RE EVER CRYSTAL LTD.

HCCW795/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING UP NO.795 OF 1999

-------------

-------------

------------------------

J U D G M E N T

------------------------

1. This is a creditor's petition presented on 6 September 1999. The underlying debt is in respect of goods sold and delivered. The relevant invoice was issued on 30 October 1998.

2. The petition is opposed. The issue before me is whether the Company is liable to pay for the goods. The Company's position is that it merely acted as the middleman between one Mr Edward Shum, whom the Company says is the real contracting party, and the petitioner. It is the Company's case that the Company allowed its facilities to be used by Mr Shum in return for a commission.

3. The contract in question is evidenced by Purchase Order No.801050 dated 27 October 1998. There is an Order Entry Form of even date which shows that the petitioner would bill and ship the goods to the Company. Although counsel for the petitioner submitted that the contract is evidenced by both the Purchase Order and the Order Entry Form, it appears that the latter was an internal document. There would appear to be a manuscript annotation that it was sent from Jennifer to Linn, both of whom were employees of the petitioner.

4. Be that as it may, it is not disputed that the goods in question were delivered to the Company. There is an invoice which clearly identifies the party to whom the shipment was to be billed, sold and shipped.

5. After the invoice dated 30 October 1998, there was no response from the Company until 5 February 1999. The Company sent an e-mail in the following terms -

"I refer to the captioned invoice regarding the order of chipsets. As understand by Phil and Jennifer, the order arrangement is made by Edward Shum of DSR. We are in the position to make shipment arrangement for the delivery to his factory in China via Hong Kong.

Edward advised us that he will make payment for that order in State by DSR directly and he has informed Phil the arrangement before placing the order. I believed that your company has considered the credit of Mr Edward Shum, DSR, being a computer professional in the State.

We are sorry that Mr Edward Shum has delayed the payment and we have urged him to settle the payment to you soonest. He has promised us that he will.

Mr Edward Shum will be back to State from China at around 15 Feb. 1999. He will contact your office to resolve the case when he is there. You can also reach him at his mobile phone at 626-823-8299."

6. Counsel for the petitioner observed that there was no denial as such by the Company of its liability : it simply expressed disappointment that Mr Shum had not settled the bill. It was not put in terms of what the Company's case was as regards the alleged liability to pay.

7. Five months later, after the statutory demand had been issued, the Company's solicitors wrote to the solicitors for the petitioner as follows -

"Our client is using its best endeavour to restructure its financial situation and would be most grateful if your client can allow some breathing time for them during this difficult time.

Please kindly withhold any proceedings until end of July 1999 whereby our client can afford to pay your client."

There is nothing in that letter to suggest that the Company was not the contracting party or that it was merely an agent for Mr Shum.

8. The documentary evidence relating to the underlying debt shows that the Company was the contracting party. However, the Company referred to three prior transactions - they were previous dealings between the parties. The three earlier purchase orders were placed on 10 August 1998, 18 September 1998 and 24 September 1998. As is the case with the fourth transaction, which is the subject-matter of the underlying debt, all these purchase orders were placed by the Company. In each case it was issued on a document which bears the Company's name, the goods were delivered to the premises of the Company and the purchase order signed by the Company. There is simply nothing on the face of the purchase orders to suggest that anyone else was interested in the transactions.

9. So far as the three prior transactions are concerned, payments for two of them were made by the Company to the petitioner. As regards the second of the three transactions, the payment was made by a company known as New Dimension Enterprises Corporation a US company with which Mr Shum was apparently connected. But it is to be noted that the payment made was described as "payment for the Company". That appears as "additional information for the beneficiary" in the advice from the paying bank to the petitioner's bank. There was no suggestion there that the payment was made for or on behalf of Mr Shum.

10. Counsel for the petitioner submitted that there was no credible evidence to support the agency contention. First, none of the contractual documents refer to any agency. Second, Mr Shum has himself not put in any evidence regarding his role in these transactions. It is true that there are certain e-mails passing to and from him prior to the placing of the orders (at least as regards the prior transactions). But those were pre-contractual negotiations, and again there is nothing in the e-mails to suggest that Mr Shum was contracting on his own behalf, or that he had nothing to do with the Company. Third, there is no documentary evidence of the alleged agency. There is certainly no evidence to support the allegation of the agency arrangement between Mr Shum and the Company, namely, that a commission was paid to the Company for the use of its office facilities other than a bare assertion. There is also no agency agreement, for example, in evidence. Fourth, when one looks at the letter of 8 July 1999 from the Company's solicitors, it is quite plain that there was no denial of liability, rather it amounted to an acknowledgement of liability while seeking an indulgence from the petitioner for more time to pay the debt. I agree with the contention of counsel for the petitioner that there is no credible evidence to support the alleged agency arrangement.

11. Even if I were wrong about this, and the Company were the agent for Mr Shum in these transactions, and more particularly the fourth transaction which is the basis of the debt founding the petition, it does not mean that the Company is not liable. Counsel for the Company accepted that the law as stated in Wu Man Kin Eddie v. Cable & Wireless Systems Ltd. [1989] 2 HKC 447 correctly states the principle, namely that a person who signed a contract would escape personal liability on that contract only if it was made clear at the time of signing the contract that he was signing it not on his own behalf, but for and on behalf of a principal, either disclosed or not disclosed. That case followed the House of Lords' decision in Basma v. Weekes [1950] AC 441. If one were to apply that principle, I cannot see how the Company can escape liability.

12. Counsel for the Company nevertheless invited the court to apply what he called the test in The Virgo [1976] 2 LlR 135 where Shaw LJ said -

"...It is not sufficient and it is certainly not conclusive to have regard only to the terms in which the actual signatures to the contract are described, or to the fact that no qualifying description of their status accompanies their signatures."

This was applied in Pan Asia Textiles Ltd v Fidus Co. [1987] 2 HKC 233 where the full quotation was stated (at 235E-F) and included the following sentence -

"The status and capacity of the asserted or purported parties to a contract is to be determined by reference to the provisions of the contract looked at in its entirety."

When one looks at the contract in this case in its entirety, Mr Shum's involvement is nowhere to be found. As I have noted earlier, there is no credible evidence to support the alleged agency and none of the pre-contractual dealings suggests or detracts from the fact that the proper contractual party to the purchase orders was the Company. It is to be noted that Polly Chiang, a director of the Company, was also dealing with these orders. Although in some of the e-mails she signed herself as sending the particular e-mail "for Edward". The text of the e-mails do not support the contention that the contract was that of Mr Shum's rather than the Company's. It is also to be noted that whilst careful to state that she was sending the e-mail for Edward, there was no attempt, as could easily have been done, to qualify the capacity in which Miss Chiang was communicating with the petitioner, for example, by stating that the Company was transacting only for and on behalf of someone else, that is to say Mr Shum.

13. For all these reasons, I have no hesitation in reaching the conclusion that the Company is liable to pay for the goods sold and delivered by the petitioner. Accordingly, its opposition to the petition is rejected. I will make the usual winding-up order and the costs of the petitioner and of the Company will be a liquidation expense.