WUHAN LIGHT INDUSTRIAL PRODUCTS IMPORT & EXPORT CORP. v. KAI TAK ENTERPRISES LTD.

1992, No.A3837

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. The plaintiff's claim against the defendant is for sums unpaid in respect of four contracts, five loans and five payments made to third parties at the request of the defendant. The crucial issue to be determined is whether a person named, Mr Ng Ka Wah (Mr Ng) had actual or ostensible authority on behalf of the defendant to enter into these transactions with the plaintiff. The issue is one of fact which depends entirely upon the credibility of the two witnesses who gave evidence in these proceedings, one for the plaintiff and one for the defendant.

2. The plaintiff is a state corporation incorporated in the People's Republic of China engaged in the import and export of garments. It is a trading company that buys goods from factories in China for export abroad. The defendant is a company incorporated in Hong Kong engaged in the import and export of garments. Mr Xiong Hoi Ping (Mr Xiong) was employed by the plaintiff from April 1990 until he left in March 1993 at which time he was the manager of the garment section. He dealt with all the transactions, the subject matter of this action, on behalf of the plaintiff. Until he met Mr Ng, Mr Xiong was not aware of the existence of the defendant. The directors and shareholders of the defendant are Mr Chan Sun (Mr Chan) and his wife Madam Yim.

3. In August 1991, whilst at the Chung Wah Garment Factory in Wuhan, the manager of that factory Mr Wong introduced Mr Xiong to Mr Ng who was stated to be the manager of the defendant. Mr Ng gave Mr Xiong a name card which sets out his title as the general manager of the defendant and another company Kai Tak Garment Factory, the predecessor of the defendant. Mr Chan and Madam Yim were the two partners of Kai Tak Garment Factory. It is therefore clear that Mr Ng was neither a director nor a shareholder of the defendant. Mr Ng's name card contained the address of the defendant in Hong Kong, an address in China together with telephone, fax and pager numbers. At the time Mr Ng was introduced to Mr Xiong, Mr Ng introduced to him Mr Chen Shuang Xi (Mr Chen) and Mr Zhang De Lu (Mr Zhang) who he claimed were the defendant's employees in Wuhan. Name cards of Mr Chen and Mr Zhang were produced which show details of the defendant's office in Hong Kong and a room at the Yang Hu Hotel, Wuhan. Mr Ng informed Mr Xiong that Mr Chen was the defendant's representative for business dealings in China and all matters relating to the defendant could be dealt with by him. It was argued on behalf of the defendant that if there was any holding out of Mr Ng as an agent of the defendant, it was done by Mr Wong of the Chung Wah Garment Factory.

4. On the 21st October 1991, the plaintiff entered into a contract with the defendant for the sale of a large quantity of men's coats. The contract was signed by Mr Ng on behalf of the defendant and the contract bears the defendant's chop. The goods were delivered to the defendant without complaint and payment was effected in part by a letter of credit and the balance by a cashier order.

5. Mr Xiong testified that four further contracts were entered into by the plaintiff with the defendant for the sale of garments on the 30th October 1991, 8th November 1991, 5th December 1991 and 10th March 1992. The first three contracts were signed by Mr Ng on behalf of the defendant in Wuhan and the contract of the 10th March 1992 was signed by Mr Chen. All the contracts bear the defendant's chop.

6. The mode of delivery was the same for each contract and involved transportation of the goods to the government's warehouse in Shenzhen where they would be collected by the defendant. After the plaintiff had completed the export declaration formalities, the goods would be delivered to Hong Kong. The plaintiff has not been paid for any of the four contracts, the sum outstanding being US$121,035.60.

7. Mr Xiong testified that the plaintiff made five loans to Mr Ng on behalf of the defendant on the 28th December 1991 for RMB4,000, 4th January 1992 for RMB3,000, 9th January 1992 for RMB5,000, 10th January 1992 for RMB7,525, and 25th January 1992 for RMB1,438.75. The first loan was acknowledged by Mr Zhang and was made on the grounds that Mr Ng was short of cash. The sums of RMB3,000 and RMB5,000 were stated to be for payment of wages due to employees of the defendant in China. The sum of RMB7,525 and RMB1,438.75 were advanced in respect of payments due from the defendant for materials supplied. None of the loans has been repaid.

8. The plaintiff also claims the sum of RMB127,556.32 for monies paid by the plaintiff to third parties at the request of the defendant. Mr Xiong said that the largest payment of RMB118,958.40 was paid to the Jiang Shan Factory in Shenzhen for the sale of fabric and manufacture of garments. This amount was paid at the request of Mr Chen. A further sum of RMB4,000 was also paid to this firm at the request of Mr Ng whilst other sums in respect of costs incurred in respect of the contract of the 30th October 1991 in the sum of RMB3261.12 and RMB1336.80 were paid at the request of Mr Ng.

9. Mr Xiong has made efforts to recover the monies due to the plaintiff by way of telephone calls to the defendant in Hong Kong when he spoke to Mr Ng and by facsimile. The plaintiff received no reply to the faxes sent to Hong Kong. There was no dispute by the defendant that they had received the goods from the plaintiff. Mr Xiong met Mr Ng in Shenzhen on the 5th April 1992 when Mr Ng provided an assurance that all sums due to the plaintiff would be paid within three days. Mr Xiong agreed, but requested that Mr Ng put forward details of the payments to be made in writing. The plaintiff then received a fax from Mr Ng dated the 6th April 1992 that sets out the proposals for payment which reads as follows :

"	KAI TAK ENTERPRISES LIMITED
RM3, 2/F, SHUN FAT IND BLDG., 17, WANG HOI RD., KOWLOON BAY
	TEL : 7968566-7	FAX : 7999357

TO ATTN FAX NO.

: : :

Wuhan Light Industrial Xiong Hoi Ping

FROM: Alan Ng DATE: 6-4-92 PAGE:

1. In relation to the purchase price of US$23,133.60 under your company's Sales Confirmation No.S/C:91S021A and B, the bank draft will be sent to your company's Shenzhen office by facsimile tomorrow.

2. The purchase price of 91SD020 reversible jacket in the sum of US$10,446 because the ultimate buyer is still checking the goods which arrived in Australia on 4-4-92, if there is no problem our company will effect payment in a short time.

3. The purchase price of the 8400 pieces of jacket will be paid within 10 days in full from 10-4-92. Also please immediately send the packing list to our company by facsimile and please ensure that the reference number of sample should be indicated in the packing list, which is very important, the ultimate purchaser will inspect the goods in Hong Kong.

4. The balance purchase price of the 8 oz denim shirt now due will be paid to your company within 3 days from the 7th.

Best regards

(Sd) illegible Chan illegible 4446405 --218"

No payments were made in accordance with the provisions in the fax. Mr Xiong made further efforts to contact Mr Ng for payment, but in May 1992, Mr Ng disappeared. After Mr Xiong was unable to locate Mr Ng, he spoke on the telephone to Mr Chan in Hong Kong who claimed to be the boss of the defendant. Mr Chan told Mr Xiong that as the transactions with the plaintiff were under the supervision of Mr Ng, he should discuss the matter with Mr Ng Mr Chan also informed Mr Xiong that he had terminated Mr Ng's employment and claimed that he had paid Mr Ng money which was payable to the plaintiff.

10. By the defence, the defendant agrees that it entered into the contracts of the 30th October 1991, 8th November 1991 and 5th December 1991 with the plaintiff. However, with regard to the contracts of the 30th October 1991 and 5th December 1991, the defendant states that it has no record of the amount of work done and services rendered by the plaintiff. In respect of the contract of the 8th November 1991, the defendant alleged that it has paid the amount claimed by a cashier order dated the 12th March 1992. The defendant denies that it entered into the contract of the 10th March 1992.

11. In respect of the loans, the defendant denies liability for the sums claimed. For the amounts paid to third parties on behalf of the defendant, the defendant claims that it has reimbursed the plaintiff for the sum of US$12,876 which is equivalent to the sum of RMB claimed for payments made to third parties on behalf of the defendant.

12. Mr Chan gave evidence that he allowed Mr Ng to use the defendant's office and its business facilities such as letterheads, the address of the company, telephone and fax numbers and name card.

13. Mr Chan gave evidence that he allowed Mr Ng to use the defendant's office and its business facilities such as letterheads, the address of the company, telephone and fax numbers and name card. For the original contract made on the 21st October 1991 in respect of which no complaint is made, Mr Chan allowed Mr Ng to open a letter of credit and to deliver the cashier order. Mr Chan stated that Mr Ng was not the general manager of the defendant nor was he an employee. Nevertheless, he admitted that from about Chinese New Year 1988 he had allowed Mr Ng to use his office as his place of work. He said that he had agreed with Mr Ng that Mr Ng would handle all aspects of his business outside the defendant's business and would not mix his orders with those of the defendant. Mr Chan agreed to lend him capital for the purchase of fabrics and accessories on a case by case basis and that any net profit from a transaction would be shared equally between them. Mr Chan said that he has never heard of Mr Chen and that the defendant never had any employee in China by that name nor any office in the hotel in Wuhan or elsewhere or any employee in China. Although Mr Chan had seen Mr Ng's name card he denied that Mr Ng was the defendant's general manager. However, he conceded that to a limited extent Mr Ng was the agent of the defendant in entering into written contracts properly executed on behalf of the defendant. He believed that all the contracts with the plaintiff had been finalised and had been paid for so that there were no outstanding liabilities. Mr Chan said that he was not aware that Mr Ng had set up or operated an office in a hotel in Wuhan. He agreed that Mr Ng had left the defendant's office and disappeared sometime in May 1992. Mr Chan also agreed that he received a telephone call in May 1992 from Mr Xiong of Wuhan but stated that he did not know him.

14. Mr Chan contended that the agreements of the 30th October 1991 and 5th December 1991 were signed by Mr Ng on behalf of the defendant, but he did not report to him about these transactions. Mr Chan went on to admit that the defendant received garments in respect of the agreement dated the 8th November 1991 from the plaintiff and that Mr Ng had reported to him that the plaintiff had requested payment be made by a cashier order in favour of Wuhan City Base Import and Export Corporation. He handed a cashier order to Mr Ng issued by Sin Hua Trust dated the 12th March 1992 for HK$504,478 which Mr Ng said he had delivered to the plaintiff in China. Mr Chan denied that the defendant had entered into a contract with the plaintiff on the 10th March 1992.

15. Mr Chan stated that Mr Ng had informed him that the plaintiff had made payments totalling US$12,876 on behalf of the defendant to suppliers of cotton cloth. In the middle of February 1992, he handed Mr Ng a banker's draft for this sum dated the 14th February 1992 payable to the plaintiff. Mr Chan believes that the bank draft was duly delivered to the plaintiff in February 1992.

16. Mr Chan admitted that a notice of termination of Mr Ng's employment was published in the Sing Tao newspaper on the 7th May 1992 to the effect that Mr Ng had left the company on the 5th May 1992 and that the defendant would not be responsible for any of Mr Ng's dealings after that date.

17. Despite a lengthy cross-examination, Mr Xiong was not shaken in his evidence. I accept that he was an honest, truthful and reliable witness. On the other hand, I am quite satisfied that Mr Chan was not telling the truth that Mr Ng was not employed by him. Upon the evidence, I find as a fact that Mr Ng was the general manager with responsibility for business transactions on behalf of the defendant in China and that he was authorised to act on the defendant's behalf there. Cogent evidence that Mr Ng was employed by the defendant appears from the name card, the right to use the defendant's office in Hong Kong and the notice of termination in the Sing Tao newspaper. Although Mr Chan attempted to distance himself from the notice on the grounds that it had been inserted by an accounts clerk, I have no hesitation in rejecting that evidence as untrue. Accordingly, I reject the contention put forward on behalf of the defendant that if there was any holding out of Mr Ng as an agent of the defendant it was by Mr Wong of the Chung Wah garment Factory. The plaintiff was also entitled to rely upon Mr Ng's representations that Mr Chen was authorised to deal on behalf of the defendant in China and that Mr Ng was authorised to engage local staff in Wuhan. Indeed by the defence the defendant admits that the first three contracts were entered into between the defendant and the plaintiff. However. I also accept Mr Xiong's evidence that the defendant entered into the contract of the 10th March 1992 and is liable to the plaintiff under that contract. It is also clear that the payment of US$12,876 referred to by Mr Chan did not relate to any of the four contracts in dispute but to the original contract of the 21st October 1992.

18. I accept Mr Xiong's evidence with regard to the loans that were made to Mr Ng who was clearly acting on behalf of the defendant and that payments were made in addition at the defendant's request to third parties. In addition I am in no doubt that Mr Chan informed Mr Xiong on the telephone in May 1992 that he had terminated Mr Ng's employment. Where the evidence conflicts, I prefer that given by Mr Xiong to that of Mr Chan.

19. I therefore find that Mr Ng had actual authority to enter into all the transactions on behalf of the defendant with the plaintiff and was responsible for the actions of Mr Chen.

20. Accordingly, the plaintiff is entitled to judgment for the sums claimed in the statement of claim.