FABRICA DE VESTUARIO PENG KUNG LTD v. SANSEY TRADING CO

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

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JUDGMENT

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The Dispute

1. The plaintiff says that parties entered into a contract on 23 August 1993 under which the plaintiff sold and the defendants purchased some clothing for an agreed price of $257,088. The garments were delivered to the defendants on 2 September 1993. The plaintiff alleges that the defendants have failed to pay the price.

2. The defendants say that the contract was entered into on 10 May 1993 and the price was $249,375.36. The defendants plead that an invoice for $257,088 "have been settled by the Defendants' staff Mr. Fung Wai Chung at the Plaintiff's Office in Macau in September 1993 and the payment was made by cash to the Plaintiff. At the Plaintiff's request, a sum of HK$249,376.00 as full and final settlement of the said invoice was paid by Mr. Fung to Madam Kong Hoi In, the authorised person of the Plaintiff, who has acknowledged receipt.".

The Evidence Generally

3. The plaintiff called only one witness; Madam Kong Hoi In.

4. The defendants called three witnesses; Madam Fung Wai Lan, Elsa, who is one of the defendants, Madam Fung Wai Luen, Linda, who is the sister of Elsa, and Mr Fung Wai Chung, Danny, who is the younger brother of Elsa and Linda.

5. All the witnesses were of poor quality. Even Linda Fung, who was called only to say that she had, at the request of Elsa Fung in late August or early September 1993, lent $360,000 to the defendants, managed to convey a distinct lack of worthiness of belief. The other three witnesses were all unconvincing; they were evasive, they contradicted themselves, were contradicted by what they had said in earlier written statements and they were contradicted by contemporaneous written documents.

Madam Kong Hoi In

6. In her written statement, confirmed on oath, Madam Kong said that she was the sole beneficial shareholder of the plaintiff. It was her custom to chop and sign all invoices issued by the plaintiff to verify their accuracy. She said that the practice of acknowledging receipt by the plaintiff was to issue an official receipt, although she was not able to produce a copy of any such receipt issued by the plaintiff. Alternatively, she said, the plaintiff issued a letter authorising its customer to pay someone else. There were several examples of this practice amongst the papers. Madam Kong said that the defendants had not paid the amount claimed.

7. In a supplementary statement, again confirmed on oath, Madam Kong said that no complaint about the quality of the goods "had ever been raised at all". During her oral evidence, she accepted that this was wrong when she was shown a letter from the defendants, written after it was alleged payment had been made, complaining about defects in the goods. This letter, dated 17 December 1993, said that the customer wanted to return the goods, but it makes no mention of the defendants being repaid the price that they say had already been paid. Elsa Fung suggests that the letter says this by implication. I do not agree.

8. Madam Kong said that the rebate was not shown on the invoice, but was provided for in the contract. The witness was obliged to resile from this when it became apparent that several invoices showed the rebate. Sometimes, she said, the rebate was not shown on the contract.

9. In her oral evidence, Madam Kong said that she always sent the original of the invoice and the packing list to her customer by courier. She said that she did not fax copies, although it appears from documents produced that she did fax copies on occasion. She did so, she said, when the customer was in urgent need of the document. If payments were made to the plaintiff, she would acknowledge receipt on the customer's invoice, or issue a receipt if requested. She had received payments in cash from the defendants, one of $30,000 she remembered, and she gave a note acknowledging receipt. Under cross-examination, she seemed to have forgotten this, saying that she had not received cash from the defendants. Later, she remembered again that Elsa Fung and Danny had brought money to her in Macau. On these occasions, she issued receipts, but she could not find copies; she believed that they had been destroyed in a fire.

10. After demanding payment, she sent collection agents to demand payment in November 1993.

11. Under cross-examination, Madam Kong agreed that she and the defendants had been good friends. She had tried to find copies of receipts issued, but she was unable to produce any. When she sent an employee to collect money from the defendants, they would issue a cheque and the employee would cash this. Her employee had told her this.

Madam Fung Wai Lan, Elsa

12. Madam Elsa Fung confirmed her written statement on oath. In that statement, she said that the contract price was agreed subject to a rebate of 3%. When the goods were inspected in August 1993, they were not satisfactory, but she agreed with Madam Kong that the goods would be delivered to the defendants' customer and, if the customer complained, the plaintiff would accept responsibility. In order to persuade the defendants to accept the goods, the plaintiff agreed to allow the defendants to settle the price after the customer had paid. The customer did complain, she said, but did not express any intention of rejecting the goods. This, of course, is not what the defendants' letter of 17 December 1993 says. This clearly indicated that the customer wanted to return the goods.

13. In mid September 1993, Madam Kong telephoned asking for payment urgently to enable her to pay the balance of the price of a property in Macau. Elsa Fung promised to settle the price as soon as possible. The defendants had not received payment from the customer and did not have the money to pay, so the witness asked Linda Fung to help. Linda was unwilling, but Elsa persuaded her to help. In late September or early October 1993, Linda lent $360,000 to the defendants. She immediately told Madam Kong that the price was ready and asked her to come to Hong Kong to collect it. Madam Kong said she had no one else to look after the factory and asked if Danny could bring the money to her. She asked Danny but he refused, saying it was very dangerous to take such a large sum in cash to Macau. A few days later, on her repeated requests, however, he agreed. She gave him $250,000 in cash in an envelope. A few days later, Danny gave her the invoice "on which the chop of Peng Kung was affixed and Madam Kong acknowledged receipt of $249,376.00 from Danny.".

14. In her oral evidence, Elsa Fung explained that the defendants paid the plaintiff for goods supplied in a number of different ways; sometimes the plaintiff sent someone to collect it, sometimes Madam Kong herself came, sometimes the plaintiff instructed the defendants to pay someone else, sometimes the plaintiff instructed the defendants to pay into the plaintiff's account and sometimes she or Danny took the money to her in Macau. The plaintiff never issued an official receipt. The plaintiff would give the defendants the invoice and Elsa regarded this as a receipt. The witness described agents sent by the plaintiff harassing her. This was in 1994. She complained to the police.

15. Under cross-examination, Elsa Fung said that the plaintiff's subcontractor had telephoned her asking for payment. Her customer did not reject the goods because she promised to charge less on the next order. She confirmed that she regarded the issue of an invoice as a receipt for payment. She said that the defendants prepared their documentation for the sale of the goods to their customer without reference to any documents issued by the plaintiff, although she conceded that the defendants would need to phone the plaintiff for information to enable the defendants to complete the documents. She eventually conceded that it would be easier to ask the plaintiff to fax their documents to her than to seek the information over the telephone, but she was unable to explain why she did not ask for copies of the plaintiff's documents.

16. She and Danny, together or separately, had paid money to the plaintiff in Macau. On these occasions, they received only the plaintiff's invoiced chopped and signed. She did not ask for a receipt or acknowledgement of payment. She agreed that, in this situation, there would be nothing on the invoice to say that the defendants had paid. Madam Kong was in urgent need of the money, but, although there was a delay because of Danny unwillingness, she did not consider paying the money into Madam Kong's account, as she had done before, because Madam Kong did not ask her to do so. When asked if a cashier's order would not be as good as cash, the witness said that Madam Kong was in need of cash and this was not the first time the defendants had sent a lot of cash. She said that Danny came back from Macau the same day, and gave her the invoice the next day. She said she did not know if he gave it to her a few days later.

Mr Fung Wai Chung, Danny

17. The weight of the defendant's case rests on the shoulders of Danny Fung. He is the one who, it is said by the defendants, paid Madam Kong. There were no witnesses to this alleged payment, and there are no written documents to corroborate what he says.

18. In his written statement, confirmed on oath, Danny Fung said that, in late September or early October 1993, Elsa asked him to take $250,000 to Macau to pay Madam Kong. At first, he said, he refused to do this because "I thought it was rather dangerous to take such a large amount of cash to Macau". However, a few days later, after repeated requests by Elsa, he agreed. He took the money to Macau. He arrived at the plaintiff's factory in the evening. Only Madam Kong was there. He gave the $250,000 in cash to Madam Kong and asked her to check it. She did so and gave him $600 in change. "I asked Madam Kong for a receipt but she said the invoice would do. She signed her name and put the chop of Peng Kung on [it] and gave it to me." He then left. A few days later, he gave the invoice to Madam Kong.

19. In his oral evidence, Danny Fung said that he had taken cash to Madam Kong in Macau before. When he had done this before, Madam Kong had written on the invoice that she had received payment. This contradicted what he has said earlier; that he had not asked her to acknowledge receipt on other occasions. On these occasions, the amounts involved were about $50,000 and $90,000. On the occasion in issue, he wrote on the invoice, in Madam Kong's presence, the characters meaning "I, Fung Wai Chung, on behalf of Sansey Trading Co hereby pay HK$249,376.00 (Contract 229) by cash to Fabrica De Vestuario Peng Kung Ltd." He did so, he says, because the amount was substantial.

20. Under cross-examination, he said that he was unhappy about taking the money because he thought it was unnecessary. It was not because it was dangerous. When it was pointed out to him that he had already said he thought it was dangerous, he was thrown into confusion. Eventually, he said he thought unnecessary and dangerous were much the same thing. He said that he had told Elsa that he thought Madam Kong should send someone to collect the money. He said that they did not consider remitting the money, as the defendants had done before, or getting a cashier's order. He said he asked Madam Kong to acknowledge receipt on the invoice as proof that she had received the money. But Madam Kong declined to do this and told him to write on the invoice himself as she counted the money. He could not remember whether Madam Kong's signature and the chop were already on the invoice when he wrote on it. He did not ask her to write the characters for "Paid" on the invoice because this had happened so many times before and it did not cross his mind.

21. Danny does not suggest, as the amended defence pleads, that it was at the plaintiff's request that a sum of HK$249,376.00 was paid as full and final settlement. Indeed, he does not explain at all how this figure was arrived at. Nor does Danny suggest, as the amended defence also pleads, that Madam Kong acknowledged receipt of this money. In fact, his evidence is that he asked her to acknowledge receipt and she refused to do so.

The Probabilities

22. There is no real possibility of a mistake in this matter. Either payment was made, and Madam Kong knows this, or payment was not made, and Danny Fung knows this. It is, of course, improbable that a seller of goods who had knowingly received payment for them would then sue, but this is counterbalanced by the improbability that the purchaser of goods, who knows he has not paid for them, would say that he had paid. Someone in this matter is being outrageously deceitful.

23. The issue in this case is whether or not Danny Fung paid the money as he has deposed. Is it probable that any sensible person - and it is clear to me that Danny is not a fool - would hand over a quarter of a million dollars in cash to Madam Kong, demand an acknowledgement for the payment - as he had on other occasions, with this demand being satisfied - have this reasonable request refused, content with himself writing the fact of payment on the invoice and leave without any means of demonstrating to the defendants that he had, in fact, paid over this large amount of cash? The answer to that question must be that it is extremely unlikely. There is no doubt, on his own evidence, that Danny was conscious of the importance of obtaining an acknowledgement of payment of the cash. His evidence was that he had asked for, and received, such an acknowledgement on other occasions, and, on those occasions, a far smaller sum of money was involved. I do not believe that, on this occasion, if he had paid over such a sum in cash, he would not have insisted upon Madam Kong acknowledging the receipt in writing. There was no reason why Madam Kong should not have done so. It would have been a very simple act; merely scribbling a few characters on the invoice in front of her. The fact that she initially declined to do so would have made any reasonable person worried and more insistent that such an acknowledgement be given. This is especially so when the transaction was conducted without any witnesses being present.

24. I believe the onus in this matter is on the defendants. There was an admitted debt due by the defendants to the plaintiff. The defendants say that they discharged this debt by payment. It is for them to establish this on the balance of probabilities. But it matters little where the onus lies. The position is that the balance of probabilities favour the fact that there was no payment as alleged by Danny Fung, so, even if the onus lay upon the plaintiff, it has been discharged.

25. It is, of course, just possible that the truth is that the plaintiff was paid, but, if the defendants find themselves in the position of having to pay twice, that is something they have brought on themselves.

The Result

26. In the result, I find, as a matter of probability that Danny Fung did not pay the money to the plaintiff as alleged by the defendants. It follows that the plaintiff is entitled to judgment for the price as claimed. The sum of $257,088 will bear interest at the judgment rate from the date of judgment to the date of payment. I have no material on which to assess the interest payable before judgment. If the parties cannot agree on this, it will be necessary to bring the matter before me again. There will also be an order nisi that the defendant pay the plaintiff's costs.