HONG KONG BALANCE INTERNATIONAL TRADING & LOGISTICS CO., LTD v. KWOK YIK HUNG and NG KWOK WAI t/a ALPHA HEALTHCARE & TECHNOLOGY COMPANY

DCCJ 3716/2021

[2024] HKDC 322

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3716 OF 2021

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JUDGMENT

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Introduction

1.  This is the Plaintiff’s claim against the Defendants for repudiatory breach of three contracts for sale of N95 masks (“masks”) by failing to deliver the masks under the contracts. The Plaintiff seeks recovery of the sums and deposits paid under those three contracts.

2.  The Defendants’ case is that they have performed the first contract and have never entered into the alleged second and third contracts with the Plaintiff.

Background facts

3.  The Plaintiff is a limited company incorporated in Hong Kong on 27 February 2020.

4.  According to the Plaintiff, Mr. Deng Hanyu (“Deng”) is a shareholder and director of the Plaintiff.

5.  The Defendants, Kwok Yik Hung (“Kwok”) and Ng Kwok Wai (“Ng”), are partners of the partnership trading as Alpha Healthcare & Technology Company (“Alpha Healthcare”) and carrying on business as a supplier of masks.

6.  At all material times until 3 February 2021, a Timothy Chan (“Chan”) was employed as an account manager of Alpha Healthcare. It is the Plaintiff’s case that Chan had actual and/or apparent authority to conduct business on Alpha Healthcare’s behalf.

The Plaintiff’s belated application to adduce further evidence

7.  On the first day of trial, the Plaintiff made an application for leave to adduce the audio recordings of three days of the trial (the “audio recordings”) of the criminal proceedings in STCC 1888/2022 in which Chan was charged with fraud and, alternatively, theft (the “criminal proceedings”) in relation to the transactions in dispute in these proceedings.

8.  In the criminal proceedings which concluded on 3 November 2023, Chan was acquitted of all charges.

9.  The Defendants have produced in these proceedings the amended brief facts, charge sheet, amended charge sheet and transcript of Deng’s oral evidence as prosecution witness and the learned magistrate’s verdict in the criminal proceedings. The new evidence which the Plaintiff seeks to produce purportedly relates to the oral evidence of Chan and Ng in the criminal proceedings.

10.  The Plaintiff’s application was opposed by the Defendants.

11.  It is trite that a party giving discovery at the eleventh hour should properly explain inter alia:

(a)  why such evidence was not disclosed earlier; and

(b)  what the relevance of such evidence to the issues at trial is.

12.  In relation to the lateness of disclosure, no good explanation was given by the Plaintiff as to why:

(a)  no steps were taken to apply to the criminal court for production of the audio recordings after the conclusion of the criminal proceedings;

(b)  no steps were taken until 10 January 2024 to apply to the criminal court after the Plaintiff had learnt on 11 December 2023 at the pre-trial review of these proceedings that the Defendants had only applied for the transcript of Deng’s oral evidence and the verdict in the criminal proceedings, but not the transcript of Chan’s and Ng’s evidence;

(c)  no steps were taken to prepare a transcript of the audio recordings after receiving the same from the criminal court on 5 February 2024; and

(d)  no application was made to adduce the audio recordings until the first day of the trial in these proceedings.

13.  The audio recordings purportedly cover three days of the criminal proceedings. Not only did the Plaintiff fail to produce any transcript of the same, the audio recordings themselves were also not provided to the Court. In the premises, the Court did not even know what the contents of those recordings are and was therefore not in a position to consider the relevance of the same.

14.  In any event, the Court could not be expected to listen to the audio recordings of three days of the oral evidence given in the criminal proceedings during the period set down for trial to decide whether the contents of such audio recordings are relevant to the issues in dispute in these proceedings.

15.  By reason of the above, the Plaintiff’s application to adduce the audio recordings was dismissed, with costs to the Defendants, to be taxed if not agreed.

The Plaintiff’s case

16.  It is the Plaintiff’s case that on or around 14 March 2020, Deng on behalf of the Plaintiff entered into a contract with Chan acting on behalf of the Defendants to purchase one batch of 20 cases of masks (“Batch 1”) and one batch of 25 cases of masks (“Batch 2”) from Alpha Healthcare at HK$2,100 per case.

17.  On the same day, Deng received from Chan two invoices both dated 14 March 2020 issued by Alpha Healthcare numbered respectively IV20031404 for Batch 1 in the amount of HK$42,000 and IV20031405 for Batch 2 in the amount of HK$52,500.

18.  Batch 1 is the subject matter of the first contract (the “First Contract”) under which the Plaintiff claims against the Defendants in this action.

19.  On 16 March 2020, Deng on behalf of the Plaintiff transferred HK$94,500 to the Alpha Healthcare’s bank account as stipulated on the invoices.

20.  On 17 March 2020, Chan informed Deng that a customer of Alpha Healthcare had cancelled an order for 20 cases of masks. Chan on behalf of Alpha Healthcare offered to sell those 20 cases of masks (“Batch 3”) to the Plaintiff at HK$2,100 per case. The Plaintiff accepted the offer.

21.  On the same day, Chan sent an invoice dated 17 March 2020 issued by Alpha Healthcare numbered IV20031705 for Batch 3 in the amount of HK$42,000 to Deng. Deng noticed that the invoice stipulated that payment was to be made by cheque made payable to Alpha Healthcare or bank transfer to Alpha Healthcare’s bank account.

22.  Notwithstanding the above, Deng transferred a sum of HK$42,000 to Chan’s personal bank account as requested by Chan.

23.  On 8 April 2020, Chan informed Deng that Batch 2 and Batch 3 were delivered to Hong Kong and stocked in Alpha Healthcare’s warehouse (the “Warehouse”).

24.  On 4 May 2020, pursuant to Deng’s instructions, Chan delivered one case of masks to Deng at Mongkok MTR station, whereupon the Plaintiff had 44 cases of masks remaining in the Warehouse.

25.  On 25 May 2020, Deng noticed that the invoices for Batch 1 and Batch 2 were billed to him personally, rather than to the Plaintiff. He also noticed that the invoice for Batch 3 was not billed to Deng or the Plaintiff, but to an unknown third party.

26.  Pursuant to Deng’s request, Chan replaced the invoices for Batch 2 and Batch 3 with invoices numbered respectively IV20050601 dated 6 May 2020 and IV20051202 dated 12 May 2020.

27.  On 1 June 2020, Deng went to the Warehouse and took away one case of masks, whereupon the Plaintiff had 43 cases of masks remaining in the Warehouse.

28.  In around mid-June 2020, the Plaintiff concluded a contract with its customer in the US, namely Seven Bubbles Inc. (“Seven Bubbles”), under which the Plaintiff agreed to sell and Seven Bubbles agreed to buy 65 cases of masks at US$487.73 per case.

29.  However, the Plaintiff’s business bank account opening application was still pending, and Seven Bubbles insisted that the contract sum be paid into a business account. In the premises, Deng enquired with Alpha Healthcare whether the latter could lend its bank account to the Plaintiff to receive the money from Seven Bubbles and transfer the same to the Plaintiff. The Defendants agreed.

30.  On 13 June 2020 and 14 June 2020, since the Plaintiff only had 43 cases of masks in the Warehouse, Deng asked Chan about the outstanding 20 cases of masks in Batch 1. Chan did not specify the whereabouts of Batch 1 but said he could try to find 20 cases of masks from other sources.

31.  On 15 June 2020, Alpha Healthcare issued an invoice numbered IV20061301 to Seven Bubbles for the sale of 65 cases of masks at US$487.73 per case.

32.  On 16 June 2020, Chan said he could only find 14 cases of masks from his sources. Deng found two cases himself. Together with the 43 cases in the Warehouse, the Plaintiff had a total of 59 cases of masks which could be sold to Seven Bubbles.

33.  On the same day, pursuant to Deng’s instructions, Alpha Healthcare reissued invoice numbered IV20061301 to Seven Bubbles, revising the number of cases therein from 65 to 59.

34.  On 16 June 2020, Seven Bubbles paid US$25,407.96 to Alpha Healthcare.

35.  On 17 June 2020, Alpha Healthcare transferred a sum of HK$222,506.70 (i.e. US$25,406.96 + US$3,414.11) to the Plaintiff.

36.  On 18 June 2020, Seven Bubbles paid US$3,414.11 to Alpha Healthcare.

37.  On or around 4 August 2020, Deng on behalf of the Plaintiff and Chan on behalf of Alpha Healthcare entered into a contract for the sale of 300 cases of masks at a total price of HK$705,000 (the “Alleged Second Contract”) in the following terms:

(a)  The Plaintiff was to place an order with Alpha Healthcare for 300 cases of masks by paying 30% of the purchase price as deposit to Alpha Healthcare, i.e. HK$705,000 x 30% = HK$211,500);

(b)  300 boxes of cases were expected to be delivered in September 2020; and

(c)  The Plaintiff was entitled to early termination of the contract and get a full refund of the deposit paid.

38.  On 4 August 2020, Deng transferred HK$211,500 to Alpha Healthcare, who issued an invoice numbered IV20080314 dated 3 August 2020 to the Plaintiff.

39.  Although Deng noticed that the invoice stipulated that payment was to be made by cheque made payable to Alpha Healthcare or bank transfer to Alpha Healthcare’s bank account, he complied with Chan’s request to pay the deposit into Chan’s personal bank account.

40.  On or around 25 August 2020, Deng on behalf of the Plaintiff and Chan on behalf of Alpha Healthcare entered into a contract for the sale of 300 cases of masks at a total price of HK$705,000 (the “Alleged Third Contract”) in the following terms:

(a)  The Plaintiff was to place an order with Alpha Healthcare for 300 cases of masks by paying 25% of the purchase price as deposit to Alpha Healthcare, i.e. HK$705,000 x 25% = HK$176,250);

(b)  Given that the 20 cases of masks in Batch 1 under the First Contract was still not delivered, HK$42,000 was to be deducted from the deposit to be paid, i.e. HK$176,250 – HK$42,000 = HK$134,250; and

(c)  The Plaintiff was entitled to early termination of the contract and get a full refund of the deposit paid.

41.  On 25 August 2020, Deng transferred HK$134,250 to Alpha Healthcare.

42.  It was only on 18 December 2020 that Alpha Healthcare issued an invoice numbered IV20082608 dated 26 August 2020 to the Plaintiff.

43.  Although Deng noticed that the invoice stipulated that payment was to be made by cheque made payable to Alpha Healthcare or bank transfer to Alpha Healthcare’s bank account, he complied with Chan’s request to pay the deposit into Chan’s personal bank account.

44.  In October 2020, Alpha Healthcare still had not delivered Batch 1 under the First Contract, and the masks under the Alleged Second Contract and Alleged Third Contract to the Plaintiff.

45.  From around 28 October 2020 to 23 December 2020, Deng and the other director of the Plaintiff, Ms. Li Huixin (“Li”), requested a refund of the sums/deposits paid under the First Contract, Alleged Second Contract and Alleged Third Contract. No refund had been made by Alpha Healthcare.

The Defendants’ case

46.  It is the Defendants’ case that by the invoices respectively numbered IV20031404 and IV20031405, they offered to sell Batch 1 and Batch 2 at HK$2,100 per case to Deng. The offer was accepted by Deng when he paid HK$94,500 by transferring the amount to Alpha Healthcare’s bank account on 16 March 2020.

47.  In or around early April 2020, Alpha Healthcare’s supplier in the US delivered 320 cases of masks to Alpha Healthcare. Ng then set aside 45 cases for Deng under the First Contract.

48.  On 16 April 2020, pursuant to Deng’s request, Alpha Healthcare issued an invoice numbered IV20041604 to Deng’s customer, a Mr. Lee, and sold 11.5 cases of Deng’s masks to Mr. Lee. This reduced Deng’s number of masks stocked with Alpha Healthcare from 45 cases to 33.5 cases.

49.  In around May 2020, Chan told Ng that Deng had set up the Plaintiff and would conduct his trading business through the Plaintiff in the future.

50.  In around mid-June 2020, Chan informed Ng that Deng wanted to borrow Alpha Healthcare’s business bank account to effect a sale of masks to Deng’s customer, Seven Bubbles.

51.  Ng rejected the proposal because it may attract potential criminal liability and was too risky for Alpha Healthcare. Ng instead proposed a back-to-back arrangement whereby Alpha Healthcare would purchase a certain number of cases of masks from the Plaintiff at a certain price, then sell the same number of cases to Seven Bubbles at an equivalent price in US dollars. The amount received by Alpha Healthcare from Seven Bubbles would then be transferred by Alpha Healthcare to the Plaintiff.

52.  The financial incentive for the Defendants was that Deng had agreed to purchase most of the masks he needed from Alpha Healthcare.

53.  Pursuant to the aforesaid back-to-back arrangement, on 15 June 2020 Alpha Healthcare issued an invoice numbered IV20061301 dated 15 June 2020 to Seven Bubbles for 65 cases of masks at US$487.73 per case.

54.  On 16 June 2020, Ng discovered that there were only 18 cases of masks in the Warehouse available for this sale. He discussed the same with Chan, who managed to source 7.5 cases of masks. There were therefore 59 cases of masks (i.e. 33.5 cases from Batches 1 and 2 which Deng previously purchased, 18 cases belonging to the Defendants in the Warehouse and 7.5 cases sourced by Chan) which could be supplied to Seven Bubbles.

55.  Having discussed with and obtained confirmation from Deng, Alpha Healthcare revised invoice numbered IV20061301 by revising the number of cases of masks to 59 cases.

56.  On 16 June 2020, Alpha Healthcare received an amount of US$25,340.59 from Seven Bubbles and issued a purchase order numbered PO20061601 to the Plaintiff for the purchase of 59 cases of masks in the amount of HK$222,506.70.

57.  On 17 June 2020, Alpha Healthcare transferred an amount of HK$222,506.70 to Deng’s personal bank account.

58.  On 18 June 2020, Alpha Healthcare received an amount of US$3,347.74 from Seven Bubbles and shipped 59 cases of masks to Seven Bubbles.

59.  On 19 June 2020, Alpha Healthcare issued an invoice numbered IV20061901 to Deng for the sale of 18 cases of masks at HK$2,100 per case.

60.  On 22 June 2020, Alpha Healthcare received HK$37,800 from Deng as payment for the sale of the 18 cases. This concluded the back-to-back arrangement.

61.  It is the Defendants’ case that Batch 3 was intended to be sold to a company named Enduro Development Company Ltd (“Enduro”). In the premises, on 17 March 2020, Alpha Healthcare issued the invoice numbered IV20031705 to Enduro (the “Enduro Invoice”).

62.  However, Enduro did not pay the invoiced amount. As a result, on or around 10 June 2020, Alpha Healthcare treated the offer made to Euduro as having lapsed. The Enduro Invoice billed to Enduro does not relate to any contract with the Plaintiff or Batch 3 at all.

63.  Separately, on 25 May 2020, pursuant to Chan’s request, Alpha Healthcare issued two invoices respectively numbered IV20050601 dated 6 May 2020 (the “6 May 2020 Invoice”) and IV20051202 dated 12 May 2020 (the “12 May 2020 Invoice”), both for 20 cases of masks, to the Plaintiff.

64.  By that time, Deng had already paid for Batches 1 and 2 under the First Contract. The 6 May 2020 Invoice and the 12 May 2020 Invoice were therefore new invoices for new orders placed by the Plaintiff, rather than amended invoices as alleged by the Plaintiff.

65.  As the Plaintiff failed to settle payment for both the 6 May 2020 Invoice and 12 May 2020 Invoice, the Defendants treated the offers as having lapsed.

66.  On 4 August 2020, Alpha Healthcare issued an invoice numbered IV20080314 to the Plaintiff for the sale of 300 cases of masks at HK$2,350 per case. The payment term was 30% deposit, i.e. HK$211,500, leaving a balance of HK$493,500 to be paid on delivery. The invoice stipulated that the payments were to be made by cheque made payable to Alpha Healthcare or bank transfer to Alpha Healthcare’s bank account.

67.  As the Plaintiff failed to pay the deposit or any part of the contract sum, the offer lapsed and the Alleged Second Contract did not exist.

68.  On 18 December 2020, Alpha Healthcare issued an invoice numbered IV20082608 to the Plaintiff for the sale of 300 cases of masks at HK$2,350 per case. The invoice was backdated to 26 August 2020 pursuant to Deng’s request as relayed by Chan for banking purposes. The payment term was 25% deposit, i.e. HK$176,250, leaving a balance of HK$528,750 to be paid on delivery. The invoice stipulated that the payments were to be made by cheque made payable to Alpha Healthcare or bank transfer to Alpha Healthcare’s bank account.

69.  As the Plaintiff failed to pay the deposit or any part of the contract sum, the offer lapsed and the Alleged Third Contract did not exist.

The Plaintiff’s witnesses

70.  The Plaintiff called two witnesses. The first witness is Deng, who is a shareholder and director of the Plaintiff. Deng is the only person who is and was involved in the Plaintiff’s business and trading activities at all material times. He was the person who was involved in the Plaintiff’s dealings with Chan and Alpha Healthcare.

71.  Deng informed the Court that he held an undergraduate and a master’s degree in mathematics. He obtained his undergraduate degree from the University of Alabama in the US, where he had lived for around 2.5 to 3 years, and his master’s degree from the Chinese University of Hong Kong.

72.  I find that Deng is an unreliable and incredible witness. In many instances, his evidence and the Plaintiff’s pleaded case are inconsistent with contemporaneous evidence. In other instances, his oral evidence contradicts the Plaintiff’s pleaded case, his witness statements or his evidence as a prosecution witness in the criminal proceedings. For example:

(a)  First, in his Amended Statement of Claim, he pleaded that in performance of the First Contract, he transferred HK$42,000 to the Plaintiff on 17 March 2020. In his Reply, he pleaded that the 20 cases of Batch 1 were the subject matter of the First Contract under which the Plaintiff claims against the Defendants in this action.

(b)  The deposit slips, as well as Deng’s oral evidence, however showed that Deng transferred the payment for Batch 1 to Alpha Healthcare on 16 March 2020. The HK$42,000 that was transferred on 17 March 2020 was transferred by Deng to Chan’s personal bank account. Further, the Whatsapp messages between Deng and Chan showed that the transfer on 17 March 2020 related to Batch 3, not Batch 1 or the First Contract.

(c)  Deng tried to explain away by saying that the pleadings were drafted by his lawyers who he trusted and he did not read the pleadings or the statement of truth in detail because his English was not good. This contradicts with (i) his confirmation to the Court at the beginning of his giving of evidence that he could read English, and (ii) the respective statements of truth which he had signed at the end of the Amended Statement of Claim and the Reply.

(d)  In the premises, I find his explanation that he did not read the pleadings and statements of truth in detail because his English was not good and he had simply relied on his lawyers completely incredible.

(e)  Secondly, in relation to Batch 3, Deng maintained that he had entered into a contract with Alpha Healthcare in relation to the same. However, the Whatsapp messages between Deng and Chan on 17 March 2020 in relation to the same were as follows:-

Chan: “另外我有一客戶訂了100箱口罩，現在他只要80箱 […] 那20箱你有冇需要，如果有需要你可以直接把那張單買下來，因為如果他還單，公司直接再賣給你要用新價錢2300/箱。

所以如果Blake你要的話，你直接付款給我客戶就行，4月初我送貨給你時直接發多20箱給你就可。”

(transliteration: Further, I have a client who ordered 100 cases of masks. He only wants 80 cases now […] If needed, Blake [i.e. Deng], you can buy his order directly, because if he cancels his order and our company sells the same to you, you will need to pay the new price of $2,300/case.)

Deng: “請問怎麼這20箱轉錢？轉給您，還是其他公司？”

(transliteration: How do I transfer money for these 20 cases? To you or other company?)

Chan: “轉給我或我客戶本人就行，我依舊會發單給你，只是台頭用他公司名字，只寫20箱 […] 因為這樣操作你可節省$4000元。”

(transliteration: You can transfer to me or my client himself. I will still send you an invoice. It’s just that it will be billed to his company and state 20 cases […] This way you can save $4,000.)

Deng: “好的謝謝您，幫我開發票吧”

(transliteration: Alright, thank you. Please help me issue an invoice.)

Chan: “單子我同事在準備，他在忙，晚點回給你，客戶那我亦溝通好，麻煩Blake方便可以轉賬給我中國銀行，戶口號碼 […]”

(transliteration: my colleague is preparing the invoice. He is busy. It will be sent to you later. I have also spoken to the client. Please transfer the money to my Bank of China account. The account number is […])

Deng: “好的，拿到單子之後會匯款，請放心”

(transliteration: Good. I will transfer after receiving the invoice. Don’t worry.)

(f)  The above conversation contradicts Deng’s oral evidence that he only knew that the price he had to pay was HK$2,100 when he saw it on the Enduro Invoice. It was put to him that when Chan told him that the new price was HK$2,300 and the proposed transaction would save him HK$4,000, he already knew that the price which he was paying was HK$2,100 per case. Deng tried to explain it away by saying that he had not read the Whatsapp record for a long time and could not remember.

(g)  It is clear from the above that Deng knew that he was purchasing the 20 cases in Batch 3 from Chan’s client, and not Alpha Healthcare. He knew that if he bought the same from Alpha Healthcare, he would have to pay HK$2,300 per case rather than HK$2,100 per case. He also knew that the invoice for Batch 3 would not be billed to him.

(h)  This contradicts (i) the Plaintiff’s pleaded case that it had purchased Batch 3 from Alpha Healthcare and (ii) Deng’s oral evidence that Chan’s client had cancelled his order, and since no one wanted the masks Alpha Healthcare sold them to him at a reduced price.

(i)  It also contradicts Deng’s evidence in his witness statement that it was only “much later” that he noticed that the Enduro Invoice was “billed wrongly to an unknown third party.”

(j)  When being asked about this in cross-examination, he again said that the witness statement was drafted by his lawyers and he did not read it. In the end, he admitted that he saw that the Enduro Invoice was billed to Enduro when he received the same from Chan on 17 Mach 2020. He confirmed that there was no mistake on the Enduro Invoice and that Enduro was not an “unknown third party”. He also asked to retract this sentence from the witness statement.

(k)  During re-examination, the Plaintiff’s counsel asked Deng whether he knew that he was buying Batch 3 from Mr. Chan of Enduro when he entered into the contract, Deng answered yes. The Plaintiff’s counsel further asked Deng whether he had received any receipt for the contract he had entered into with Enduro in relation to the Enduro Invoice. Deng said no.

(l)  The above questions and answers suggest that even the Plaintiff accepted that the contract which Deng had entered into in relation to Batch 3 was a contract between Deng and Enduro, but not Alpha Healthcare.

(m)  In point of fact, according to the transcript of his evidence in the criminal proceedings, Deng accepted that the mode of transaction in relation to Batch 3 was different from that of Batches 1 and 2. In relation to Batches 1 and 2, he purchased the masks from Alpha Healthcare directly and transferred money to Alpha Healthcare’s bank account; whereas for Batch 3, he did not purchase the masks from Alpha Healthcare directly.

(n)  I find his explanation that he was being asked too many questions during the criminal proceedings and was confused completely incredible.

(o)  Thirdly, in the original Statement of Claim dated 4 August 2021, in respect of which Deng made and signed the statement of truth, it was pleaded that Batches 2 and 3 were delivered, but Batch 1 was not. Such plea was not amended in the Amended Statement of Claim dated 19 October 2021.

(p)  However, according to the transcript of the criminal proceedings on 12 July 2023, Deng’s evidence therein was that he could not tell whether the 20 cases out of the 45 cases that were delivered in April 2020 related to Batch 1 or Batch 3.

(q)  During cross-examination in these proceedings, Deng admitted that he only knew that 45 cases were delivered. He did not know whether the 20 cases related to Batch 1 or Batch 3. He admitted that he only knew during the criminal proceedings in July 2023 that Chan had sent him a Whatsapp message on 8 April 2020 saying that his 25 cases and Mr. Chan (of Enduro)’s 20 cases had arrived. Deng admitted that when the Statement of Claim was drafted, he did not know whether the 20 cases related to Batch 1 or Batch 3. He only knew that 20 cases were outstanding.

(r)  Fourthly, in relation to the 6 May 2020 Invoice and 12 May 2020 Invoice. In his witness statement, Deng alleged that they were the revised invoices for respectively Batches 2 and 3. According to his witness statement, on around 25 May 2020, he noticed that the invoices for Batches 1 and 2 were billed to him personally, rather than to the Plaintiff. Further, he noticed that the invoice for Batch 3 was billed to an unknown third party. Upon his request, Chan arranged the issuance of the 6 May 2020 Invoice and 12 May 2020 Invoice to replace the original invoices for Batches 2 and 3 respectively.

(s)  During cross-examination, the Defendants’ counsel pointed out to Deng that according to the transcript, during the criminal proceedings Deng gave evidence that the request for the issuance of the 6 May 2020 Invoice and 12 May 2020 Invoice was made by him for the purposes of opening a bank account for the Plaintiff. He admitted that the real contracting party in relation to Batches 1, 2 and 3 was he himself. He also admitted that from a contractual perspective, there was a difference between Deng himself and the Plaintiff. Finally, he admitted that the reference to the Plaintiff in the 6 May 2020 Invoice and 12 May 2020 Invoice did not reflect the real purchaser at the time of the respective purchases.

(t)  Deng admitted during cross-examination that his request for the issuance of the 6 May 2020 Invoice and 12 May 2020 Invoice was for the purposes of opening the Plaintiff’s bank account. It did not matter to him whether the invoice for Batch 1 was also replaced because he only needed a few invoices to submit to the bank. He admitted that the contracting party in relation to Batch 1 was he himself and that he had not asked Alpha Healthcare to change the contracting party to the Plaintiff.

(u)  Finally, throughout his evidence Deng maintained that Chan represented Alpha Healthcare in respect of all the dealings between them. According to Deng, anything that Chan said or did was said or done on behalf of Alpha Healthcare, and all monies received by Chan were received by him on behalf of Alpha Healthcare.

(v)  However, this is inconsistent with Deng’s Whatsapp messages to Chan on 25 August 2020 in relation to the Alleged Third Contract, in which Deng asked Chan, “能不能公司給我一個文件，我怕您答應我了，如果我賣不出去能退我錢，但是公司或者大老闆最後不願意退錢，您跟我都很為難” (transliteration: Can the company [i.e. Alpha Healthcare] give me a document. I am worried that even if you promised me that if I cannot sell the masks you will give me a refund, but the company or the big boss refuses to refund in the end. Then you and I will both be in a difficult situation.)

(w)  In response to Deng’s request, Chan replied that he could state in the remark that the deposit was fully refundable.

(x)  During cross-examination, Deng was being asked if Chan had represented Alpha Healthcare, why Alpha Healthcare could refuse to refund Deng after Chan had agreed to the same. Deng replied that he needed a document to prove this, and that the agreement made by Chan in Whatsapp was not sufficient.

(y)  Nonetheless, Deng paid the deposit to Chan before receiving any invoice or document from Alpha Healthcare stating that the latter agreed that the deposit was refundable.

(z)  When being asked why he had paid the deposit to Chan before receiving the written confirmation from Alpha Healthcare which he had asked for, Deng gave an inconsistent answer that it was because Chan had already agreed in the Whatsapp message that the deposit was refundable.

(aa)  In point of fact, Deng only asked Chan for the invoice for the Alleged Third Contract on 14 December 2020 when the Plaintiff had to submit its accounts to the auditor for auditing. Further, not only did the invoice which Chan finally sent to Deng on 18 December 2020 not contain any clause stating that the deposit was refundable, it also did not state that the Plaintiff had paid any deposit.

73.  All in all, for inter alia the above reasons, I find Deng an incredible, unreliable and unbelievable witness.

74.  The other witness called by the Plaintiff was Li. There is no dispute that she was not personally involved in the business activities of the Plaintiff and she only learnt of the transactions in dispute in these proceedings from Deng. Whilst she stated in her witness statement that she is a shareholder of the Plaintiff, whose sole director is Deng, she did not even remember whether she was a shareholder or director or both of the Plaintiff during cross-examination. She also did not remember when she became a shareholder and/or director of the Plaintiff.

75.  Her only involvement in the transactions in dispute in these proceedings and knowledge of the same is limited to what happened at a very late stage in around October 2020 when Deng started asking Chan for a refund for the deposits paid under the three alleged contracts.

76.  In the premises, her evidence is of little (or no) assistance to the Court’s resolution of the factual disputes between the parties.

The Defendants

77.  Both Defendants gave evidence in these proceedings. Ng’s evidence is consistent with contemporaneous documents. He was forthcoming during cross-examination and he tried his best to assist the Court. I find him an honest and credible witness.

78.  During cross-examination, the Plaintiff’s counsel put to Ng that the redacted entries in the June 2020 bank statement of Alpha Healthcare’s bank account showed payments from Chan to Alpha Healthcare.

79.  Such allegation was denied by Ng, who then applied to produce an unredacted version of the bank statement. This Court noted that no application had ever been made by the Plaintiff for an unredacted version of the bank statement.

80.  In light of the Plaintiff’s allegation for the first time during cross-examination that Alpha Healthcare had received payment from Chan and that the relevant entries had been redacted from the bank statement to hide such payment, it was only fair for Ng to be allowed to produce an unredacted version of Alpha Healthcare’s June 2020 bank statement to rebut such allegation. I therefore allowed the application in respect of the June 2020 bank statement with costs in the cause.

81.  I however refused the application for the production of Alpha Healthcare’s July 2020 bank statement as that was never previously produced by the Defendants.

82.  The entries on the unredacted version of the June 2020 bank statement showed that no transfer had ever been made by Chan to Alpha Healthcare. This is completely consistent with Ng’s evidence.

83.  In relation to the timing of when Ng had set aside the 45 cases of masks for Deng, Ng stated in his witness statement that after 320 cases of masks were delivered by the US supplier to the Warehouse in or around early April 2020, he immediately set aside 45 cases for Deng, being Batch 1 under the First Contract and Batch 2.

84.  However, when being cross-examined, Ng said that the setting aside of Deng’s 45 cases happened in around May or June 2020. Later on, he corrected himself and said that the setting aside happened in mid to late April 2020 shortly after some orders were being sent out.

85.  I find that the above minor discrepancy in the timing of setting aside of Deng’s 45 cases of masks did not affect Ng’s credibility. After all, the event happened almost four years ago and, for reasons given below, the issues in dispute in these proceedings do not turn on the timing of setting aside of Deng’s 45 cases.

86.  The Plaintiff challenged Ng’s credibility on the basis that he only mentioned about the details of how the deposit under the second back-to-back arrangement between the Plaintiff and Alpha Healthcare was paid into the latter’s bank account on 27 June 2020 for the first time during cross-examination. I find that the omission of such details in his witness statement does not affect Ng’s credibility for the following reasons:

(a)  First, such details provided by Ng are consistent with his evidence in his witness statement that on 27 June 2020 Chan informed him that Alpha Healthcare had received the deposit for the second back-to-back arrangement from Deng.

(b)  Secondly, there was no dispute as to how such deposit was paid into Alpha Healthcare’s bank account until Deng was being cross-examined. There was no dispute that the deposit paid under the second back-to-back arrangement was received by Alpha Healthcare.

(c)  Finally, the second back-to-back arrangement does not directly relate to any of the issues in dispute in these proceedings.

87.  In the premises, I find it understandable that Ng did not go into the details of such payment in his witness statement and only mentioned them when he was being cross-examined on the subject.

88.  The Plaintiff also challenged Ng’s credibility on the basis of the purported backdating of the invoice for the Alleged Third Contract. It was Ng’s oral evidence that on 18 December 2020 Chan informed him that Deng wanted Alpha Healthcare to issue a new invoice backdated to August 2020 for banking purposes. The Plaintiff argued that Ng did not mention in his witness statement that the issuance of such invoice was purportedly for banking purposes and had proceeded on the basis that the invoice was issued for an actual sale.

89.  I find that there is no inconsistency in Ng intending to offer to sell 300 cases of masks to the Plaintiff and Ng agreeing to backdate the invoice for such sale in the belief that Deng had requested the backdating for banking purposes. I do not agree that this part of Ng’s evidence affected his credibility.

90.  As to Kwok, I find that he is an honest and credible witness. He was very forthcoming and answered each question firmly, offering as much details as he could and informing the Court everything he knew.

91.  Kwok’s evidence is also consistent with contemporaneous documents. On matters which he did not know or remember, Kwok told the Court so frankly.

92.  For the reasons above, I accept Ng’s and Kwok’s evidence and insofar as their evidence is inconsistent with Deng’s, I accept Ng’s and Kwok’s evidence and reject Deng’s.

Findings

(1) The First Contract

93.  It is clear from the invoice for the First Contract that the contracting parties were Alpha Healthcare and Deng. As mentioned above, Deng himself accepted that he was the contracting party for the First Contract, and not the Plaintiff.

94.  For this reason alone, the Plaintiff’s claim in respect of the First Contract must fail as it has no locus to sue under the First Contract.

95.  Putting the contracting party aside, I find that Alpha Healthcare had delivered Batches 1 and 2 to Deng on 7 April 2020 when Chan informed Deng that 45 cases of masks had arrived and Deng asked him to leave the same in Alpha Healthcare’s Warehouse.

96.  Although there is disagreement between the parties as to the exact number of cases out of those 45 cases of masks that were subsequently delivered by Alpha Healthcare to Seven Bubbles pursuant to the Plaintiff's instructions, there is no dispute that the 45 cases of masks were all delivered to Deng’s clients pursuant to Deng’s instructions.

97.  I also find that Alpha Healthcare has never entered into any contract with Deng or the Plaintiff in respect of Batch 3. The evidence mentioned in paragraph 72(e) to (n) above shows clearly that Deng’s intention was to purchase Batch 3 from Enduro. As such, there was no contract between Deng or the Plaintiff with Alpha Healthcare in respect of Batch 3.

98.  I accept the Defendants’ evidence that the Enduro Invoice was issued to Enduro, who did not pay the invoiced amount, and thus the offer to Enduro had lapsed. This is supported by the Whatsapp messages between Ng and Chan on 7 June 2020 and 10 June 2020. I also accept the Defendants’ evidence that they had never sold Batch 3 to Deng or the Plaintiff.

99.  In the premises, the 45 cases of masks which Alpha Healthcare delivered to Deng on 7 April 2020 were the 20 cases and 25 cases of masks in respectively Batch 1 and Batch 2.

100.  Alpha Healthcare has therefore performed the First Contract and did not breach the same.

(2) The Alleged Second Contract

101.  In relation to the Alleged Second Contract, I find that on 4 August 2020 by sending the invoice numbered IV20080314 dated 3 August 2020 to the Plaintiff, Alpha Healthcare had offered to sell 300 cases of masks to the Plaintiff under the terms stated on the said invoice. Such offer could be accepted by the Plaintiff by paying the stipulated deposit to Alpha Healthcare.

102.  This is consistent with Deng’s obtaining invoices from Chan in respect of Batch 1 in the First Contract, Batch 2 and Batch 3 (although I find that Batch 3 does not relate to Alpha Healthcare) before paying for the masks. I find that both Deng and the Plaintiff treated the invoices as offers made by Alpha Healthcare to sell the masks, which the recipient could accept by paying the invoiced amount.

103.  According to the invoice, the deposit of 30% of the invoiced amount, i.e. HK$211,500, had to be paid promptly by cheque made payable to Alpha Healthcare, transfer to Alpha Healthcare’s bank account or FPS at the specified phone number.

104.  On 4 August 2020, unbeknown to the Defendants, Deng transferred HK$211,500 to Chan’s personal bank account.

105.  The issue is whether Chan had actual or apparent authority to accept payment from Deng on behalf of Alpha Healthcare.

106.  First, Ng’s and Kwok’s firm evidence was that whilst Chan was their sales representative and could conduct sales on their behalf, Chan had no authority to accept payment on behalf of Alpha Healthcare.

107.  Secondly, Deng’s evidence was that he noticed that it was a term of the contract as stipulated on the invoice that payment was to be made by cheque made payable to Alpha Healthcare or bank transfer to Alpha Healthcare’s bank account, but he was informed by Chan to make the payment to his personal bank account. In reliance on their past dealings, as well as Chan’s indication that he had the authority to conduct business on behalf of Alpha Healthcare, Deng complied with Chan’s request and paid the deposit into Chan’s personal bank account.

108.  During cross-examination, Deng said that there were many dealings between him and Chan, and that the only time when he had transferred money to Alpha Healthcare’s bank account was the HK$94,500 he paid for the first two batches, i.e. Batches 1 and 2, on 16 March 2020.

109.  After that, all monies were transferred to Chan’s personal bank account. Deng admitted that this was a mistake and he had done so out of convenience. After transferring the money for Batch 3 to Chan’s personal bank account on 17 March 2020 pursuant to Chan’s instructions, Chan’s personal bank account appeared at the top of Deng’s payee list in his bank account and he therefore made all subsequent transfers to the same out of convenience.

110.  This is however contradicted by the fact that in respect of Batch 3 Deng had intended to contract with Enduro, but not Alpha Healthcare. It was under such circumstances that the payment for Batch 3 was made to Chan’s personal bank account pursuant to his instructions one day after the payment for Batches 1 and 2 was made into Alpha Healthcare’s bank account.

111.  It must have been clear to Deng that Chan was not acting on behalf of Alpha Healthcare when he offered Deng to purchase Enduro’s order because Chan expressly told Deng that Alpha Healthcare would charge Deng for HK$2,300 per case rather than HK$2,100 per case which Deng was paying Enduro for.

112.  In so doing, Chan was in fact diverting business opportunities away from Alpha Healthcare and could not possibly have been acting on behalf of Alpha Healthcare or authorised by Alpha Healthcare to do so.

113.  Thus, it must have been clear to Deng that the transaction in relation to Batch 3 was different from the transactions which he had entered into with Alpha Healthcare, i.e. Batches 1 and 2, as well as future transactions which he may enter into with Alpha Healthcare. In point of fact, he accepted that the mode of transaction in relation to Batch 3 was different from Batches 1 and 2 when he gave evidence in the criminal proceedings.

114.  In the premises, I do not accept Deng’s allegation that he had made the payment to Chan’s personal bank account in reliance on the past dealings between the parties. Those past dealings between Chan and Deng did not suggest that Chan had authority to accept payment on behalf of Alpha Healthcare.

115.  Thirdly, Deng’s reliance on the Defendants’ acceptance of the deposit in the second back-to-back arrangement as the Defendants’ representation of Chan’s authority to receive payment is misplaced.

(a)  First, the Defendants denied the Plaintiff’s allegation that the deposit was paid by Deng in several tranches into Chan’s personal bank account in June 2020. Deng’s Whatsapp messages in this regard were confusing and did not clearly indicate that the payments were made for the deposit payable under the second back-to-back arrangement. During cross-examination, Deng accepted that one of the transfers of HK$70,000 was made to Chan on his own initiation without any prior knowledge of, or agreement by, Alpha Healthcare or even Chan. I accept the Defendants’ evidence that they did not know of such transfers until these proceedings had begun.

(b)  Secondly, the Defendants’ case that the deposit payment in the sums of HK$80,000 and HK$32,800 was deposited into Alpha Healthcare’s bank account is supported by and consistent with Alpha Healthcare’s bank statement produced by the Defendants. I therefore accept the Defendants’ case in this regard.

(c)  Thirdly, it was the Defendants’ case that Deng was trying to deposit the monies into Alpha Healthcare’s bank account, not Chan’s personal bank account, but was prevented from doing so by the limit set on amount of cash deposits in ATM machines.

(d)  In the premises, I find that Chan’s temporary collection of HK$32,800 cash on behalf of Alpha Healthcare, which were to be deposited into Alpha Healthcare’s bank account, did not amount to any holding out by the Defendants to Deng or the Plaintiff that Chan had the authority to accept payment on behalf of Alpha Healthcare, still less to accept payment into his personal bank account on behalf of Alpha Healthcare. This is especially so when the aforesaid matters are considered against the express stipulation on the invoice as to the acceptable methods of payment.

(e)  In any event, even if Chan had the authority to receive payment in cash, it did not mean that he had authority to receive payment into his personal bank account on behalf of Alpha Healthcare. See Chitty on Contracts (34^th ed), Vol 1, §24-042.

116.  Finally, as to Deng’s alleged reliance on Chan’s previous indications that he had the authority to conduct business on behalf of Alpha Healthcare:

(a)  First, having authority to negotiate and conduct business is different from having authority to receive payment. Chitty on Contracts (34^th ed), Vol 1, §21-053 provides that:

“‘An agent employed to negotiate and conclude contracts is not thereby authorized to … receive money which may become due under such contracts, but the course of employment may justify the agent in so … receiving money if known to the principal and not objected to by him.’

This must still be a reasonable starting point. Whether an agent who has authority to sell goods has authority to receive payment for them depends on the circumstances and the relevant business practices and understandings.’’

(b) The invoice for the Alleged Second Contract issued by Alpha Healthcare expressly stipulated the accepted methods of payment. None of those methods includes making payment to Chan. Deng’s evidence was that he had read those terms on the invoice.

(c) In the premises, I find that the invoice clearly indicated that Chan had no actual or apparent authority to receive payment on behalf of Alpha Healthcare.

(d) Secondly, as stated in Chitty on Contracts, Hong Kong Specific Contracts (7^th ed), Vol 1, §1-051,

“… the representation [to a third party that such person has authority to act on her behalf] must be made by the principal or a person who had actual authority to act on behalf of him. On its own, a representation by the agent herself does not suffice to bind the principal, unless the principal can be regarded as having in some way instigated or permitted it, or put the agent in a position where she appears to be authorised to make it…

…

The principal will not be liable if the third party chose not to investigate the agent’s authority if the opportunity arose, or was put on notice by the specifics of the transaction, or in fact knew that the agent was acting outside the boundaries of its powers”.

(e) In the premises, Deng’s purported reliance on Chan’s representation was misplaced. Such representation did not come from the Defendants and therefore could not bind them. As a matter of fact, Chan never had the actual authority to represent to Deng that he had authority to accept payment, nor was he put in a position where he appeared to be authorised to make it, especially in light of the express stipulation of methods of payment on the invoices.

117.  By reason of the above, I find that Chan had no actual or apparent authority to accept payment from Deng on behalf of Alpha Healthcare and that Alpha Healthcare has never received any payment from Deng or the Plaintiff under the Alleged Second Contract.

118.  Further, Deng had also failed to make enquiry with Alpha Healthcare when he was put on notice that Chan had no authority to receive money on behalf of Alpha Healthcare.

(a)  Deng’s evidence mentioned in paragraph 72(u) to (x) above suggested that Deng knew that he had the option of obtaining confirmation from the Defendants in circumstances where Chan’s authority to represent them was doubtful.

(b)  However, first, he had failed to make enquiry with Alpha Healthcare notwithstanding the fact that the accepted methods of payment were expressly stipulated on the invoices and that none of those methods includes making payment to Chan.

(c)  Secondly, the Plaintiff alleged that Deng had paid the deposit to Chan who had received the same on behalf of Alpha Healthcare before the invoice for the Alleged Second Contract was issued to the Plaintiff. By that time, Deng already knew that if he had paid for the deposit before any invoice was issued by Alpha Healthcare, such deposit payment would be clearly stated on the invoice as in the invoice numbered IV20062701 dated 27 June 2020 issued pursuant to the second back-to-back arrangement.

(d)  Notwithstanding the above, after receiving the invoice for the Alleged Second Contract, Deng had failed to ask Chan or the Defendants why the invoice did not state that he had already paid the 30% deposit.

119.  In the premises, I find that Deng had been put on notice and/or chosen not to investigate Chan’s authority to receive payment on behalf of Alpha Healthcare. Alpha Healthcare is therefore not liable to Deng or the Plaintiff for such receipt by Chan.

120.  I therefore find that the Plaintiff had not paid the 30% deposit stated in the invoice numbered IV20080314 dated 3 August 2020 to the Defendants.

121.  In the premises, I find that the Plaintiff had not accepted the Defendants’ offer made pursuant to the invoice numbered IV20080314 dated 3 August 2020, and the parties did not enter into the Alleged Second Contract.

(3) The Alleged Third Contract

122.  In relation to the Alleged Third Contract, I find that on 18 December 2020 by issuing the invoice numbered IV20082608 and dated 26 August 2020 to the Plaintiff, Alpha Healthcare had offered to sell 300 cases of masks to the Plaintiff under the terms stated on the said invoice. Such offer could be accepted by the Plaintiff by paying the stipulated deposit to Alpha Healthcare.

123.  According to the invoice, the deposit of 25% of the invoiced amount, i.e. HK$176,250, had to be paid promptly by cheque made payable to Alpha Healthcare, transfer to Alpha Healthcare’s bank account or FPS at the specified phone number.

124.  On 25 August 2020, unbeknown to the Defendants, Deng transferred HK$134,250 to Chan’s personal bank account. The Plaintiff’s case is that the parties agreed to deduct HK$42,000 from the amount of deposit payable by the Plaintiff under the Alleged Third Contract because the masks in Batch 1 under the First Contract were not delivered to the Plaintiff.

125.  This is contradicted by the fact that the amount of deposit is clearly stated to be HK$176,250 on the invoice. Further, as explained above, Alpha Healthcare had already delivered Batch 1 to Deng on 8 April 2020. There was no reason for Alpha Healthcare to deduct the amount of deposit payable under the Alleged Third Contract by HK$42,000.

126.  The next issue is whether Chan had actual or apparent authority to accept payment from Deng on behalf of Alpha Healthcare.

127.  For the same reasons I gave in paragraphs 105 to 117 above in relation to the Alleged Second Contract, I find that Chan had no actual or apparent authority to accept payment from Deng on behalf of Alpha Healthcare and that Alpha Healthcare has never received any payment from Deng or the Plaintiff under the Alleged Third Contract.

128.  Further, as in the Alleged Second Contract, Deng had failed to make enquiry with Alpha Healthcare when he was put on notice that Chan had no authority to receive money on behalf of Alpha Healthcare.

(a)  Deng’s evidence mentioned in paragraph 72(u) to (x) above suggested that Deng knew that he had the option of investigating or seeking confirmation from the Defendants in circumstances where Chan’s authority to represent them was doubtful.

(b)  However, first, he had failed to make enquiry with Alpha Healthcare notwithstanding the fact that the accepted methods of payment were expressly stipulated on the invoices and that none of those methods includes making payment to Chan.

(c)  Secondly, the Plaintiff alleged that Deng had paid the aforesaid HK$134,250 to Chan who had received the same on behalf of Alpha Healthcare before the invoice for the Alleged Third Contract was sent to Deng on 18 December 2020. By that time, Deng already knew that if he had paid for the deposit before any invoice was issued by Alpha Healthcare, such deposit payment would be clearly stated on the invoice as in the invoice numbered IV20062701 and dated 27 June 2020 issued pursuant to the second back-to-back arrangement.

(d)  Notwithstanding the above, after receiving the invoice for the Alleged Third Contract, Deng had failed to ask Chan why the invoice did not state that he had already paid the 25% deposit. He had also failed to ask Chan why the invoice did not state the alleged deduction of the HK$42,000 paid under the First Contract.

(e)  In fact, according to his Whatsapp message to Chan on 14 December 2020, Deng had asked for the invoice for the Alleged Third Contract in December 2020 because the Plaintiff had to submit the same to its auditor for auditing. During cross-examination, Deng gave a different reason for his request for the invoice. He said that it was because he was about to sue the Defendants and wanted the invoice as evidence for the Alleged Third Contract.

(f)  Given that the Whatsapp message was contemporaneous evidence, I find that the reason for Deng’s request was for auditing purposes as stated in his Whatsapp message. That said, whether the reason for Deng’s request was for auditing or litigation purposes, there was every reason for Deng to ensure that the invoice would accurately reflect the amount of deposit payable as well as the fact that deposit had been paid. He had nonetheless failed to do so.

129.  In the premises, I find that Deng had been put on notice and/or chosen not to investigate Chan’s authority to receive payment on behalf of Alpha Healthcare. Alpha Healthcare is therefore not liable to Deng or the Plaintiff for such receipt by Chan.

130.  I therefore find that the Plaintiff had not paid the 25% deposit stated in the invoice numbered IV20082608 and dated 26 August 2020 to the Defendants.

131.  In the premises, I find that the Plaintiff had not accepted the Defendants’ offer made pursuant to the invoice numbered IV20082608 and dated 26 August 2020, and the parties did not enter into the Alleged Third Contract.

Conclusion

132.  For the reasons given above, I find that:

(a)  The contracting parties under the First Contract were Alpha Healthcare and Deng. The Plaintiff has no locus to sue under the First Contract.

(b)  In any event, the Defendants did not breach the First Contract as they had already delivered Batch 1 to Deng.

(c)  The Alleged Second Contract does not exist. The Defendants are not liable to the Plaintiff under the Alleged Second Contract.

(d)  The Alleged Third Contract does not exist. The Defendants are not liable to the Plaintiff under the Alleged Third Contract.

133.  I therefore dismiss all of the Plaintiff’s claims and make a costs order nisi that the costs of and occasioned by the Plaintiff’s claims in this action be paid by the Plaintiff to the Defendants on party and party basis, to be taxed if not agreed.