YOOK TONG ELECTRIC CO. LTD. v. YOUNG DAO SUNG t/a CLEVER LINK INTERNATIONAL CO.

HCA 19274/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.19274 OF 1998

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J U D G M E N T

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The Agreement giving rise to the dispute herein and the relevant terms thereof

1. In this action, the Plaintiff, Yook Tong Electric Company Limited, and the Defendant, Young Dao Sung trading as a sole proprietor under the style of "Clever Link International Company" ("Clever Link"), were, together with one Professor C.C. Chan ("Professor Chan"), partners under a two page home-made agreement in writing dated 5 February 1996 ("the Agreement") whereby the Plaintiff, the Defendant and Professor Chan ("the Agents" when referred to collectively) agreed to act jointly as agents in facilitating the conclusion of contracts for infrastructure construction in the Municipality of Tinian and Aquiguan in the Commonwealth of the Northern Mariana Islands ("Tinian") between the Government of Tinian and construction companies operating in China and Hong Kong to be identified and introduced to the Government of Tinian by the Agents.

2. The Agents intended to charge the contractors who successfully obtained contracts from the Tinian Government commissions which were to be shared between them as follows:

(1) 10% by Professor Chan;

(2) 45% each by the Plaintiff and the Defendant.

3. It was, however, envisaged that before such commissions could be earned, there would be "initial costs of correspondence, transportation, entertainment and other costs". And it was an express term of the Agreement that the Agents would contribute towards the discharge of such expenses as follows:

(1) a sum of HK$10,000 by Professor Chan;

(2) the balance by the Plaintiff and the Defendant equally.

4. It was also envisaged that the Defendant, being charged with all the negotiation and liaison works on behalf of the Agents, would be the one incurring the said expenses subject to reimbursement by Professor Chan and the Plaintiff as aforesaid. Therefore, it was an express term of the Agreement that the Defendant should "keep a clear book record and account for all the expenditure for reimbursement purposes".

Payments by the Plaintiff to the Defendant pursuant to the Agreement

5. It is the Plaintiff's case that pursuant to the Agreement, at the request of the Defendant, it had paid to the Defendant the following sums as its share of the Agents' expenses:

Apart from their co-operation under the Agreement, the Plaintiff and the Defendant also had other business dealings mainly in the form of sale of goods (electrical equipment used by electricians) by the Plaintiff to the Defendant. The figures set out in the third column represented the value of goods sold by the Plaintiff to the Defendant and owing from the Defendant to the Plaintiff. That is to say, the Plaintiff settled part of what the Defendant claimed to be the Plaintiff's share of the Agents' expenses under the Agreement by writing off sums owed by the Defendant to the Plaintiff as a result of other dealings between them.

The Plaintiff's claim

6. By the Writ of Summons issued herein on 12 November 1998, the Plaintiff claimed, inter alia :

(1) An account of how the Defendant had used the sum of HK$637,165.50 (being the sum of the said payments/credits made/given by the Plaintiff to the Defendant before the date of the Writ);

(2) An account of any further additional expenses or costs in or about the Agents' business that had been incurred by the Defendant;

(3) An account of all monies of the Plaintiff in the hands of the Defendant as at 22 October 1998;

(4) An Order for the payment by the Defendant to the Plaintiff of all moneys found to be due from the Defendant to the Plaintiff on the taking of such accounts.

(2) By a three paragraph Affirmation filed herein on 25 April 2000, the Defendant exhibited copies of what appear to be 2 agreements between one Shanghai Electric Corporation ("SEC") and the Tinian Government (acting by and/or through the Mayor of Tinian). It appears that SEC was a contractor identified and introduced to the Tinian Government by the Defendant on behalf of the Agents and such introduction got to a stage where the said agreements were signed. However, by the same Affirmation, the Defendant also claimed that the projects envisaged by the said 2 agreements had never begun.

(3) Further, by his 2nd Affirmation to be mentioned in greater detail in paragraph 17 hereinbelow, the Defendant said that SEC was a replacement of another Chinese contractor called China Cheung Kong who was introduced by Peter Y.S. Wong, another director of the Plaintiff, to the Defendant. However, the key personnel of the said China Cheung Kong absconded following political problems after 6 to 7 months. Although he was able to bring about the said agreements between SEC and the Tinian Government, as a result of the arrest (by the FBI) and imprisonment of the Mayor of Tinian who signed such agreements, the Government of Tinian suspended the same.

(4) The Plaintiff was prepared to accept such assertions by the Defendant. At the hearing before me, the Plaintiff confirmed that it was concerned with only the said payments which it had made to the Defendant and the uses to which they had been put by the Defendant.

Judgment and other relevant Orders against the Defendant and the parties' evidence before the hearing

8. By an Order of Ms. Registrar Chu (as she then was) made herein on 20 May 1999 and by the Judgment entered herein on 29 June 1999 ("the Judgement") pursuant to such Order, the Defendant was ordered, in default of Defence, to, inter alia, deliver to the Plaintiff the said accounts prayed for in the Statement of Claim.

9. The Judgment was followed by an Order made by Master Betty Kwan on 27 October 1999 for compliance within 3 days.

10. By a letter dated 14 April 2000 from Messrs. Chan & Partners acting for the Defendant, to Messrs. Massie & Clement, the Plaintiff's solicitors, the Defendant claimed to have given all the documents (presumably documents in support of his requests for the said payments by the Plaintiff) to Mr. Tsui, a director of the Plaintiff, back in 1998 and accused the Plaintiff of having made a false claim that it did not have the documents. The Defendant reserved his right to make application (presumably to set aside the Judgement).

11. The threatened application was never made.

12. Instead, by another letter dated 26 April 2000 from his solicitors to the Plaintiff's solicitors, the Defendant supplied to the Plaintiff, inter alia,

(1) a one page tabulated summary dated 20 December 1995 containing what appeared to be an account of a sum of HK$296,180 under the headings of "OFFICE EXPENSES", "BUSINESS TRIPS", "ENTERTAINMENT", "SUNDRIES & OTHERS" and "SABLAN CAME TO HKG" for the periods of August to November 1994, December 1994, January to March 1995, April to June 1995, July to September 1995 and October to December 1995 and further referring to a cash sum of HK$65,705;

(2) an undated one page tabulated summary entitled "Expenses of Saipan/Tinian Project 96" and containing what appeared to be a monthly account of a sum of HK$445,130 under the headings of "Office Expenses Tel/Fax etc", "Business Trip", "Entertainment", "Agency Expenses", "Others" and "Cash" from January to October 1996;

(3) an undated one page tabulated summary containing what appeared to be a monthly account of a sum of HK$48,766 under the headings of "Office Exp. Tel., Fax Etc.", "Business Trip", "Entertainment", "Cash Expenses" and "Other Exp. DHL Etc." from January to June of an unspecified year (which was presumably 1997); and

(4) an undated one page tabulated summary containing what appeared to be a monthly account of a sum of HK$307,995 under the headings of "Office Exp. Tel., Fax Etc.", "Business Trip", "Entertainment", "Agency Expenses", "Others" and "Cash" from July to December of an unspecified year (which was again presumably 1997);

The Defendant, however, did not on this occasion include any documents in support of the figures shown in the said 4 sets of "account".

13. By an Order made by Master Jones herein on 7 July 2000, the Defendant was ordered to file and serve an Affirmation "either disclosing any vouchers in his possession, or explaining that he has not got any voucher and why not". The Defendant appeared in person at the hearing at which this Order was made.

14. Instead of making an Affirmation, by a letter dated 19 July 2000, the Defendant

(1) provided to the Plaintiff a bundle of copy documents evidencing expenses totalling HK$237,670.37 only;

(2) claimed that such documents were the only relevant papers that he had retained and that others had been lost as a result of either Clever Link moving office after December 1998 or being discarded by him in mid 1999 for want of storage space.

15. By an Order made herein on 11 December 2000, Mr. Registrar Chan ordered, inter alia,

(1) the Plaintiff to file and serve affidavits from its duly authorised officers within 14 days "detailing the Plaintiff's claim and how it arises and the manner and effect of the Defendant's answer thereto to date";

(2) the Defendant to file and serve an Affirmation containing accounts and verifying the same, and exhibiting all vouchers and documents in support in his possession custody or power within 14 days thereafter;

(3) the Defendant to make discovery on oath of "all bank account records, cheques and/or cheque stubs, credit and charge card records or other financial records showing his income and expenditure during the periods from the execution of the [Agreement] to date" also within 14 days after the service of the Plaintiff's said affidavits.

16. By an Affirmation filed herein on 6 February 2001, Mr. Chui Lam Sum ("Mr. Chui"), a director of the Plaintiff,

(1) deposed to the payments/set-offs set out in paragraph 5 hereinabove;

(2) produced copies of

(A) the Plaintiff's cheques and the Defendant's receipts for the said payments;

(B) the "accounts" submitted by the Defendant which according to Mr. Chui were not supported by any vouchers;

(C) the Defendant's said letter dated 19 July 2002 and the enclosures thereto;

(3) made the point that the copy documents supplied by the Defendant in July 2000 only supported a total sum of HK$237,670.77 leaving a balance sum of HK$1,544,270, i.e. (HK$890,970.50 x 2) - HK$237,670.77 unsubstantiated.

I have already described 4 of the Defendant's "accounts" in paragraph 12 hereinabove. I shall deal with the remaining ones in greater detail in paragraph 22 hereinbelow.

17. By his 2nd Affirmation filed herein on 24 March 2001, the Defendant did not accept that the Plaintiff had paid him more than the sum of HK$637,165.50 specifically pleaded in the Statement of Claim. According to the Defendant, the difference between HK$637,165.50 and HK$890,970.50 had to do with other business dealings between the Plaintiff and the Defendant. He further asserted that

(1) He had attached receipts to his accounts when he submitted them to the said Mr. Peter Wong of the Plaintiff.

(2) He did not have copies of such receipts for a number of reasons:

(A) Firstly, when he took the Chinese contractors' representatives to Tinian, they took away the receipts so that they could make claims to their employers for such expenses.

(B) Secondly, he moved his office from C.C. Wu Building to Wong Chuk Hang in 1997. He further moved all the things in his office to a warehouse in Kwun Tong in mid 1998. When he could no longer afford the warehouse charges in January or February 1999, he moved these things back to his home. In the course of these removals, many things including the receipts asked for by the Plaintiff had been lost.

(3) He had in fact put up more than HK$2 million on account of expenses under the Agreement.

18. By his 2nd Affirmation filed herein on 2 November 2001, Mr. Chui answered in detail as to how and why the Plaintiff effected each of the said payments/set-offs in the absence of supporting documents, which evidence was repeated by Mr. Chui viva voce before me and which I will deal with in paragraph 22 hereinbelow.

The issue before me

19. As said earlier, at the hearing before me, the Plaintiff was only concerned with the said payments which it had made to the Defendant and the uses to which they had been put by the Defendant.

The Plaintiff's evidence at the hearing

20. The Defendant did not appear.

21. Mr. Chui, in addition to confirming the truth of his said Affirmation, gave detailed viva voce evidence of how the Plaintiff effected the payments and the set-offs set out in paragraph 5 hereinabove.

22. More particularly,

(1) Mr. Chui and the Defendant had agreed on the amount to be off set each time after the latter submitted to the former a claim for reimbursement under the Agreement. Mr. Chui would then make arrangement for the payment of the balance by cheque.

(2) The payments and set-off dated 2 and 24 February 1996 were made by the Plaintiff against the Defendant's "account" mentioned in paragraph 12(1) hereinabove. The aggregate sum of these payments and set-off, i.e. HK$175,942.50 represented 50% of HK$361,885, i.e. HK$296,180 plus HK$65,705 less HK$10,000 (which was Professor Chan's share).

(3) As for the payments and set-off dated 26 November, 5 December 1996 and 13 January 1997,

(A) They were made by the Plaintiff on the basis of the Defendant's "account" mentioned in paragraph 12(2) hereinabove and another undated monthly breakdown of a sum of HK$108,930 under the headings of "Office Expenses Tel/Fax etc.", "Business Trip", "Entertainment", "Attorney Fee" and "Others" for November and December 1996.

(B) The aggregate sum of these payments and set-off, i.e. HK$277,030 represented 50% of HK$554,060, i.e. HK$445,130 plus HK$108,930.

(B) The aggregate sum of these payments and set-off, i.e. HK$184,193 represented 50% of HK$368,386, i.e. HK$48,1766 plus HK$319,620.

(B) In claiming such payment, the Defendant submitted to the Plaintiff

(a) a Chinese letter dated 24 November 1998 setting out what purported to be a monthly "account" of HK$507,610 but which he said did not cover all his actual expenses; and

(b) Clever Link's invoice No.002357 dated 30 November 1998 for HK$253,805 being the Plaintiff's 50% share.

The headings of expenses read as follows : "ordinary expenses", "trip to Tinian for about 1 week to accompany SEC to prepare for commencement of project", "urgent trip to Tinian to investigate causes of event", "other expenses", "trip to Tinian to work ans to attend the Tinian representative", "trip to Hong Kong and Macau", "other cash expenses", "another trip to Tinian to work and stay in Tinian to wait for arrangement for prepayment and result of meeting, etc.", "expenses for trip to Tinian", "trip to the Philippines to meet representative of Tinian" and "trip to Hong Kong by representative of Tinian".

23. Mr. Chui also said that

(1) The said "accounts" were the only documents produced by the Defendant in claiming reimbursements by the Plaintiff under the Agreement.

(2) The Plaintiff asked the Defendant for supporting documents on every occasion when the Defendant claimed for reimbursement by the Plaintiff. The Plaintiff sometimes withheld a part of the sum claimed by the Defendant for want of supporting documents.

(3) The Defendant invariably had some excuse as to why the relevant records were not ready and he needed time to sort them out. The Defendant told the Plaintiff, e.g. that his records for the Tinian project were confusing and in chaos because of the said change of contractor, that he had spent a lot of time on negotiations and had forgotten about record keeping, that some of his employees had left and things had been left untidy, etc.

(4) In addition, there was always a reason why reimbursement by the Plaintiff could not be delayed to wait for the Defendant to tidy up his records. He said, e.g. that cash flow was tight because it was Chinese New Year, that some money was needed immediately to finalise the draft contract

(5) The Plaintiff effected the said payments/set-offs against the Defendant's promises to provide it with supporting documents later. The Plaintiff was further led to believe that the project envisaged by the Agreement was still on foot. In this regard, the Defendant often gave the Plaintiff "news" as to the continuation of the project such as a visit by officials of the Tinian Government, favourable reports in the Tinian press, etc. It therefore assumed that some expenses had been incurred by the Defendant and the Plaintiff wanted to perform its side of the bargain.

(6) The Plaintiff had never stopped pressing the Defendant for documents in support of any of the figures shown in his said various "accounts".

(7) The Defendant, however, never made good his promises to provide the same.

(8) It was not until the Defendant's said letter of 19 July 2000 that the Plaintiff eventually got some primary documents from the Defendant. The Plaintiff was prepared to accept that all the expenses shown in these documents were on account of the Agreement.

My findings

24. I accept Mr. Chui's said testimony.

25. I note the Defendant's assertions that his "accounts" in the total sum of HK$1,781,941 to the Plaintiff were accompanied by the relevant receipts and that he had since lost the same. I also note the Defendant's disagreement regarding the payment and set-off which the Plaintiff claims to have effected after the issue of the Writ of Summons herein.

26. One has to distinguish the payments/set-offs before and after the issue of the Writ of Summons herein.

27. With regard to the payments/set-offs effected prior to the issue of the Writ of Summons herein in sums totalling HK$637,165.50,

(1) The Defendant has been specifically ordered to account for the same.

(2) This part of the Judgment is essentially premised upon the Defendant not having accounted or sufficiently accounted for such payments/set-offs.

(3) It is simply not open to the Defendant to contend or for me to find otherwise as long as the Judgment stands (which it does).

28. Nor is it possible for me to accept the Defendant's explanations as to why he cannot now produce documents in support of such expenses. In this connection, I also accept Mr. Chui's evidence that the Plaintiff had continued to chase the Defendant up for supporting documents. It is inconceivable to my mind that the Defendant would then allow such documents, not only to be mixed up with other documents of Clever Link, but also be lost or abandoned if he had truly incurred the expenses claimed. In particular, such documents, if they existed, could not be so voluminous that the Defendant could not store them. Indeed, the simplest solution would be for the Defendant to hand over the documents to the Plaintiff if the Defendant did have any problem storing them.

29. As for the payment and set-off dated 3 December 1998 and totalling HK$253,805,

(1) The Defendant did not dispute the facts of such payment and set-off. He merely said that they were not related to the Agreement but some other unspecified business dealings between him and the Plaintiff.

(2) However, HK$253,805 was exactly 50% of the sum of HK$507,610 claimed by the Defendant's said letter dated 24 November 1998 and was the same sum as that claimed under Clever Link's said invoice dated 30 November 1998. Both documents attributed the said sums to the Tinian project and nothing else.

(3) In the course of his oral evidence, Mr. Chui produced a copy statement of the Plaintiff's current account No.064-776-0-007447-3 with Hua Chiao Commercial Bank Limited which showed a withdrawal of HK$53,805 by cheque No.421131.

(4) Although I find it hard to understand why the Plaintiff made this payment notwithstanding the pendency of this action, on the said evidence, I find that the Plaintiff had after the issue of the Writ of Summons herein on 3 December 1998 written off a sum of HK$200,000 then owed from the Defendant to the Plaintiff and further paid the Defendant HK$53,805 by cheque. I also find that such payment and set-off were effected by the Plaintiff pursuant to the Agreement.

30. Secondly, I reject the Defendant's claim that he had substantiated this last claim for reimbursement to the Plaintiff at the time when he made the same. His said letter dated 24 November 1998 by which he purported to give a month by month breakdown did not refer to any supporting documents having been enclosed.

31. Thirdly, I also reject the Defendant's assertion that he had incurred expenses of HK$507,610 on behalf of the Agents in 1998 and his explanations as to why he cannot now produce documents in support of such expenses. With regard to the latter point, what I have said in paragraph 28 hereinabove applies more strongly here :

(1) The Plaintiff sent to the Defendant a letter before action on 22 October 1998.

(2) The Writ of Summons herein was issued on 12 November 1998.

(3) The Defendant must have been left in no doubt that the Plaintiff was not prepared to accept his bare claims and wanted to see supporting documents.

(4) These expenses were incurred in 1998. The alleged move of the Defendant's office to Wong Chuk Hang in 1997 was irrelevant.

32. The Defendant was bound by an express term of the Agreement to keep an account in order to claim reimbursement from the Plaintiff. The Defendant did not dispute that "account" meant a substantiated account.

33. As said earlier, the copy documents which the Defendant eventually produced under the cover of his said letter dated 19 July 2000 only substantiated expenses as follows:

34. The differences between the Plaintiff had paid and what the Defendant had been able to substantiated were :

35. The Defendant was not entitled to the sums set in the last column and should refund the same to the Plaintiff. I hereby certify that the sum of HK$783,820.47 is due from the Defendant to the Plaintiff. I order the Defendant to pay the Plaintiff the said sum of HK$783,820.47 with interest at the rate of 1% above the prime lending rate for Hong Kong dollars up to the date hereof as follows :

(1) on HK$169,546.09 from 24 February 1996;

(2) on HK$235,035.135 from 13 January 1997;

(3) on HK$125,434.745 from 16 January 1998; and

(4) on HK$247,119.345 from 3 December 1998.

I give the Defendant 14 days from the date of his being served with a sealed copy of this Order to make payment to the Plaintiff.

36. I also make an order nisi that the Defendant pays the Plaintiff's costs of this action, such costs to be taxed if not agreed.