SUNNY WORLD DECORATION AND DESIGN CO. v. MA MING YAN t/a YAN WING HONG

HCA 836/1996

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 836 OF 1996

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J U D G M E N T

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Introduction

1. The Plaintiff brings this action against the Defendant claiming a sum of HK$2,976,177.00. The Statement of Claim describes the claim to be one based on an account stated. The document said to contain or evidence the account stated was dated 19 October 1995 and signed by the Defendant. It refers to a sum of HK$3,376,177.00 but the Plaintiff agrees that the Defendant has paid HK$400,000.00. The sum claimed herein was also said in the Statement of Claim to have been in respect of goods and services supplied by the Plaintiff pursuant to a contract dated 15 June 1994.

2. The Defendant admits that the said document was signed by him but alleges he did so under duress. He further alleges the Plaintiff has breached a contract dated 15 June 1994 and as a result the Defendant suffered loss. The said contract required the Plaintiff in short to properly manage and supervise a construction project in the mainland but, according to the Defendant, the Plaintiff failed to do so. He contends the Plaintiff's claim (if any) should be set off against the loss he suffered. There is also a counterclaim for such loss but no particulars have been given for the amount of special damages allegedly suffered.

3. The resolution of the dispute between the parties turns substantially (if not entirely) on the assessment of the credibility of witnesses who testified at trial. Mr Mao testified for the Plaintiff and Mr Ma for the Defendant. The assessment on credibility will be set out below under separate headings. However, it is set out in this manner only in order to facilitate the comprehension of this Judgment and does not mean that an overall assessment on credibility has not been made.

Duress

4. It is common ground that the Defendant signed altogether 4 documents (which the Plaintiff regards to be "accounts stated"):-

(a) a document dated 18 September 1995 on the Plaintiff's letterhead which acknowledged the Defendant owed the Plaintiff $1,176,177.00 ("the Sept document");

(b) a document dated 10 October 1995 on the Plaintiff's letterhead which acknowledged the Defendant owed the Plaintiff $3,376,177.00 ("the Oct document");

(c) a document dated 6 October 1995 on the letterhead of "Kam Ming Design & Decoration Co." (one of the sub-contractors involved in the mainland project) which acknowledged the Defendant owed "Kam Ming" $3,374,842.00 ("the Kam Ming document"); and

(d) a document dated 23 October 1995 in which the Defendant acknowledged the Plaintiff had paid "Ming Fai Decoration (Equipment) Co." (another sub-contractor involved in the mainland project) $2.2 million for the Defendant and the Defendant still owed "Ming Fai" $2,457,194.33 ("the Ming Fai document").

5. The plea of duress can be found at para. 25 to 30 of the Defence and Counterclaim. The Defendant avers that the Plaintiff:-

(1) made frequent visits to the Defendant's antique shop either by himself or together with others and demanded payment; and

(2) made numerous telephone calls to the Defendant's home and his antique shop.

During the said occasions, the Plaintiff (sometimes with others) threatened the Defendant that unless the Defendant paid the demanded sum, the Plaintiff (and others) would:-

(a) continue to harass the Defendant and his family and disturb his antique shop; and

(b) bring people to the Defendant's home and antique shop to press for payment.

Para. 23 to 26 of Mr Ma's witness statement in essence repeated the above averments. He also stated in his witness statement that he refused to pay the Plaintiff (and others) because the Plaintiff breached the June 1994 contract. Further, he said therein he did not know that the Plaintiff (and others) would rely on the above documents to commence legal actions against him. The Defendant in essence confirmed the above in his testimony.

6. The law relating to duress was discussed in Chitty on Contracts（1999）28th Ed., Ch. 7. Para. 7-006 of Chitty said:-

"Once it is accepted that the basis of duress does not depend upon the absence of consent, but on the combination of pressure and absence of practical choice, it follows that it is the nature of the pressure or the threats which becomes all-important. Clearly, not all pressure is illegitimate nor even are all threats illegitimate. In ordinary commercial activity, pressure and even threats are both commonplace and often perfectly proper. Indeed, in one sense, all contracts are made under pressure: every offeror 'threatens' that unless the offeree accepts the terms offered, he will not get the benefit of whatever goods or services are on offer. Nor can it even be said that the force or weight of the pressure or threat is the decisive factor, 'for in life, including the life of commerce and finance, many acts are done under pressure, sometimes overwhelming pressure, so that one can say that the actor had no choice but to act'. It therefore becomes essential to distinguish between legitimate and illegitimate forms of pressure" (emphasis supplied).

7. Chitty identified 3 types of illegitimate pressure: violence to the person and threats of such violence; duress of goods, that is, the unlawful detention or threatened detention of goods; economic duress.

8. In the light of the following principles, it would seem legitimate, for instance, for a creditor to approach his debtor to demand for payment, or indeed to apply pressure to the debtor by repeatedly going to the debtor's place of work for such purpose, provided the creditor does not use inappropriate words or conduct. It is therefore doubtful whether the "duress" contended for by the Defendant herein amounts to duress in law. I am, however, prepared to approach this issue on the basis that it does and deal with this issue as a matter of factual dispute.

9. In summary, I find the Defendant's testimony over this issue to be untruthful because:-

(a) he was evasive as to the time(s) when he signed the 4 documents despite having been shown the dates stated on the documents. At times he testified he could not remember whether the 2 documents with the Plaintiff's letterhead were signed on the same day/occasion. At other times, he testified it appears they were signed by him on the same day/occasion;

(b) his version is inherently implausible for the following reasons:-

(1) according to his witness statement, the Plaintiff (and others) were trying to force him to pay them, despite the fact that it was they who breached the June 1994 contract (and related contracts). In these circumstances, it is unbelievable that the Plaintiff (and others) would be satisfied by the Defendant merely signing the documents without actually paying them;

(2) for the same reason, since the Plaintiff (and others) were asking for payment, it is incredible that the Defendant would believe (at that time) that merely signing the documents would make them go away. The Defendant testified that he did not think of the consequence at the time. I also find that claim unbelievable;

(c) the evidence shows that the Defendant was an experienced businessman and his businesses are substantial. I find his assertion that he did not know the Plaintiff (and others) would make use of the 4 documents he signed to commence legal actions against him to be incredible; and

(d) the Defendant's antique shop was located in a shopping arcade in Tsimshatsui. The Defendant claimed that he did not think of calling for assistance when the Plaintiff (and others) visited his shop. I consider that unbelievable; nor is it believable that no security guard of the shopping arcade went to the shop to investigate when, as the Defendant contended in testimony, the Plaintiff (and others) caused disturbances making the people in the neighbouring shops come out to have a look.

10. On the other hand, I accept Mr Mao's testimony to be truthful and reliable over this issue. His testimony is both inherently plausible and supported by the contemporaneous documents. He testified that no duress was exerted but he agreed he went to the Defendant's antique shop to chase for payment. According to him, the Sept document and the Oct document were not signed on the dates stated on those 2 documents (which were only the dates when they were prepared). However, they were each signed on different dates which were shortly after the respective dates stated on the documents. This is because the Plaintiff was unable to locate the Defendant at his antique shop until sometime after the documents were prepared.

11. The major difference between the Sept document and the Oct document is that item 5 thereof (being $2.2 million paid by the Plaintiff to Mr Poon (of Ming Fai) was deleted in the Sept document. Mr Mao explained that the item was deleted in the Sept document because the Defendant refused to admit such payment in the absence of supporting documents. Mr Mao later brought along the supporting documents to the Defendant and therefore the Defendant was willing to sign the Oct document.

12. Mr Mao also testified that the Kam Ming document and the Ming Fai document were signed by the Defendant on another occasion (after the 2 documents relating to the Plaintiff were signed).

13. In view of my finding that Mr Mao's testimony is truthful and reliable, further conclusions can be made regarding 2 matters. One, the deletion of item 5 in the Sept document shows that the Defendant was not acting under duress but that he was in a position to bargain with the Plaintiff regarding what items he was willing to accept and which he was not. Two, the Defendant's evasive answers over whether the documents were signed on the same occasion or different occasions was not the result of a failure in his memory. The Defendant needed to be evasive because the fact that he signed the Sept document and the Oct document on different occasions would lend support to the Plaintiff's version that the Defendant was not acting under duress.

14. There are 2 ancillary matters in dispute between the parties: (1) the reason for the Defendant paying $400,000.00 to the Plaintiff; and (2) the reason why the Defendant agreed to auction an antique. In short, the Defendant testified that he agreed to the 2 matters at the request of his (former) close friend in order to help the Plaintiff apply for emigration to Canada. The Plaintiff, on the other hand, contended that these show the Defendant owed him money. I find the Plaintiff's evidence is to be preferred to the Defendant's regarding these 2 matters.

Set-Off and Indemnity

15. This limb of the defence is set out in para. 19 to 24(1) and 32 (set-off) and 24(2) and 35 (indemnity) of the Defence and Counterclaim. It is undisputed that:-

(a) the Defendant entered into a joint-venture business with his Chinese partners involving a project for building a casino and a hotel in the mainland. The Defendant was responsible for the decoration work and the Plaintiff was engaged in this connection;

(b) some kind of problem arose out of the said project in the mainland; and

(c) disputes arose between the Defendant and his Chinese joint-venture partners resulting in arbitration proceedings in the mainland. At the end of those proceedings, (among other things) the joint-venture business was ordered to be wound up.

The main issue in this part of the present action is whether the Plaintiff has breached the June 1994 contract and loss was thereby caused to the Defendant.

16. The Plaintiff argues that the Defendant should not be allowed to put forward his alleged loss by way of set-off because the Defendant has failed to particularise the amount of special damages of his alleged loss in the Defence and Counterclaim. There may be force in this argument but since I am able to deal with this matter by way of findings of fact, there is no need to further consider (or determine) this argument.

17. According to the Defendant's witness statement, the alleged breach of the June 1994 contract was as follows:-

(a) the Plaintiff failed to properly supervise the work of Ming Fai and Kam Ming;

(b) the Plaintiff failed to ensure that the materials imported for use in the mainland project were inspected and certified by the relevant authorities (particularly the Import & Export Commodity Inspection Bureau); and

(c) the Plaintiff failed to provide progress reports.

The loss suffered by the Defendant was allegedly caused by the Plaintiff's said wrongful acts.

18. On the other hand, the Plaintiff denies that he breached the June 1994 contract and argues that any loss suffered by the Defendant was caused by his own wrongful act, namely, the Defendant failed to keep up the periodical payments to the sub-contractors and workers. The Plaintiff says this resulted in stoppage of work and the project being delayed into the winter period. The extreme weather during that period made the work quality poor.

19. Alternatively, the Plaintiff contends that the Defendant has not put forward any proper evidence regarding his alleged loss and/or the loss put forward has not been proved to have been caused by the Plaintiff's breach.

20. As regards the issue of whether the Plaintiff has breached the June 1994 contract, there were some documents indicating that some of the work of Ming Fai and Kai Ming needed to be improved, but there was no document to show that the loss put forward by the Defendant was related to the same. The said documents indicating there might be need for improvement were the internal documents of the joint-venture company which commissioned the project, for example, documents for use at the directors' work meetings in 1995. On the other hand, the Plaintiff submitted (and I agree) that there were quite a few documents showing that the Defendant had failed to make due payments: see para. 28 of the Plaintiff's closing submissions.

21. Having examined the above documents and considered the parties' submissions, I agree with the Plaintiff's submissions that the Defendant has failed to prove that the Plaintiff has breached the June 1994 contract. Firstly, I do not find the Defendant's testimony to be credible. Even if I had to choose between the testimony of the Plaintiff and that of the Defendant, I would have preferred the Plaintiff's testimony. Secondly, the contemporaneous documents taken as a whole do not enable me to conclude in the Defendant's favour over this point.

22. Even if the Defendant were able to establish the Plaintiff has breached the said contract, I find that no proper evidence has been adduced to prove that the loss allegedly suffered was caused by the said breach.

23. The Defendant produced the written Arbitration Award of the China International Economic and Trade Arbitration Commission ("the Award") at trial as evidence of the Defendant's loss. Further, Mr Wu has handed up a document headed "Damages". One item in this document was taken from the value of the decoration work found by the arbitrators and this was used as a basis for calculating the Defendant's loss.

24. As stated above, this arbitration was related to the Defendant's dispute with his Chinese joint-venture partners regarding the mainland project. The Defendant's joint-venture partners made the following complaints to the arbitrators against the Defendant:-

(a) the Defendant failed to deliver the imported materials for inspection by the authorities timeously;

(b) the Defendant failed to pay the sub-contractors timeously resulting in delay; and

(c) the Defendant inflated the value of the decoration materials and installations.

(see pp. 369 and 375 to 376 of the Defendant's bundle of documents). On the other hand, the Defendant complained that his partners failed to inject their share of capital as agreed.

25. Thus, the context in which the findings were made in the Award is different from the matters which need to be resolved in this action. In these circumstances, the arbitrators (quite rightly) only made findings limited to the issues necessary for disposing of the issues properly raised in the arbitration proceedings. This related mainly to whether the parties to the arbitration had injected the appropriate amount of capital in accordance with the joint-venture agreement.

26. According to the Award, the parties to the arbitration agreed that the amount of the Defendant's contribution was to be ascertained based on the valuation made by the Commodity Inspection Bureau on the materials supplied by the Defendant: see p. 388 of the Defendant's bundle. The basis on which the Commodity Inspection Bureau valued (and hence the basis on which the arbitrators made their finding on the valuation of) the decoration materials is unclear. The Plaintiff disputes the basis of this valuation and the Defendant has not adduced any evidence to show that the valuation (or the finding) was correctly made for the purpose of this action, or that it ought otherwise be adopted by the Court. As stated earlier, the context of, and the issues properly raised in, the arbitration proceedings was/were different from that/those in this action. For the above reasons, I agree with the Plaintiff that no proper evidence of loss has been adduced; put in another way, the Defendant has not proved that the loss referred to in the Award was caused by the Plaintiff's breach of the June 1994 contract.

27. As regards the counterclaim for an indemnity, further to the above finding that the defence of set-off (and the counterclaim for damages) has not been proved, I agree with the Plaintiff's argument that since the joint-venture company has already been wound up, there is no need to consider this claim. Further, the Defendant has not adduced any evidence that a claim against him has been made by the joint-venture so far. The need for an indemnity is thus not established for this further reason.

Conclusion

28. By reason of the matters aforesaid, I find that:-

(a) the Plaintiff has established his claim; and

(b) the Defendant has failed to establish his defence or counterclaim.

29. Judgment is therefore entered against the Defendant in the sum of $2,976,177.00 and the counterclaim is dismissed. I leave it to the parties to agree on the rate and period of the interest on the Judgment sum. There will be liberty to apply (should the parties fail to reach agreement) as regards this matter.

Costs

30. The parties agree that a costs order nisi can be included in this Judgment. I find that the usual rule that costs should follow the event should be adopted. Costs of this action are to be paid by the Defendant to the Plaintiff to be taxed if not agreed.