HOUSTON MACHINERY (CHINA) CO LTD v. KWOK YING FAT

HCA 21/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 21 OF 2008

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J U D G M E N T

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1.  This is an appeal from partial summary judgment entered for the Plaintiff by Master S Kwang.  The appeal is approximately 10 months out of time thus requiring leave to be given to prosecute it.

2.  The reason which is given for the appeal being out of time is that some time after the time for lodging an appeal had expired the Defendant obtained further legal advice from which it appeared that the Master had been in error in making the determination he did at the hearing.

3.  Having regard to the desirability of there being finality to litigation this ground is a very weak one and in the normal course of events would not be a good ground upon which an application for leave would be granted.

4.  Mr Douglas Lam for the Defendant accepted that he had a high threshold to surmount to obtain the leave he was seeking.

5.  However he referred me to the notes in the white book on Order 58/1/9 where it is noted that where a judge is hearing such an application the most important fact to be weighed is whether there is a prospect that injustice would be caused if the leave which is sought is declined.

6.  It has to be said immediately that a most unfortunate precedent would be created if the court was readily to grant applications being made out of time for time to be extended on the ground that a further legal opinion had been obtained which held out the prospect that if an appeal was to be proceeded with it might be successful.

7.  Having regard to the authority to the effect that the prime consideration of the court must be to ensure that the failure to grant leave would not lead to injustice I am satisfied that it is incumbent upon me to consider the merits of the proposed appeal.

8.  The dispute between the parties concerns a contract for the sale and purchase of a valuable crane.

9.  The Plaintiff was the purchaser and the Defendant is alleged to be the vendor of the crane.

10.  In August 2007 Mr LUK Hung (“Mr Luk”) of the Plaintiff entered into the contract with Mr KWOK Ying-fat (“Mr Kwok”).

11.  The terms of the contract were referred to in a sales confirmation dated 23 August 2007 which was in these terms:

“    Houston Machinery (China) Co. Ltd.

August 23, 2007

Sales Confirmation

It is agreed that M/S Reliable Enterprises Ltd (called seller).  Will sell one set of Demag Model AC300–300 Ton all terrain crane serial no. 39091/WMG630972YZ00091 year made 2000 complete with all accessories as per attached in good condition to M/S Houston Machinery ((China) Co. Ltd. (Called Buyer), at price of Euro950,000.00 FOB PORT.

Seller will deliver the Crane on or before 30/10/07.

Payment is as follow:

a.   buyer will pay deposit of HK$500,000.00 (Euro47,320.00) on 23/8/07.

b.  Balance payment (Euro902,080.00)

50% payable against delivery of crane.

50% within 10 days after delivery

The above is subject to contract.

Signed on 23/8/07    Agreed by :

Houston Machinery (China) Co. Ltd.    Mr. Kenenth Kwok

_____________________________  _______________”

12.  There was undisputed evidence that at the time when the contract was entered into Mr Kwok requested that a company over which he controlled should be a party to the contract as vendor for taxation reasons.

13.  Mr Luk agreed to this hence the name Reliable Enterprises Ltd appears in the sales confirmation.

14.  It is common ground that in September 2007 Mr Luk orally requested an extension of time for taking delivery of the crane.

15.  According to him it was agreed that time could be extended until December 2007 but that a further $1,000,000 deposit should be paid under the contract.

16.  The Defendant takes issue on this.  According to him the extension was specifically to be to 10 December 2007 and that the purchase price should be increased to 960,000 Euros and the crane was sold “ex yard”.  Also time was to be of the essence of the contract.

17.  On 13 November Mr Luk paid two cheques to Mr Kwok in his personal name.

18.  Shortly following this Mr Kwok sent the Plaintiff a suggested draft contract allegedly incorporating the new terms of the contract.  This read as follows:

“   SALES & PURCHASE CONTRACT

THIS AGREEMENT is made the XX day of November 2007.

BETWEEN:

1.  LES STAT GLOBAL HOLDINGS LIMITED whose registered office is situate at Palm Grove House, P.O. Box 438, Road Town Tortola, British Virgin Islands (hereinafter called “the Seller”) of the one part; and

2.  HOUSTON MACHINERY (CHINA) COMPANY LIMITED whose registered office is situate at Room 1801-2, 18/F., Seaview Comm. Bldg., 21-24 Connaught Road West, Hong Kong. (hereinafter called “the Buyer”) of the other part.

WHEREBY IT IS HEREBY MTUALLY AGREED by and between the Seller and the Buyer hereto as follows:

The Seller agrees to sell and the Buyer agrees to purchase one unit of used Demag AC300 all terrain crane (Serial No.: 39091) (hereinafter called “the Crane”) subject to the following terms and conditions herein contained.

1.  DESCRIPTION OF THE CRANE

Please refer to appendix I.

2.  PURCHASE PRICE

The ex-yard purchase price shall be EUR NINE HUNDRED AND SIXTY THOUSAND (EUR 960,000.00) which shall be paid and satisfied by the Buyer to the Seller in the following manner:-

2.1  A sum of EUR 47,320.00 as initial deposit of the Purchase Price has been paid dated 23 August 2007.

2.2  A sum of EUR 88,496.00 as further deposit of the Purchase Price has been paid dated 12 November 2007.

2.3  A sum of EUR 412,092.00 as further payment of the Purchase Price shall he paid by T/T to the Seller before delivery of the Crane or completion date.

2.3.1  

Payee’s Bank Name :	xxxxx
Payee’s Bank Address :	xxxxx
	xxxxx
	xxxxx
SWIFT Address :	xxxxx
Beneficiary  :	Les Stat Global Holdings Limited
Payee’s A/C No. :	xxxxx
Payee’s Address :	xxxxxx
	xxxxxx
	xxxxxx
	xxxxxx
	xxxxxx

2.4  The balance of the Purchase Price in the sum of EUR412,092.00 shall be paid by banker guarantee to the Seller before delivery of the Crane or completion date.  And the payment due date to be dated within 10 days after the date of delivery or completion date.

3.  COMPLETION DATE

The sale and purchase shall be completed on or before the 10^th day of December 2007.

4   TIME OF THE ESSENCE

Time shall in every respect be of the essence of this Sales & Purchase Contract.

5.  WARRANTY

The Crane is sold “AS IS”, and the Seller does not is any way, expressly or impliedly, give any warranty to the Buyer.

6.  EVENT OF DEFAULT

The Buyer agrees with the Seller that the following events shall constitute Events of Default:-

6.1  If the Buyer fails to comply with any term condition covenant or other provision of the Seller or undertaking from time to time made to the Seller by the Buyer is or becomes incorrect or misleading in a material respect.

6.2  If any indebtedness for the Obligations becomes due or capable of being declared due by reason of breach or default on the part of the Buyer under the terms of any agreement or is otherwise not paid when due (or within any applicable period of grace) given by the Buyer is not honoured when due and called upon.

7.  REMEDIES UPON DEFAULT

7.1  Should the Buyer fail to complete the purchase on or before 10 December 2007, the deposit in respect of the Crane shall be forfeited.  And the Seller shall then be entitled at his absolute discretion to sell the Crane to anyone he thinks fit.

7.2  Should the banker guarantee unpaid (sic) by the drawer (the Buyer) bank, the Seller reserves all the rights to commence legal proceedings against the Buyer for the recovery of the outstanding amount without further notice.

7.3  The Seller may charge on its own behalf and pay to others all reasonable sums and expenses incurred for services rendered in connection with the Buyer realizing upon.

In acknowledging acceptance and agreement for the foregoing, the Buyer and the Seller affix their signatures hereto.

(The individual signing this contract on behalf of Buyer hereby represents to Seller that he or she has the power and authority to do so on behalf of Buyer).

SIGNED by the Buyer	)
For and on behalf of	)
HOUSTON MACHINERY (CHINA) CO., Ltd.	)
Mr Henry Luk (Holder of Hong Kong  )	)
Identity Card No. XXXXXXXXX	)
SIGNED by the Seller	)
For and on behalf of	)
LES STAT GLOBAL HOLDINGS LTD.	)
Mr Kenneth Kwok (Holder of Hong Kong	)
Identity Card No. XXXXXXXX	)”

19.  It will be noted that a different party is named as the seller in this draft.

20.  According to Mr Luk’s evidence he was out of Hong Kong when his office received this draft.  As the terms incorporated in the draft were not in accordance with what had been agreed he instructed his assistant to inform Mr Kwok of the disparities.

21.  There is a further conflict of evidence between the parties as to what transpired when Mr Luk returned to Hong Kong.  It appears however that there was agreement the time should be extended to 13 of December.

22.  However it is Mr Luk’s case that the Plaintiff wrote a letter to Mr Kwok in all his different guises on 13 December in these terms:“

Houston Machinery (China) Co. Ltd.

Les Stat Global Holdings Ltd
Room 802, 8/F., Chung Ying Building,
20-20A Connaught Road West,
Sheung Wan, Hong Kong
Attn. : Mr. Kwong Ying Fat
	BY FAX AND MAIL
	Date  :  13th December 07
	Ref    :  HMCC0112/07HL

Dear Mr. Kwok,

RE : Sale and Purchase of the Demag AC300 All Terrain Crane (Serial No.39091)

We refer to the sales of the Demag Model AC300 All Terrain Crane, S/N 39091 complete with all accessories.

We take notice your proposal to change the seller from Reliable Enterprise Ltd to M/S Les Stat Global Holding Ltd.

We wish to advice you that our funds for our purchase are all ready with our Banker M/S DBS Bank (Hong Kong) Ltd.

Our payment for the balance of the purchase will be prepared as below:

(1) Euro 412,029 (or in HK Dollar) by Bank’s cashier order in name of Mr. Kwok Ying Fat and will be submitted to seller at taking delivery of the crane.

(2) Euro 412,092 by T.T. remittance to M/S Las Stat Global Holdings Ltd account at Singapore.  We shall provide a letter from our Banker confirming the funds is earmarked and the bank will effect the T.T. upon submission of a cargo receipt signed by Houston Machinery (China) Co., Ltd.

We are ready to take delivery of the crane.

Please kindly expedite the necessary document so we can complete the translation.

Your kind attention is highly appreciated.

With Best Regards,

Houston Machinery (China) Co., Ltd.

________________________________

Henry Luk

(Enclosed Draft Letter)”

23.  According to Mr Luk copies of the letter were hand delivered, mailed and faxed.

24.  Mr Kwok denied that either he nor any of the relevant corporate entities ever received any of the letters.

25.  Amongst the alleged recipients was Sunshine Heavy Crane Ltd.  This was the company that Mr Luk was aware that Mr Kwok was a director and shareholder of and which had been an active participant in the trade of dealing in cranes and renting them out to customers.

26.  On 22 December Mr Kwok wrote to the Plaintiff as follows:

“    Reliable Enterprises Limited

Room 802, 8/F, Chung Ying Building, Connaught Road West, 

Sheung Wan, Hong Kong

22 December 2007

BY FAX (2544 2866) AND BY POST

Houston Machinery (China) Co., Ltd.

Rooms 1801-2, 18/F,

Seaview Commercial Building,

21-24 Connaught Road West,

Hong Kong

Attn.   :   Mr. Henry Luk

Dear Henry,

Re: Sale and purchase of Demag AC300 All Terrain Crane (Serial No.39091)

I refer to your letter dated 21^st December 2007 to me on the above matter.

I must say that I am even more frustrated than you are for what happened between us in the last few months.

As experienced businessmen, we respect and rely on what we have agreed with our trading partners, both verbally and in writing.  But I regret to say that HMC let me down again and again, even though I had accommodated its position repeatedly.

As you recited in your letter, we signed an agreement (i.e. the Sales Confirmation) (“the Agreement) on 23 August 2007 and for sale and purchase of a Demag AC300 All Terrain Carne (“the Crane”) at the price of Euro 950,000.  Both parties agreed that the Crane should be delivered latest on 30 October 2007, and you paid the deposit of HK$500,000.

By the end of October 2007, you requested me to extend the delivery date on the ground that the shipment schedule was not available.  In order to accommodate your position, and as a matter of good faith, I agreed to extend the delivery date to 10 December 2007, on the conditions that the price of the Crane would be increased to Euro 960,000 on “ex-yard” basis, and you must pay a further deposit of HK$1,000,000.  You duly agreed and paid the further deposit of HK$1,000,000 on about 13 November 2007.  However, when we prepared and tendered the formal contract for you to sign, you neither signed nor gave us your comments.

By 10 December 2007, the extended date of delivery, you requested a further extension of the delivery date, on the ground that you had not arranged the necessary finance for the purchase.  I could not believe this as the Agreement was signed back in August, three and a half months ago, and you did not make any finance arrangement even up to the extended date of delivery.  I believe the ground tendered by you in late October for extension, namely, shipment schedule not available, was not genuine.  Nevertheless, as a matter of good faith again, I agreed to further extend the delivery date to 13 December 2007.

Much to my disappointment, you failed to take delivery of the Crane or make any payment on 13 December 2007, the further extended delivery date.  Under these circumstances, I had no alternative but to inform you that the Agreement would be terminated by reason of your repeated failure to comply with the terms thereof.

I must say that your lengthy allegations on the ownership of the Crane and our request to use another BVI company as a seller are more excuses, and they do not in any way absolve your liability to fulfill the Agreement.  The fact remains that you have been in blatant breach of the terms of the Agreement.

All in all, I repeat my decision that we would treat the Agreement as terminated by reason of your repeated failure to perform.  Indeed, we have suffered substantial loss and damages as a result of your repeated failure to abide by the terms of the Agreement and ultimately defaulted on it.  We shall assess all such loss and damages and no doubt they will be set off against the deposits you have paid.  If there is a shortfall after the set off, we shall lodge our claim against you.

In any event, all our rights are hereby reserved, in particular, our rights to seek a full indemnity from you for all the loss and damages we have, or may have, suffered, as a result of your breach of the Agreement.

Reliable Enterprises Limited

_______________________

Kenneth Kwok”

27.  It will be noted that the letter is written on Reliable Enterprises Ltd note paper.

28.  Prior to writing this letter Mr Kwok had sold the crane at a substantially higher price to a third party.

29.  It appears to be common ground that the market in second hand cranes was rising significantly at this time.

30.  There are three issues which need to be considered in determining whether such injustice would be caused to Mr Kwok if I decline to grant the leave he is seeking.

31.  The first is the extent to which it is permissible for the court to go behind the terms contained in the sales confirmation.

32.  It is relevant to note that the document does not purport to embody all of the terms of the contract entered into by the parties.  In this connection Mr Kwok accepts that the contract was entered into three days prior to the issuance of the sales confirmation.

33.  It is clear from the passage in para 5-095 of the 30^th edition of Chitty on Contracts volume 1 Sweet and Maxwell that in a situation such as arises in this case that it is permissible to have regard to the surrounding circumstances to ascertain who in fact was the party to a contract.

34.  This approach was adopted by Stone J at para 55 of his judgment in Wycombe Investment Ltd v Edwin Leong Siu Hung unreported being HCCL 66/2004:

“I accept the evidence of Mr Wong to the effect that in his communications to Mr Leong it was made clear that a family corporate vehicle would be involved.  In the circumstances revealed on the evidence it is difficult to see how or why the subsequent formal identification of the precise corporate vehicle to be thus involved should preclude this entity from being the contracting party, for whom Kennedy Wong throughout had been acting as agent.  Nor do I understand how this point can survive the undisputed fact that there is no doubt that it was appreciated by all concerned that the capital input to be made by the three core investors would be via corporate entities, which in turn may have become shareholders within the management vehicle, TIM.  The signed acknowledgment by Mr Leong of the receipt from Wycombe Investment in terms of the capital contribution of the Wong family merely serves to underline the point.”

35.  A further helpful approach to this problem was contained on page 364 of the judgment to Deputy Judge Wong SC in Postwell Ltd v Cheng Kap Sang 2004 2 HKLRD 355:

“Lord Nicholls agreed that Cundy v Lindsay should not be followed.  A person should be presumed to intend to contract with the person with whom he is actually dealing, whatever the mode of communication.  But the majority held that when the dealings are carried out in writing, and certainly when the contract is reduced to a writing, the identification of the parties to the agreement is a question of the construction of the putative contract.  If an individual is unequivocally identified by the description in the writing, that precludes any finding that the party to the agreement is anyone other than the person so described.”

36.  When an examination of the circumstances of this case is undertaken the result would appear to be all one way.

37.  Mr Luk and Mr Kwok had known each other for some time.  It is common ground that the reason for using Reliable Enterprises Ltd was for taxation reasons.

38.  There is also the significant evidence of Mr Kwok using the different corporate entities interchangeably.

39.  In addition to this is the evidence of the payment of the various deposits to Mr Kwok personally.

40.  Having regard to the obvious realities of the situation it is almost inconceivable that Mr Luk would have agreed to enter into contracts and make substantial payments to companies he had been unaware of until he had been requested by Mr Kwok to use their names for taxation reasons.

41.  It should also be noted that throughout the various negotiations and discussions Mr Kwok had behaved in such a way as would be expected of a beneficial owner of the crane.  For example he had represented that he would take such measures as were necessary to deliver the crane in accordance with the terms of the contract.

42.  It would almost inevitably be the case that on a final determination of this litigation it would be found that Mr Kwok was indeed himself the contracting party.

43.  The second issue to be considered is the situation relating to the breach of the contract between the parties.

44.  To say the least of it Mr Kwok’s claim that neither he nor any of the relevant corporate entities had ever received the Plaintiff’s letter of 13 December is shadowy or could be characterised as being moonshine.

45.  Unless it could be established that the letters were a fabrication invented after the event it is inconceivable that Mr Kwok had never received the letters.

46.  A further aspect of this matter is the commonly accepted fact that at the relevant time the market value of second hand cranes was rising.  This is borne out by the fact that Mr Kwok managed to on sell the crane at a significantly enhanced price.

47.  There was accordingly an incentive for Mr Kwok to attempt to avoid the contract he had entered into with the Plaintiff.

48.  As against this clearly Mr Luk was anxious that the contract should be performed.

49.  The available evidence all tends to support the contention that it was Mr Kwok who breached the contract.

50.  The final matter to be considered is whether undue prejudice is likely to be suffered by Mr Kwok if I decline to grant the leave which is sought.

51.  It has to be borne in mind that prejudice is a double edged sword.

52.  It is necessary also to bear in mind prejudice which will be suffered by the Plaintiff.  This has been referred to in an affirmation affirmed by Mr Luk.

53.  So far as Mr Kwok is concerned as I have indicated in this judgment his prospects of success in this litigation are remote.

54.  Over and above this he obtained a substantial profit when he sold the crane to another purchaser.  It can hardly be said that if I decline to make the order sought he will suffer serious prejudice.

55.  On the other hand if the Plaintiff is driven from the partial judgment he has obtained and is required to disgorge the moneys which have been received from Mr Kwok it will undoubtedly suffer serious prejudice.

56.  On the basis of the Master’s judgment the Plaintiff was able to deal with claims made against it by its sub-purchaser in Holland.  It is unlikely that the Plaintiff would be able to get back any moneys it paid to the sub-purchaser.

57.  Also in these difficult financial times it is by no means certain that the Plaintiff would be able to obtain financial accommodation from its bankers.

58.  I have no doubt on considering all of the relevant factors needing to be weighed in exercising the discretion reposed in me that I should decline granting leave to extend the time for lodging an appeal against the Master’s judgment and I so order.

59.  I also made an order nisi that the Plaintiff will have the costs of this application.  There will be a certificate for counsel.