh would then in turn come back to the defendant.

98.  In answering to a question put by the court, Deepak admits that he would consider if “brokers” like Mahesh (which presumably would include someone working under him like Gary) are negotiating a deal on behalf of the defendant, they are working for the defendant for that particular deal. 

99.  In the light of the above, I am of the view that the actual authority of Gary can be inferred from the conduct of the parties, in particular the conduct of the defendant and the circumstances of the case, including the fact that it had allowed Gary to negotiate the terms of the contract with its customers in Paraguay.

100.  Deepak admitted that the defendant had sent the Revised Sales Confirmation to Shadi through Gary (instead of Lal or the plaintiff) for signature.  He says that to him this was merely a formality.  In his own words, the defendant relied on the deposit and not the signature.  I do not accept that.  If Deepak truly believed that Shadi was the real buyer and the plaintiff was only the financier, there is no reason why on the Revised Sales Confirmation the identity of the buyer was not changed to Shadi but remained that of the plaintiff.  Further, when it was apparent that the signature was different from that appeared on the Sales Confirmation under the buyer’s column in the Revised Sales Confirmation, (believed by Deepak as that of Shadi but without the company chop from the plaintiff) why the defendant did not immediately raise this with Gary.  In my judgment, the true reason of course is that, as Deepak has frankly admitted in evidence, the defendant was more interested in the deposit paid than who signed the Revised Sales Confirmation on behalf of the plaintiff.

101.  In the circumstances, I am satisfied that, on a balance of probabilities, the plaintiff has established that Gary was acting on behalf of the defendant as an agent who had actual authority from the defendant to act on its behalf and Lal was acting on behalf of the plaintiff and that they had entered into a binding oral agreement for the sale of the Goods. 

Issue 4: Did Shadi instruct the defendant to cancel the order for the Goods?

102.  It is obvious that Shadi was the rouge who had cheated both the plaintiff and the defendant in this case.  However, in my view, he could not have done that without the aid of Gary.  In my view, Gary has played an important role in this.  It is clear from the evidence that Shadi had instructed the defendant to firstly cancel the originally Ordered Goods under the Sales Confirmation and then asked the defendant to divert the money to another factory in China, ie Begin Industrial, for goods he had ordered with them. This was done without the knowledge of the plaintiff.  Deepak has freely admitted this in his evidence[9]. 

103.  Not only did Shadi instruct the defendant to transfer the money paid by the plaintiff to Begin Industrial, he has also instructed the defendant to retain US$452 for the ceramic cutters he had purchased with Begin Industrial which was not related to the goods ordered by the plaintiff under the Sales Confirmation or the Goods which Lal had agreed to change to subsequently with Gary.[10] 

104.  In the ordinary course of events, I would have thought that this would be sufficient to place the defendant on alert to make enquiry with the plaintiff of whether it had authorised Shadi to do so. However, that was not the case as the defendant has simply accepted the offer for the ceramic cutter between 19 and 21 January 2010 first and then transferred the money to Begin Industrial on 26 January 2010 later. 

105.  In was only towards the end of February 2010 that Shadi allegedly told Gary that the goods ordered with Begin Industrial had been detained at the customs in Argentina and could not be released.  Of course, this story might or might not be true as it was Shadi who had come up with this as an excuse for not pay back the defendant.  Further, such claim was related to the defendant by Gary through email only without copying to Lal so the plaintiff was still very much being kept in the dark.[11] 

106.  In the same email, Shadi, through Gary, had asked the defendant to inform the Shenzhen Factory to look for alternative buyer for the Goods ordered by the plaintiff.  This the defendant did by an email written by Monica to the defendant on 1 March 2010[12].  The Shenzhen Factory replied on 4 March 2010 and stated that it would only be prepared to hold the goods until 15 March 2010 and would forfeit the deposit paid after that date if the goods were not taken up by then. Again, the plaintiff was not informed any of this. 

107.  Eventually, the Goods were not delivered at all and the Shenzhen Factory forfeited the US$8,100 held by them.  

108.  In my judgment, it is clear that all the above were done by Shadi (with the assistance of Gary) without the knowledge of Lal.  The defendant could have checked if Shadi had the authority to do all that before transferring the bulk of the plaintiff’s money to another factory, which on the evidence, the plaintiff had no dealing with.  But it was not done.  Instead, it chose to believe its own agent Gary in Paraguay.  In my Judgment, as the defendant’s agent who was acting with its authority, the defendant must be held responsible for Gary’s act.  

Issue 5: Was the plaintiff aware of such instruction to the defendant to cancel the order?

109.  I accept Lal’s evidence that he was not aware of the instruction given by Shadi to the defendant to cancel the order for the Goods.  Besides what Lal has told the court when he gave evidence, all the documentary documents, including the emails written by Gary to the defendant, unequivocally point to the fact that the plaintiff was not aware of such instruction given by Shadi through Gary.

110.  As said, all the emails between Gary and Monica and between Monica and the Shenzhen Factory in relation to the cancellation of the order were not copied to Lal or the plaintiff at all.  Further, there is nothing in the subsequent correspondence between the plaintiff and the defendant which suggests that the plaintiff was aware of such instruction given by Shadi to the defendant.

Issue 6: Did Shadi instruct the defendant to use part of the money paid by the plaintiff for the goods ordered by Shadi?

111.  Based on the above discussion, in my view, it is obvious that Shadi had instructed the defendant to use part of the money paid by the plaintiff for the goods ordered by Shadi.  

Issue 7: Was the plaintiff aware of such instruction?

112.  Again, from the preceding discussion, I would conclude that the plaintiff was not aware of such instruction given by Shadi via Gary at all.

Issue 8: If the court finds that (a) the defendant was instructed by Shadi to cancel the order for the Goods and (b) the plaintiff was at the material time not aware of such instruction, did Shadi have actual or ostensible/apparent authority to give such instruction to the defendant on behalf of the plaintiff?

Issue 9: If the court finds that (a) the defendant was instructed by Shadi to use part of the money paid the plaintiff for the Goods to pay for other goods ordered by Shadi and (b) the plaintiff was at the material time not aware of such instruction, did Shadi have actual or ostensible/apparent authority to give such instruction to the defendant on behalf of the plaintiff?

113.  It will be convenient to deal with above 2 issues together as they are 2 sides of the same coin.

114.  First, I accept Mr Herbert Leung, counsel for the plaintiff’s submissions that actual and apparent authority are two distinct concepts.  In Freeman & Lockyer, supra at pp 502 to 503, Lod Diplock LJ held the following:-

“It is necessary at the outset to distinguish between an “actual” authority of an agent on the one hand, and an “apparent” or “ostensible” authority on the other.  Actual authority and apparent authority are quite independent of one another.  Generally they co-exist and coincide, but either may exist without the other and their respective scopes may be different.  As I shall endeavor to show, it is upon the apparent authority of the agent that the contractor normally relies in the ordinary course of business when entering into contracts.

An “actual” authority is a legal relationship between principal and agent created by a consensual agreement to which they alone are parties.  Its scope is to be ascertained by applying ordinary principles of construction of contracts, including any proper implications from the express words used, the usages of the trade, or the course of business between the parties.  To this agreement the contractor is a stranger; he may be totally ignorant of the existence of any authority on the part of the agent.  Nevertheless, if the agent does enter into a contract pursuant to the “actual” authority, it does create contractual rights and liabilities between the principal and the contractor.  It may be that this rule relating to “undisclosed principals,” which is peculiar to English law, can be rationalized as avoiding circuity of action, for the principal could in equity compel the agent to lend his name in an action to enforce the contract against the contractor, and would at common law be liable to indemnify the agent in respect of the performance of the obligations assumed by the agent under the contract.

An “apparent” or “ostensible” authority, on the other hand, is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the “apparent” authority, so as to render the principal liable to perform any obligations imposed upon him by such contract.  To the relationship so created the agent is a stranger.  He need not be (although he generally is) aware of the existence of the presentation but he must not purport to make the agreement as principal himself.  The representation, when acted upon by the contractor by entering into a contract with the agent, operates as an estoppels, preventing the principal from asserting that he is not bound by the contract.  It is irrelevant whether the agent had actual authority to enter into the contract.”  (underlines added)

115.  The above case was cited with approval by the Court of Final Appeal in Thankakharn Kasikorn Thai Chamkat (Mahacon) v Akai Holdings Ltd (No.2) (2010) 13 HKCFAR 479. 

Did Shadi have actual authority from the plaintiff?

116.  I accept Lal’s evidence that he had never given any authority to Shadi to represent the plaintiff or make any decision in relation to the goods.  There is no evidence coming from the defendant, in particular from Gary, to contradict this.

117.  The defendant seems to be relying on 2 matters which it says would show there was actual authority given by the plaintiff to Shadi.  First, it says that Shadi was given actual authority to change the original order.  Second, it says that Shadi was given actual authority to give instruction to the defendant in relation to the manner of performance of the sale.

118.  On the change of order, the evidence is quite clear that the email which came from Shadi/Gary to the defendant to change the Ordered Goods to the Goods on 9 December 2009 was never copied to Lal.  Since Monica and Deepak were fully aware that Lal had been adamant right from the beginning when the Sales Confirmation was signed that the plaintiff was the real buyer and not Shadi, there is no reason in my view why the defendant should accept on the face of the above email that Shadi had the authority of the plaintiff to change the goods.  Further, I accept Lal’s evidence that Gary came to visit in his office after changing the goods in the order.  In my view, it would be absurd for Gary to visit Lal and informed him about the change of order if all along Lal had already given authority to Shadi to inform the defendant of the change. 

119.  On the manner of performance of the contract, it is quite apparent that Shadi and Gary had kept Lal in the dark as all the relevant emails were not copied to the plaintiff.  It is in my judgment quite clear that the instructions by Shadi were all given without the knowledge or authority of the plaintiff.  In my view, they were done with a view to deceive the defendant to make them into believing that Shadi had the actual authority of the plaintiff to perform the contract when he did not.  I do not accept the defendant’s submission that Lal had acquiesced the instructions given by Shadi to the defendant.  In my opinion, he could not have acquiesced something which he had no knowledge of at all. 

120.  In any event, I agree with the plaintiff’s submissions that the instructions given to the defendant were not essential instructions which the parties needed to complete the transactions.  All the essential instructions for the performance of the contract like payments and shipment details had been given by Lal to the defendant already.    

121.  In the aforesaid circumstances, I agree that no actual authority was given to Shadi by the plaintiff at all. 

Did Shadi have ostensible or apparent authority?

122.  I agree with Mr Leung’s submission that the defendant’s argument that Shadi had the ostensible or apparent authority of the plaintiff must fall the moment when Deepak told the court that he regarded Shadi as the true buyer and not the plaintiff.  In other words, Deepak himself did not consider that Shadi was the agent for the plaintiff.

123.  I further agree with Mr Leung that in order for the defendant to succeed on this issue, the representation of authority in Shadi must come from the plaintiff and not from Shadi himself.  There is no evidence to suggest that the plaintiff has made any representation to the defendant to make it believe that Shadi had the authority to act on its behalf.  The representation, if any, was made by Gary without the knowledge of Lal.  If anything, Lal did correct the purported representation of Shadi when he tried to put his name down as the buyer of the goods in the initial sales confirmation.

124.  In my view, the defendant was not justified into thinking that Shadi was an agent of the plaintiff at the time of the transfer of the money on 26 January 2010 and at the time of cancellation of the order.

125.  In Thanakharn, supra, Lord Neuberger of Abbotsbury NPJ, in giving the judgment for the CFA stated at p 504 at § 45 the following when discussing what representations are capable of creating an apparent authority:-

“45. In a decision of the Supreme Court of Western Australia Court of Appeal, Auxil Pty Ltd v Terranova (2009) 260 ALR 164, para 176, Newnes JA said this about representations capable of creating an apparent authority:

A representation creating an apparent authority of an agent may be made in a number of ways but the most common form of representation by a principal is by conduct, that is, by permitting the agent to act in the management or conduct of the principal’s business. By permitting the agent to act in the management or conduct of the business, the principal thereby represents to anyone dealing with the agent that he or she has authority to do those acts on behalf of the company which an agent authorised to do acts of the kind which he or she is in fact permitted to do normally does in the ordinary course of such business.

This passage reflects what was said by Diplock LJ in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd at pp 503, 505.”

126.  The learned judge went on to state at §§ 52-53 on p 506 that the test is one of “irrationality” rather than “unreasonableness”:-

“52. In a commercial context, absent dishonesty or irrationality, a person should be entitled to rely on what he is told: this may occasionally produce harsh results, but it enables people engaged in business to know where they stand. As to principle, apparent authority is essentially a species of estoppel by representation (see per Diplock LJ in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd, p.503 and per Brennan J in the High Court of Australia in Northside Developments Pty Ltd v Registrar-General (1989-1990) 170 CLR 146, 173-174).  In the field of misrepresentation, it is clear that “it is no defence to an action for rescission that the representee might have discovered its falsity by the exercise of reasonable care” – per Chitty on Contracts (30^th ed, 2008) Vol 1, p 527 para 6-039 and the cases cited in footnote 190.  Even more in point, there is this passage in Halsbury’s Laws of England (4^th ed, Reissue) Vol.16(2), para.1072, dealing with estoppel by representation:

        If … [the party contending that he relied on the representation] really has relied upon its truth, it is no answer to say that, if he had thought about it, he must have known that it was untrue; the representation itself was what put him off his guard.  If the representation is clear and unequivocal … he is under no obligation to make investigation or inquiry to ascertain whether it is true.

53. That proposition is supported (albeit in slightly different commercial contexts) by a number of judicial dicta of high authority, including from Lord Halsbury LC and Lord Herschell in Bloomenthal v Ford [1897] AC 156, 161-162 and 166-167 respectively, and Lord Blackburn in Jones v Gordon (1876-77) 2 App Cas 616, 628-629.  At the end of that last-cited passage, Lord Blackburn provided a characteristically clear explanation of what constitutes blind eye knowledge, or turning a blind eye when he said this:

        [I]f the facts and circumstances are such that the [judge comes] to the conclusion that he was not honestly blundering and careless, but that he must have had a suspicion that there was something wrong, and that he refrained from asking questions, not because he was an honest blunderer or a stupid man, but because he thought in his own secret mind – I suspect there is something wrong, and if I ask questions and make farther inquiry, it will no longer be my suspecting it, but my knowing it, and then I shall not be able to recover – I think that is dishonesty.”

127.  The evidence reveals that it was on 21 January 2010 that the instruction to transfer the money was made[13].  However, the fact that the request had come from Gary and not Lal or Shadi himself should have alerted the defendant that something was not right.  Further, by asking Monica to transfer money belonged to the plaintiff for goods ordered by Shadi (which the defendant had no involvement with) should have put the defendant on notice that something rather unusual was happening. If that was not enough, by asking Monica to prepare an invoice not in the name of the defendant but in the name of another company called Importec (which Deepak has no impression of), it must be obvious to Deepak that something was not making any commercial sense at all. 

128.  However, Deepak chose to turn a blind eye to all the above matters and made no enquiry into them at all.  In my judgment, it was no longer rational for the defendant to rely on the representations made by Gary purportedly on behalf of Shadi anymore by the time when the email was written on 21 January 2010.  It was, in my view, irrational to rely on the apparent authority of Shadi, if any, given by the plaintiff at all, by that stage.

Scope of the actual/apparent authority of Shadi

129.  I agree with Mr Leung’s submission that even if Shadi is found to have actual or apparent authority from the plaintiff (which I find to be not the case), the scope of his authority would not entitle him to instruct the defendant to transfer the money not belonged to him and to cancel the order.

130.  On this, I repeat what Lord Neuberger has stated in Thanakharn, supra cited in § 125 above.

131.  In my view, to cancel the order and transfer money for goods which the plaintiff did not order from the defendant would not be acts which an agent “normally does in the ordinary course of such business.” Further, to cancel the order would result in the forfeiture of the deposits (which was money paid by the plaintiff through its financial agent HCC in Hong Kong) which clearly are acts not in the interest or for the benefit of the principal for which an agent has no authority to do (see Article 23 of Bowstead on Agency, 19^th Edition at [117]-[121]).  Thus, it is my view that even if Shadi has the actual or apparent authority from the plaintiff to enter into the contract (which I do not believe he has), the scope of his authority would not have extended to transfer money belonged to the plaintiff and to cancel the order placed by the plaintiff.  

132.  In the aforestated premises, I am of the view that Shadi had no actual or apparent authority to cancel the order and transfer the money at all.

Conclusion on findings on Issues 1 to 9

133.  In conclusion, my findings on Issues 1 to 9 above is that the defendant is liable to the plaintiff for breach of the Oral Agreement entered into between Gary on behalf of the defendant and Lal on behalf of the plaintiff.

134.  As such, the plaintiff is entitled to the sum of US$65,040 by way of damages it had paid to the defendant.   

The plaintiff’s alternative claim of restitution based on the ground of total failure of consideration

135.  The plaintiff has pleaded an alternative case of total failure of consideration in the amended statement of claim.  Given my conclusions above on the main issues, I shall briefly deal with this matter here.

136.  The plaintiff relies on the unjust enrichment of the defendant in the sum of US$65,040 it had received from the plaintiff.  It says that the enrichment was at the plaintiff’s expense.  Even though HCC financed the plaintiff on the Revised Order, Lal’s evidence is that the plaintiff has to repay the whole sum to HCC eventually.  The enrichment was unjust in the sense that the plaintiff paid the full payment of US$65,040 upon receipt of the Commercial Invoice but had received no goods from the defendant at all. The defendant was well aware that the payment was for the purchase of the 800 mobile phones and 1,600 TF cards and the consideration for the US$65,040 was for those goods.  However, it had never performed its part of the contract and never delivered the Goods.  Thus, there was a total failure of consideration and the enrichment was unjust.  In this regard, the plaintiff relies on the case of Ng Kwok Wing v Wong Nai Ping (unreported) DCCJ 3908/2009 (29 October 2010; Deputy Judge Roy Yu (as he then was)) which cited the cases of Shanghai Tongi Science and Technology Industrial company Limited v Casil Clearing Limited [2004] 3 HKLRD 550 and Stoczniz Gdanska SA v Lativian Shipping Company [1998] 1 WLR 574.           

137.  I agree that, in the particular circumstances of this case and based on my findings that a valid contract had been entered between the plaintiff and the defendant, the defendant has been unjustly enriched in the sum of US$65,040 and failed to provide any consideration for the payment.  As such, I consider that the plaintiff is entitled to the return of US$65,040 from the defendant under this alternative claim also.

CONCLUSION

138.  In the aforestated premises, I shall enter judgment in favour of the plaintiff in the sum of US$65,040.

139.  The plaintiff is also entitled to interest for the said sum of US$65,040 from the date of the breach of the Oral Agreement, say from 1 March 2010 when the Goods should have been delivered to the plaintiff at the latest, to date of judgment at 1% above prime rate and thereafter at judgment rate.

140.  Costs should follow the event.  There will be an order nisi where the defendant shall pay the plaintiff the costs of this action, with certificate for counsel, such costs to be taxed if not agreed. The order nisi will become absolute unless the parties apply to vary the same within 14 days.

141.  It remains for me to thank counsel on both sides for their very helpful assistance.