EVERBOND ENGINEERING LTD v. AER BLOCK BUILDING MATERIAL COMPANY LTD

DCCJ 3350/2020

[2024] HKDC 2130

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3350 OF 2020

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BETWEEN

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JUDGMENT

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Introduction

1.  In this case, the Plaintiff claims against the Defendant for HK$1,598,450.60, being the total price of river sand sold and delivered by the Plaintiff to the Defendant pursuant to a Sales Agreement entered verbally by one Mr Tam Kai Nin David (“Tam”) on behalf of the Plaintiff and one Tsui Kwok Keung (“Tsui”) on behalf of the Defendant in around early 2016 for the supply of the river sand. The river sand was said to have been delivered to the delivery points designated by the Defendant, so that the Defendant could fulfil its contract with a third party, China State Construction Engineering (Hong Kong) Limited (“China State”).

2.  The Defendant denies the existence of the Sales Agreement negotiated between Tam and Tsui, but asserts that similar arrangements were instead made through one Ching Lam (“Ching”), then a shareholder and sales representative of the Plaintiff, with Tsui on behalf of the Defendant. There is no dispute that Ching was not appointed as a director of the Plaintiff until 18 August 2016.

3.  The Defendant accepts that it should pay the Plaintiff for the delivery of sand, but the sum of HK$1,598,450.60 was fully settled or set-off, based on a written agreement signed on 23 June 2016 between Ching and Tsui for the rental of ten tipper trucks (“Written Agreement”) for the period between 15 July 2016 and 14 July 2019, at the rate of HK$95,000 per truck each month. The terms of the Written Agreement were alleged to have been subsequently varied or amended orally through Ching and Tsui in July 2016 to the effect that eventually only two tipper trucks bearing registration numbers UE5661 and UE4738 (hereinafter referred to as “T1” and “T2” respectively) were to be rented out to the Plaintiff (“Truck Rental Agreement”).

4.  Subsequently, the Defendant says that the Plaintiff did not pay the agreed rental or monthly fee since August 2016 as it was suffering from financial difficulties at the time. The parties then agreed that the Defendant would set off such fees against its obligation to pay for the river sand delivered.

5.  The Truck Rental Agreement and the agreed set-off forms the basis of the Defendant’s defence of set-off, and its counterclaim for the outstanding rental or monthly fee in the total sum of HK$2,066,105.00 (as well as parking fee in the sum of HK$23,400.00 incurred as a result of the Plaintiff’s breach of the Truck Rental Agreement) from the Plaintiff.

6.  On the other hand, the Plaintiff denies the Truck Rental Agreement, and asserts that the tipper trucks T1 and T2 were in fact held by the Defendant on trust for the Plaintiff.

7.  I should also mention at the outset that on the 2^nd day of the trial, the Defendant took out a summons for leave to file and serve its Supplemental List of Documents in order to include in the evidence at trial 6 additional documents, the inclusion of 5 of which was not objected to[1]. The Plaintiff however objected to the inclusion of the last document, being an Authorisation Letter issued by the Plaintiff dated 1 October 2015 which stated that Ching was authorised by the Plaintiff to receive payments for goods sold on behalf of the Plaintiff (“the Authorisation Letter”).

8.  Despite the lateness of the discovery, I allowed the application after conducting a balancing exercise considering whether the documents would assist the court in the just resolution of the disputes, the prejudice caused to the other side, and whether there was any conscious flouting of the rules of the court (see, e.g. Civic Limited v 余綺妙 and Others, HCA 225 of 2011, 12 July 2013, DHCJ Marlene Ng (as she then was)). Given the indication by the Plaintiff that no further amendments to the pleadings would be required and the trial could proceed, I allowed the application on the basis that the documents would be relevant to the issues at trial, which would assist the court in the just resolution of the case. I did not find that there was any conscious flouting of the rules of the court as I accepted the Defendant’s explanation that the document was only sent to Tsui by a staff member on the 2^nd day of the trial.

9.  As for prejudice, the inescapable result was that the trial had to be adjourned to new dates fixed in May this year, and the Plaintiff was compensated with costs to be taxed on an indemnity basis.

10.  I would now proceed to deal with the evidence.

The Plaintiff’s case

The supply of river sand

11.  As mentioned above, there is no dispute that river sand in the amount of HK$1,598,450.60 had been delivered to the Defendant at the various designated points of delivery. It is the Plaintiff’s case that this sum is derived from the amounts due under the outstanding invoices as particularised in paragraph 8 of the Amended Statement of Claim.

The Written Agreement and the Truck Rental Agreement

12.  Concerning the Written Agreement and the Truck Rental Agreement, the Plaintiff’s position is that it is for the Defendant to strictly prove their authenticity and validity. In any event, the Plaintiff says it had no prior knowledge of the Written Agreement and the Truck Rental Agreement. These, if entered into, were without proper authority given by the Plaintiff. As such, there can be no set-off as alleged by the Defendant.

13.  The Plaintiff stresses that the authenticity of the Written Agreement was doubtful and asks the court to place no weight on the document. First of all, the Plaintiff says that the alleged signature of Ching was different from his other signatures. The alleged chop of the Plaintiff on the document was of a different shape and the words were of a different font from the Plaintiff’s other chops. The Plaintiff also says it was inherently improbable that Ching would seek to rent ten tipper trucks in June 2016 while it is the Plaintiff’s case that the Plaintiff was considering purchasing only two in May 2016. There was also a lack of contemporaneous documents such as invoices issued under the Written Agreement.

14.  The Plaintiff also says the Defendant has to establish Ching’s capacity to enter into transactions to bind the Plaintiff. Ching was formally appointed and registered as a director of the Plaintiff on 18 August 2016. In other words, Ching was not a director when the Written Agreement was allegedly executed on 23 June 2016, and when the Truck Rental Agreement when allegedly orally made in July 2016, and also when the alleged agreement was made with Ching for setting off on or around 15 or 16 August 2016.

15.  The Plaintiff says there was a lack of authority for Ching to execute any documents on behalf of the Plaintiff. The Defendant would need to establish Ching as an agent of the Plaintiff. However, no particulars were offered by Tsui as to how or why he would find Ching to have the capacity to enter into contracts on behalf of the Plaintiff. Tsui only briefly said Ching represented himself to be one of the Plaintiff’s directors in 2015. However, the Plaintiff says it is well established that “an agent cannot clothe himself with authority – it must come from the principal”: W Hing Construction Co Ltd v Boost Investments Ltd [2009] 2 HKLRD 501 at §82.

The Trucks Purchase Trust Agreement

16.  The Plaintiff says the tipper trucks T1 and T2 were purchased by the Defendant on behalf of the Plaintiff such that the Plaintiff was the beneficial owner of the same. Pursuant to the Truck Purchase Trust Agreement, the Plaintiff says it had caused a related company of Tam, one Adrian Construction Limited, to repay the bank loan obtained for purchasing T1 and T2 from August 2016 to July 2017, amounting to a total sum of HK$514,000.00. Over this period, the Plaintiff says it had also paid all the running costs of T1 and T2 including fuel, insurance premium, drivers’ salaries and Mandatory Provident Fund, vehicle registration fees and other ancillary expenses. The Plaintiff also says the applications for dumping licences for T1 and T2 were signed by Ching while the registered owner was the Defendant.

17.  The Plaintiff says it has produced a contemporaneous document dated 2 November 2017 in which Ching confirmed the beneficial ownership of the tipper trucks as being himself and Tam in equal shares, the two of them being the then shareholders of the Plaintiff (“the Memorandum”). This the Plaintiff says also confirms the existence of the Trucks Purchase Trust Agreement.

18.  The Plaintiff therefore says there has been a common intention constructive trust, as well as a resulting trust under which the Defendant has been holding the tipper trucks for the benefit Plaintiff.

19.  In this regard, Mr Cheung for the Plaintiff referred to Liu Wai Keung v Liu Wai Man [2013] 5 HKLRD 9 at §46, where G Lam J (as he then was) summarised the elements which a plaintiff needs to prove in order to establish a common intention constructive trust:

“(i) there was a common intention between him and the defendant that the plaintiff was to be the beneficial owner of the Property despite that it was acquired in the defendant's name;

(ii) the plaintiff altered his position in detrimental reliance upon such common intention; and

(iii) it is unconscionable for the defendant to assert ownership in reliance on her legal title to the Property.”

20.  As for the reliance on the cause of action of resulting trust, “[i]t is well-established that ‘when real or personal property is purchased in the name of a stranger, a resulting trust will be presumed in favour of the person who is proved to have paid the purchase money in the character of a purchaser’”: see Tse Hong Hung v Commissioner of Estate Duty [1991] 2 HKLR 30 at 32I-J.

21.  The Plaintiff says there was a clear and common intention that the benefits of the hire-purchase agreement dated 13 July 2016 in respect of the tipper trucks had been assigned to the Plaintiff. There was reliance by the Plaintiff and it is now unconscionable for the Defendant to deny the Plaintiff’s ownership of the tipper trucks T1 and T2, relying on the fact that the Plaintiff had effected various payments in respect of the tipper trucks mentioned above.

Ching not called as a witness

22.  The Plaintiff says that in the context of the Defendant’s case in particular, Ching played a vital role. Both parties attempted to contact Ching to give evidence in the current trial, but were in vain.

23.  The legal principles concerning the failure to call a vital witness were summarised in Wisniewski v Central Manchester Health Authority [1998] PIQR 324 in which Lord Brooke held at 340 that:

“(1) In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action.

(2) If a court is willing to draw such inferences, they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness.

(3) There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue.

(4) If the reason for the witness's absence or silence satisfies the court, then no such adverse inference may be drawn. If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified.”

24.  The Wisniewski principles have been applied in Hong Kong. McWalter JA further clarified in Tjang Siu Thu v Profield Construction Engineering Ltd & Anor [2015] 5 HKC 22 at 29I-20C that:

“(i) the Wisniewski principles do not constitute a presumption; consequently, the mere failure of a party to call a witness does not automatically confer an evidential benefit on the opposing party

…

(v) one circumstance where it will not be appropriate to draw the inference is where there is an explanation for the party’s failure to call the witness.”

25.  Here, the Plaintiff initially took the stance both parties have provided a sensible explanation for not calling Ching as a witness. Ching was a PRC resident and he could not be located after late 2017. Both Tam and Tsui failed to contact Ching through his previous mobile phone number. In such circumstances and in view of fairness, the Plaintiff initially took the stance that no adverse inference should be drawn against either party as parties share the same explanation.

26.  However, after the trial, this was no longer the position of the Plaintiff. Initially, Tsui explained that he tried to demand Ching to settle the outstanding payments under the Truck Rental Agreement but Ching refused. From about 13^th August 2017, he had lost contact with Ching. However, Tsui under cross examination surprisingly said he was able to reach Ching through the digital messaging platform “WeChat” in 2022. Tsui first said Ching’s wife replied through WeChat that Ching was in the hospital. Tsui then did not proceed further with enquiries. Tsui added that he thought Ching had died. The Plaintiff says the above accounts of events were self-contradictory and contrary to Tsui’s witness statement.

27.  In such circumstances, the Plaintiff submits that the only reasonable inference is that Tsui was able to contact Ching, but chose not to. The Plaintiff therefore invited the court to draw an adverse inference against the Defendant.

28.  On the other hand, the Defendant says it is the Plaintiff who should rely on Ching’s evidence to prove these agreements as its vital witness. The Plaintiff has failed to do so. As such, the Defendant invites the court to draw an adverse inference against the Plaintiff.

29.  I shall deal with this further when considering the evidence.

The Defendant’s case

River sand was supplied pursuant to the Sales Agreement

30.  The Plaintiff’s case is that the Sales Agreement was initiated by Tsui on behalf of the Defendant, for the reason that the Defendant did not have sufficient suppliers to feed the purchase orders placed by China State at times of high demand.

31.  The Defendant’s case concerning this issue is that all negotiations were made with Ching. It was Ching who proposed that the Plaintiff would be the supplier of river sand to the Defendant, and the Defendant would supply the same to China State. Such was necessitated as Ching or the Plaintiff was “not big enough” to deal directly with China State.

32.  The Defendant’s case is that Tsui on behalf of the Defendant had not made any agreement or otherwise directly dealt with Tam. All dealings of the Defendant with the Plaintiff were made through Ching as the then director and shareholder of the Plaintiff.

33.  The Defendant contends that the Plaintiff did not put forward any ground or vitiating factors supporting its allegation that the Written Agreement is not valid or authentic except that Ching signed the same without “proper authority” from the Plaintiff. As such, the main question falls on whether Ching was authorised by the Plaintiff, hence, whether the Plaintiff is bound by the Written Agreement and the Truck Rental Agreement.

34.  It is the Defendant’s position that Ching was at all material times acting for and on behalf of the Plaintiff. Even during the period when he was not yet appointed as a director prior to 18 August 2016, he acted as an authorised agent of the Plaintiff. Ching does not have to be appointed as a director to act as an authorised representative of the Plaintiff.

35.  As a starting point, the Defendant relies on the Plaintiff’s case that Ching is a sale representative specifically assigned to take care of the Defendant’s account and keep regular contact with Tsui on behalf the Plaintiff.

36.  The Defendant further says that the Plaintiff has put Ching into possession of the company’s chop with the authority to negotiate, make business dealings and take care of the Defendant’s account on the Plaintiff’s behalf. Ching’s authority can be implied or inferred from the conduct of the parties and the circumstance of the case: see Hely-Hutchinson v Brayhead [1968] 1 QB 549 at 550F-G, per Lord Denning MR.

37.  The Defendant’s case is that the Plaintiff has held Ching out as having actual implied authority, or alternatively, apparent or ostensible authority to deal with the Defendant. The Plaintiff cannot now be heard to say that he is not bound by what Ching has done. As against the Defendant, the Plaintiff is now estopped from denying the authority of Ching in entering into the Written Agreement and the Truck Rental Agreement.

38.  The Defendant also relies on Tam’s witness statement, where Tam mentioned he had discussions with Ching regarding the Plaintiff’s dealings with the Defendant. Contrary to the Plaintiff’s case that Ching was not authorised to act for and on behalf of the Plaintiff in entering into agreements with the Defendant in 2016, the Defendant contends that that Ching was involved in the course of business of the Plaintiff with the Defendant until he was nowhere to be found around December 2017.

39.  There is no dispute that Ching was also a shareholder and director of the Plaintiff. According to Tam, Ching was allotted 50% of the shares of the Plaintiff while Tam himself held the other 50% shares of the Plaintiff on 15 July 2015.

40.  It is said the most significant indicators to the Defendant that Ching was acting on behalf of the Plaintiff in entering into the sale arrangement were that the Plaintiff in fact delivered river sand to delivery points as instructed by the Defendant, kept issuing and presenting invoices regularly to the Defendant, and used the tipper trucks for delivery according to the sale arrangements with Ching.

41.  As to the law on agency, the Defendant referred to Freeman and Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd and Another [1964] 1 All ER 630, in which Diplock LJ set out the principles for apparent or ostensible authority at 644E-H:

“An ‘apparent’ or ‘ostensible’ authority . . . is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the ‘apparent’ authority, so as to render the principal liable to perform any obligations imposed upon him by such contract. To the relationship so created the agent is a stranger. He need not be (although he generally is) aware of the existence of the representation but he must not purport to make the agreement as principal himself. The representation, when acted upon by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract. It is irrelevant whether the agent had actual authority to enter into the contract.” (underline added)

42.  Simply put, it is trite that the doctrine of apparent or ostensible authority provides that a principal may be bound by the acts of an agent which he has not authorised, and has even forbidden, is plainly based on the notion of a representation made by the principal. Such representation can be express or implied. In this regard, a course of dealing is also sufficient to create apparent authority, from which it can be inferred that the principal must have become aware of the earlier transactions: see §8-014 of Bowstead and Reynolds on Agency (22^nd edition).

43.  The Defendant says a representation by the principal can be made by course of dealing or by allowing the agent to act in certain ways, considering the totality of the principal’s conduct, for instance, by entrusting Ching with the conduct of particular negotiations with the Defendant as the “sale representative” of the Plaintiff, relying on Egyptian International Foreign Trade Co v Soplex Wholesale Supplies Ltd and P S Refson & Co Ltd, The Raffaella [1985] BCLC 404 at 421.

44.  A representation by the agent himself that he has authority can create apparent authority if the principal is regarded as having in some way instigated or permitted it, or put the agent in a position where he appears to be authorised to make it: see §8-020 in of Bowstead and Reynolds on Agency.

45.  The Defendant says the fact that Ching has used the company chop of the Plaintiff on the Written Agreement indicates that Ching appeared as responsible or empowered to enter into the same on behalf of the Plaintiff and that the Plaintiff had thus represented Ching to be its authorised representative. Given that the Defendant had only dealt with the Plaintiff through Ching regarding delivery of river sand, it was not irrational or reckless for the Defendant to rely on the ostensible or apparent authority of Ching.

46.  Mr Chan, together with Ms Cho for the Defendant referred to the case of TS Office System Ltd v Wing Kee Produce Ltd [2015] 1 HKLRD 479, where it was found that a clerk at the reception was permitted by the defendant company to use the company’s chop. In his decision dismissing the appeal, L. Chan J said that “the stamping of the chop could be relevant to matters relating to the apparent authority of the person”. The learned judge found that the permission given by the defendant company to use the chop, as opposed to the mere use of the chop, was a representation to outsiders that the clerk “had authority to act for the defendant in situations where the use of the defendant’s rubber chop would suffice” (see §32).

47.  In the Plaintiff’s case, Tam made oral agreements with Tsui directly and that Tam met Tsui “on several occasions”. Having met Tsui in person and enquired with Ching whenever issues arose regarding the river sand delivery to the Defendant, the Defendant says it is clear that Tam permitted Ching to act on behalf of the Defendant.

48.  Furthermore, Ching was the authorised signatory of documents of the Plaintiff. He was the authorised recipient of payment by the Defendant in relation to the supply of river sand to the Plaintiff (this the Plaintiff apparently does not dispute). In particular, the Defendant relies on the following documents:

(1) A receipt for HK$50,000 for river sand issued to the Defendant dated 28 October 2016 was signed by Ching, and a deposit slip shows the HK$50,000 was deposited into a bank account of the Plaintiff;

(2) A receipt for payment for river sand issued to the Defendant dated 5 November 2016 was signed by Ching;

(3) A cheque dated 10 November 2016 was issued to Ching and it appears that the cheque was deposited into the bank account of the Plaintiff;

(4) A receipt for payment for river sand issued to the Defendant dated 16 November 2016 was signed by Ching;

(5) A receipt for payment for river sand issued to the Defendant dated 29 September 2016 was signed by Ching;

(6) A receipt for payment for river sand issued to the Defendant dated 12 October 2016 was signed by Ching;

(7) A receipt for payment for river sand issued to the Defendant dated 26 September 2016 was signed by Ching;

(8) A cheque to Dah Sing Bank Limited dated 17 March 2017 for payment of hire purchase instalment for T2 was signed by Ching;

(9) A cheque to Dah Sing Bank Limited dated 7 March 2017 for payment of hire purchase instalment for T1 was signed by Ching for and on behalf of the Plaintiff;

(10) A cheque to Hang Yue Petrol Products Limited dated 28 September 2016 was signed by Ching for and on behalf of the Plaintiff;

(11) A cheque to Hang Yue Petrol Products Limited dated 31 October 2016 was signed by Ching for and on behalf of the Plaintiff;

(12) A cheque to Hang Yue Petrol Products Limited dated 2 December 2016 was signed by Ching for and on behalf of the Plaintiff;

(13) A cheque to Hang Yue Petrol Products Limited dated 3 March 2017 was signed by Ching for and on behalf of the Plaintiff; and

(14) A cheque to Hang Yue Petrol Products Limited dated 16 March 2017 was signed by Ching for and on behalf of the Plaintiff.

49.  On the evidence, the Defendant thus says that Ching was the person held out to represent the Plaintiff in all the dealings with the Plaintiff no matter whether he was appointed as a director. The Defendant says it is trite that according to the indoor management rule as expounded in Royal British Bank v Turquand [1856] 6 El & Bl 327, an outsider is entitled to assume that all matters of internal management and procedure required by the articles have been complied with.

The Written Agreement and Truck Rental Agreement

50.  The Defendant’s case is that the sales arrangement was evidenced by a letter of supply of river sand by the Plaintiff dated 7 January 2016 and the Written Agreement. The Written Agreement was subsequently orally varied to become the Truck Rental Agreement and it is evidenced by an Invoice No INV17/1063 issued by the Defendant to the Plaintiff specifying the outstanding rental fees of T1 and T2 from August 2016 to August 2017.

51.  As mentioned above, the Plaintiff denies the Written Agreement and Truck Rental Agreement and instead, avers that there was a “Truck Purchase Trust Agreement”. However, the Defendant says if the Truck Purchase Trust Agreement had indeed existed as alleged, the Defendant essentially had volunteered to go through the approval process and shoulder the liabilities under hire purchase loan arrangements with the bank for the Plaintiff without receiving any remuneration or consideration. The Defendant submits this is contrary to commercial sense.

52.  On the contrary, the Defendant says it is unsurprising that the Plaintiff would agree to the Truck Rental Agreement and rely on the Defendant’s help because it was unable to secure any hire purchase loan agreement at the time since it did not have a very good credit reference.

53.  It is also submitted by the Defendant that there are no written records of the Truck Purchase Trust Agreement especially when the value of T1 and T2 was so significant in the eyes of the Plaintiff. The only alleged written record of the Truck Purchase Trust Agreement is the Memorandum for signifying the purchase arrangement of T1 and T2. The Defendant says the purported signature of Ching on the Memorandum is noticeably different from those of Ching on other documents. The Memorandum was dated 2 November 2017, more than a year after T1 and T2 started to operate. It was signed after the Plaintiff sent a letter of reminder dated 14 June 2017 requesting the Defendant to pay up the alleged outstanding fees for river sand. The Defendant says it appears that the Memorandum was signed as an afterthought of the Plaintiff to suit his case. It does not serve to prove the existence of the Truck Purchase Trust Agreement at all.

54.  The Defendant also takes issue with the Plaintiff’s reliance on common intention constructive trust, and says it is incumbent on the Plaintiff to plead with full particulars the common intention, including the circumstances in which the intention was formed and, more importantly, the content of the alleged common intention. There were no particulars as to the Plaintiff’s detrimental reliance or that it was unconscionable for the Defendant to assert ownership in T1 and T2 in P’s pleadings either. The Defendant says the pleadings of the Plaintiff are defective and the Plaintiff should not be allowed to raise this at such late stage.

55.  Pausing here, I would have thought this argument would be a far-fetched one, as the Plaintiff did in fact plead in its Defence and Counterclaim the circumstances under which the Truck Purchase Trust Agreement came about, and the agreement said to have been reached between the parties concerning the holding of the tipper trucks by the Defendant on behalf of the Plaintiff, and for the Defendant to apply for bank loans under hire purchase in respect of the trucks whereas the Plaintiff would be responsible for repayment of the same, as well as for payment for the related costs of using the trucks. It was on such basis that the Plaintiff pleaded a common intention constructive trust or a resulting trust. I do not consider the Plaintiff’s case has been insufficiently pleaded as contended by the Defendant.

Various other points raised at the outset of the trial by the Defendant

56.  The Defendant further says there is no allegation that the Written Agreement was fabricated or that the execution of the same involves fraud. If the Plaintiff was alleging fraud, it is duty bound to provide particulars to the allegation in pleadings: see Order 18 rule 12 of the Rules of the District Court, Cap 336H (“RDC”).

57.  Even after the Written Agreement was disclosed, the Plaintiff did not amend his pleadings or file a Supplemental Witness Statement to provide any particulars of any alleged forgery. It was not until the Plaintiff’s opening submissions that it first took issue of the authenticity of the Written Agreement e.g. by comparing Ching’s signature and the Plaintiff’s company chop in paragraph 17 without stating who forged or under what circumstances the Written Agreement was forged.

The Court’s approach to oral evidence

58.  There is no dispute that as to the Court's approach to the evidence given by witnesses, guidance can be found in Hui Cheung Fai & Anor v Daiwa Development Limited and Others, unrep., HCA 1734 of 2009, 8 April 2014, in which DHCJ Eugene Fung SC said:

"77. Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility: Onassis v Vergottis [1968] 2 Lloyd's Rep 403 at 431 (Lord Pearce) ......

78. In deciding whether to accept a witness' account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events: eg Lam Rogerio Sou Fung v Tan Soon Gin George (unreported, HCA 2576/2005, 5 May 2011) §39 (Chu J).

79. In determining a witness' credibility, I have also attached importance to the consistency of the witness' evidence with undisputed or indisputable evidence, and the internal consistency of the witness' evidence. The latter type of consistency is often tested by a comparison between the witness' oral testimony and his or her witness statement.

80. I have cautioned myself against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses (Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 at §§36-37 (Bokhary PJ)), or from the assessment of the witnesses' character (Esquire (Electronics) Ltd v HSBC [2007] 3 HKLRD 439 at §135 (Stock JA))."

59.  In Lee Fu Wing and Another v Yan Paul Po Ting and Another [2009] 5 HKLRD 513, DHCJ Au (as he then was) summarised the aforesaid principles as follows:

"53. In assessing the credibility of a party's case on a particular issue, I accept the submissions of [counsel] that the Court should take into considerations the following:

(1) Whether the party's case is inherently plausible or implausible.

(2) Whether the party's case is, in a material way, contradicted by other evidence (documentary or otherwise) which is undisputed or indisputable.

(3) Where it is shown that a witness has been discredited over one or more matters to which he has given evidence using the above tests. This is relevant to the assessment of his overall credibility.

(4) The demeanour of the witnesses."

60.  The principles set out in Northampton Borough Council v Cardoza and others [2019] EWHC 26 (Ch), cited and applied by DHCJ Paul Lam SC in Taishin International Bank Co Ltd v QFI Ltd [2020] HKCFI 2116, §13 are also pertinent:

“37. Factors relevant to the evaluation of a witness’s evidence were identified by Lewison J (as he then was) in Painter v Hutchinson [2007] EWHC 758 (Ch) at [3] when addressing the unsatisfactory nature of the defendant’s approach to giving evidence. These included: evasive and argumentative answers, tangential speeches avoiding the question, blaming legal advisers for pleading, disclosure and evidence shortcomings, self-contradiction, internal inconsistency, shifting case, new evidence, and selective disclosure. This was not intended to be an exhaustive list, but it is important and very helpful.

38. A useful recent reminder or guidance on the approach to the evidence of factual witnesses, and expanding on the guidance given by Goff J in The Ocean Frost, was given by Leggatt J (as he then was) in Gestmin SGPS SA v Credit Suisse (UK) Limited [2013] EWHC 3560 (Comm). After noting that human memory is fallible and that the process of litigation and preparing for trial tends to interfere further with the reliability of human memory, particularly where a lawyer has had a hand in drafting a witness’s evidence and the witness’s memory has been refreshed by reading documents, Leggatt J concluded that the best approach for a judge to adopt at the trial of a commercial case is to base factual findings on documentary evidence and known or probable facts and the inferences to be drawn therefrom. Witness evidence, written and oral, is not without purpose; but, its principal uses are to subject the documentary record to scrutiny and to evaluate the witness’s motivations, personality and working practices.

39. In similar vein, in the recent case of Freemont (Denbigh) Ltd v Knight Frank LLP [2014] EWHC 3347 (Ch) reference was made to an article written by Bingham J (as he then was) entitled “The Judge as Juror: The Judicial Determination of Factual Issues” published in Current Legal Problems 38 in 1985. Bingham J considered the approach to deciding upon the reliability of a witness’s evidence and regarded the following to be helpful indicators of where the truth lies: the consistency of the witness’s evidence with what is agreed, or clearly shown by other evidence, to have occurred; the internal consistency of a witness’s evidence; and, the consistency of a witness’s evidence with what (s) he has said or deposed on other occasions. Bingham J considered that the credit of a witness in matters not germane to the litigation was of less assistance, and that the demeanour of a witness was on the whole not a reliable pointer to a witness’s honesty.”(emphasis added)

61.  The Court should also place weight on the contemporaneous documents and inherent probabilities: Mansion Place Ltd v Fox Industrial Services Ltd (No 2) 199 ConLR 177 at §55.

62.  The above principles are well established. I shall bear in mind the above principles when considering the evidence of the witnesses.

63.  In this case, only Tam and Tsui have testified at the trial. I shall now consider their evidence below.

Evidence of Tam

64.  Tam gave evidence for the Plaintiff, basically adopting the Plaintiff’s case as set out above.

65.  The Plaintiff says Tam should come across as a straightforward, if somewhat unsophisticated and unpolished witness. He was not shy from admitting that he made a mistake. For example, regarding the content of the letter signed by Ching dated 2 November 2017 referred to above, he was straightforward in admitting he had mistakenly written「代完成供款[2]」instead of「待完成供款[3]」.

About Ching’s role in the Plaintiff

66.  Tam confirmed that Ching was appointed a director of the Plaintiff in August 2016, but Ching became one of the shareholders holding 50% the Plaintiff’s shares prior to that. Tam also confirmed that as the only shareholders in the Plaintiff, Tam and Ching’s standing in the Plaintiff can be described as “equal”. Tam elaborated that Tam and Ching had clear division of work: Ching was responsible for dealings on river sand in Mainland China while Tam was responsible for other dealings. Tam described Ching as a “sale representative”, i.e. “代表公司做銷售”. Tam agreed that it was because he trusted Ching in general but not in respect of each and every matter.

67.  Tam said he was responsible for major matters (大事) while Ching could make his own decisions on minor matters (小事). Tam further mentioned all the staff of the Plaintiff were empowered to make their own decisions without approval by Tam if the matter involves amounts under HK$50,000. However, this internal policy of the Plaintiff was not mentioned in Tam’s Witness Statement. It was only under cross-examination that Tam mentioned in court for the first time.

The Plaintiff’s practice of permitting Ching to sign and chop on behalf of the Plaintiff

68.  The Defendant says it is evident that Tam did not closely monitor signatures made by Ching, for example, when asked about a receipt dated 5 November 2016 for $50,000 under Ching’s own name during cross-examination, Tam could not be sure whether it was Ching who signed the document because he did not witness the signing itself. However, Tam agreed that Ching did receive cash from the Defendant on behalf of the Plaintiff and would subsequently reimburse the Plaintiff with the same.

69.  Tam agreed that he allowed Ching to use the company chop of the Plaintiff on receipts for delivery of goods.

70.  Tam later stated during cross-examination that he would not know the circumstances when Ching signed the invoices on behalf of the Plaintiff. Nor did he have knowledge of what Ching would have said when he signed documents on behalf of the Plaintiff. He would only acquire knowledge of a transaction when Ching brought the money back with the receipts.

71.  Although Tam insisted if Ching did not bring back the money he received, Tam nevertheless agreed that from the perspective of the Defendant, Ching would be receiving money on behalf of the Plaintiff and there is a risk of dispute if Ching did not return the cash to the Plaintiff. Tam admitted he did not even think of stopping Ching or changing its mode of dealings with the Defendant. Instead, Tam kept on allowing Ching to collect cash for the purchase of river sand by the Defendant.

72.  During cross-examination, Tam agreed that the Plaintiff’s alleged practice makes it risky for parties dealing with it.

73.  It is submitted by the Defendant that it would not make commercial sense to the Defendant, or indeed to anyone in a similar position, if, in the event that Ching does not return the cash he received from the Defendant, the Defendant would run the risk of being pursued by the Plaintiff for the same amount of money it has already paid out.

74.  However, the Defendant says Tam later gave an inconsistent account in re-examination, when Tam said it would be “a matter for Ching” if Ching does not return the cash he received from the Defendant and the Defendant was asked to pay an amount it already had paid[4].

Incentive to enter into the Truck Rental Agreement

75.  During cross-examination, Tam agreed that the trucks were initially the Plaintiff’s desired purchase. Tam further acknowledged that the Plaintiff’s application for a hire-purchase contract was unsuccessful, due to not meeting the credit reference requirements and the high cost without sufficient cash flow, as well as the lengthy application process.

76.  Tam confirmed that the Plaintiff had sought assistance from the Defendant at the time. However, Tam agreed that if the Plaintiff suddenly refused to provide the financing, the Defendant would be left to bear the full burden of the debt under hire purchase. Tam agreed this would risk the Defendant being pursued by the bank

77.  When asked what benefit had the Plaintiff provided to the Defendant in return for the Defendant’s assistance in the alleged Truck Purchase Trust Agreement, Tam said the Plaintiff offered a discount in the price of the river sand supplied to the Defendant. However, the Defendant says it is clear the sales arrangement of river sand was reached way earlier than the hire purchase of the trucks from the bank. When this was pointed out to Tam, the Defendant says he could not give any coherent and satisfactory explanation, and Tam eventually agreed that the discounted price of river sand for the Defendant could not be considered a “benefit” directly related to the Defendant’s help in the Plaintiff’s hire purchase application, nor the Defendant holding the trucks on trust for the Plaintiff. Tam agreed that even during the negotiation for river sand supply to the Defendant, Tam did not expect the market price of river sand to rise drastically afterwards. In this regard, I consider that Tam has been candid in admitting that he has not given a correct account of the incentive provided to the Defendant to enter into the Truck Purchase Trust Agreement.

The Emails between the Plaintiff and the Defendant

78.  During the cross-examination of Tam, it was pointed out to him that in an email dated 25 July 2017 at 10:45 am, it was stated that the parties had agreed that Defendant would provide a cashier order in favour of the Plaintiff covering the outstanding amount for goods delivered, to be delivered to and held by the Plaintiff’s solicitors, on condition that the registered ownership of the two tipper trucks must be transferred to the Plaintiff or its designated persons (“雙方同意雅博建築材料有限公司及其有關公司欠Everbond Engineering Limited的貨款必須開一張本票， 抬頭寫Everbond Engineering Limited 交到律師樓保管，條件兩架泥車必須轉名到Everbond Engineering Limited或其他人仕名下”). Tam’s explanation was since the Defendant had defaulted in paying for the river sand, the Plaintiff thus requested the Defendant to issue a cashier’s order to be stake-held by a solicitor’s firm on the condition that the Defendant shall assign T1 and T2 to the Plaintiff as per the Defendant’s own request.

79.  Regarding this, the Defendant says Tam’s interpretation does not seem to be coherent. The words “條件” (i.e. on condition) suggest that it was the Plaintiff who requested for T1 and T2 to be assigned to itself. Whether the Defendant had paid for any outstanding payment for river sand was a matter completely separate from the Plaintiff renting the tipper trucks. It would be inherently inconsistent and illogical that the Plaintiff would request for payment from the Defendant “on the condition that” the Defendant shall assign the tipper trucks to the Plaintiff as per the Defendant’s own request.

80.  The Defendant’s interpretation of the emails is that, due to the Plaintiff’s default in payment of rent of T1 and T2, the Defendant suffered loss and faced the risk of the tipper trucks being seized by the bank.

81.  In the email dated 25 July 2017 at 6:33 pm from the Defendant to the Plaintiff, it was stated that the Plaintiff must transfer the registered ownership of the two tipper trucks to itself within a month before the cheque was to be cleared, otherwise the trucks would be sold, and all outstanding amounts owed to the bank would be settled by the Plaintiff (“Everbond Engineering Limited必須於一個月內將兩架泥車UE5661及UE4738成功轉名到Everbond Engineering Limited名下，支票方可兌現。否則上述兩架泥車將會被賣出，而一切銀行差價將由Everbond Engineering limited承擔”). Tam’s explanation was the Defendant had requested the Plaintiff to bear the loss of the tipper trucks being seized and sold by bank because the Defendant recognised the trucks belonged to the Plaintiff.

82.  The Defendant’s contention is that Tam’s explanation is illogical. Again, the above email supports its case that it was the Plaintiff who requested to rent the tipper trucks from the Defendant in the first place. Now that the Plaintiff was defaulting on payment of rent (alongside with the instalment of hire purchase from the bank), the Defendant suffered loss of rent and the risk of seizure by the bank. That explains why the Defendant then requested the Plaintiff to bear its loss.

83.  The Defendant says this explanation is consistent with the subsequent email dated 26 July 2017 at 12:54 pm that stated that the bank had informed the Defendant that the documents related to the towing away of the trucks were already issued, and requested the Plaintiff to pay the outstanding hire purchase instalments. In the event the trucks were towed away, the Plaintiff shall be responsible for all the loss and expenses (“最後有關兩架泥車UE5661及UE4738方面，銀行已通知我司拖車紙已出，請盡快供款。 如車被拖後， 所有損失及費用將由貴司Everbond Engineering Limited承擔”).

84.  The Defendant says its interpretation of the emails should be preferred.

85.  Pausing here, considering Tam’s evidence in this regard, and the above observations by the Defendant, I do not see that Tam’s evidence is necessarily unbelievable. The Defendant’s observations would carry force on the pre-condition that its version of the facts is accepted, i.e. if the Court accepts its evidence that the Truck Rental Agreement was indeed entered into. If instead, the trucks were indeed held on trust for the Plaintiff, then apparently the Defendant would be naturally concerned about having to bear the burden of the hire purchase agreement for the trucks, and would understandably require the registered ownership of the trucks be transferred back to the Plaintiff.

The Memorandum

86.  Tam was also shown the Memorandum which states “而此兩架泥車屬譚啟年及程林先生並各佔50％權益”. Tam explained the intended meaning of this sentence was that the two tipper trucks T1 and T2 belonged to the Plaintiff’s two shareholders personally, each holding 50% of the ownership.

87.  The Defendant’s stance is that the Memorandum appeared to contradict the Plaintiff’s own position that the trucks were assets of the Plaintiff company.

88.  The Defendant also submitted that if the Memorandum indeed reflected the genuine arrangement between the Plaintiff and the Defendant with respect to the trucks, Tam would have asked Tsui to sign the Memorandum as well. This was not done.

Evidence of Tsui

89.  Tsui also adopted the case of the Defendant set out above.

The Truck Rental Agreement

90.  At the outset of his cross-examination, Tsui provided the background of the business of the Defendant. Notwithstanding that fact that the Defendant may not generate substantial profits from the Truck Rental Agreement, it is the Defendant’s case that it required T1 and T2 to transport river sand in compliance with its contract with China State. The Defendant says it is not against commercial logic that it was necessary for the Defendant to agree to the Plaintiff renting T1 and T2. Tsui reiterated this in his oral testimony.

91.  During cross-examination, Tsui also elaborated on the distinctions between various tipper truck models, clarifying that their prices fluctuated based on the accompanying equipment and services, the country of origin, and the brand.

92.  Tsui explained he needed the rental income of the Plaintiff to pay for the hire purchase instalments. He agreed this arrangement entailed risk, as if the Plaintiff suddenly stopped renting the trucks, the Defendant would be pursued for repayment of instalments by the bank. Tsui was then asked why he would still agree to the Truck Rental Agreement if it was risky for the Defendant. Tsui explained that it was because Ching promised Tsui a discount of HK$5 as administrative fee for each tone of river sand supplied. Tsui explained Ching promised that the HK$5 administrative fee was to be deducted after one year. Tsui maintained this explanation throughout cross-examination.

93.  Tsui also stated that he requested Ching to ask the other shareholder of the Plaintiff, Tam, to sign the Written Agreement, but Ching replied it was not necessary. He then explained he did not mention this conversation specifically in his witness statement because he did not consider this conversation very important.

Tsui’s Confidence in Ching

94.  According to Tsui, he initially trusted Ching at the outset because Ching upheld his promise of not increasing the price of the river sand, even though Ching told Tsui that he had been bankrupt.

95.  Tsui further explained his manner of paying cash to Ching for the river sand supplied by the Plaintiff. Tsui said it was Ching who requested for payment in cash instead of other “more secure” payment method. To proffer a degree of security for the Defendant, Ching would sign and affix the Plaintiff’s company chop to the receipts provided to the Defendant. Ching also provided the Authorisation Letter to the Defendant, which further explains Tsui’s trust in Ching that he was acting for the Plaintiff.

96.  The Defendant submitted that at this juncture in 2015, Tsui already knew Ching was one of the shareholders of the Plaintiff and he naturally had the authority to act on behalf of the Plaintiff since Ching held himself out to negotiate the river sand dealings with Tsui.

97.  As to the events after Tsui started dealing with Ching, Tsui was asked the timing he received the invoices issued by the Plaintiff for river sand. Tsui explained he only received these invoices every 3 to 4 months. Tsui admitted at one point he owed Ching HK$400,000 for the purchase of river sand, but he already paid up. Tsui also admitted he did not ask Ching to sign a receipt for the HK$400,000 payment because Ching was in a hurry on the day.

98.  The Defendant says Tsui has been candid during cross-examination, admitting facts that might not be favourable to the Defendant’s case. He also admitted frankly he was starting to forget the exact timing of events. It is said that it would be unfair to the witness to suggest he is lying whenever he could not be certain of the precise date or time.

After the disappearance of Ching

99.  Tsui stated during cross-examination that he attempted to reach out to Ching through WeChat in 2022 because he wanted to ask Ching to be a witness in this trial. He received a WeChat message from the WeChat account of Ching in 2022 but he could not be sure who sent the message. The message mentioned that Ching was in hospital. Tsui did not follow up.

100.  The Defendant says it was understandable that Tsui did not pursue further on the message as he believed there was no realistic prospect of securing Ching's testimony for the trial. The Defendant contends it is trite that if there is some credible explanations given, even if it is not wholly satisfactory, the potentially detrimental effect of the absence of a witness may be reduced or nullified: see §18 of Taishin International Bank (supra) citing §27 of Tjang Siu Thu v Profield Construction Engineering Ltd, CACV156 of 2013, 27 May 2015, unreported.

101.  The Defendant says there should be no adverse inference drawn against the Defendant for Ching’s absence from the trial. Tsui has indeed attempted to look for Ching by reaching out to the WeChat Ching used for communication between them. On the other hand, Ching was a shareholder and director of the Plaintiff. Tam should be closer to Ching and more likely to be able to reach Ching. Also, as mentioned above, it was the Plaintiff who required Ching’s evidence to prove their case as the Plaintiff has the burden of proof. The Defendant thus submits that any adverse inference for Ching’s absence as a witness should be drawn against the Plaintiff.

102.  In this respect, considering the limited evidence on both sides as to any real or substantial attempts to contact Ching, I am not inclined to draw any adverse inference against either party for not calling Ching as a witness. I consider that it is a safer course to take that I should consider the credibility of the parties’ cases on the strength of the evidence as it stands.

Overview of Tsui’s evidence

103.  The Defendant says while Tsui may at times be uncertain on specific details or the precise timing of certain events or the signing some documents, it is unsurprising that he may have experienced some lapses in memory due to faded memory.

104.  On the other hand, the Plaintiff says Tsui was an incredible witness.

105.  Tsui testified about the pricing of sand to be supplied by Ching. He said for each tonne of sand to be supplied, the Defendant would earn a HK$5 profit. This was at odds with his own witness statement that “the Plaintiff will cap the charge at a certain percentage below the price paid by China State”. This HK$5 cap never appeared in any of the invoices prepared by the Plaintiff nor did the Defendant produce contemporaneous records evidencing such pricing arrangement. The Plaintiff says it is startling that an important matter such as the pricing arrangement was not recorded in writing at all.

106.  The Plaintiff also says its case that the Sales Agreement was initiated by Tsui was supported by contemporaneous documents. Firstly, the Plaintiff’s letter to the Defendant (“Support Letter”) confirming its “[full] support and supply…of [the Plaintiff’s] river sand” was sent and countersigned by the Defendant on 7 January 2016. This Support Letter was sent after the Defendant had executed the contract with China State on 28 December 2015. Tsui never disputed the authenticity of the Support Letter in his witness statement, and only did so in his oral evidence. His explanation that Ching took away the round company chop of the Defendant for two days in July 2016 would not even start to support his suggestion, as the Support Letter was already signed on 7 January 2016. The Plaintiff further says his other explanation that the Defendant’s chop was fabricated was a lie and can safely be disregarded.

107.  The Plaintiff also says Tsui admitted that the prices of sands delivered as per the Plaintiff’s invoices corresponded with the unit prices stated in the contract with China State. This is consistent with Tam’s evidence that the best the Plaintiff could do was to supply the river sand to Defendant at the same price level and terms as stated in the contract with China State. On the other hand, the Plaintiff says Tsui’s alleged oral agreement with Ching regarding the HK$5 profit per tonne was nothing more than a bare assertion.

The Documentary Evidence

The Authorisation Letter

108.  In respect of the documentary evidence, firstly, the Plaintiff disputes the authenticity of the Authorisation Letter. Tsui only provided a short explanation saying that Ching executed this letter in his presence. It is said that his oral evidence opened up numerous doubts and inconsistencies set out by the Plaintiff as follows:

(1) Tsui testified that Ching had requested for tipper trucks for loan. Tsui personally did not trust him, but was willing to lend Ching the trucks since there were payments not settled for Ching. He then requested Ching to sign the Authorisation Letter. It is said that this version makes no sense as the trucks were allegedly loaned to the Plaintiff in mid-2016 whereas the Authorisation Letter was signed on 1 October 2015;

(2) Tsui gave another account saying that Ching threatened to stop the sand supply due to shortage of cash. He requested the Authorisation Letter in September 2015 due to a lack of trust in Ching. The Plaintiff says this account was also not credible. Tsui at one stage testified that Ching requested cash in mid-2016 and changed his account after realising the inconsistency. Tsui’s explanation that he did not trust Ching was in stark contrast to his evidence on paper that he trusted Ching all along;

(3) Tsui also mentioned he had 3 or 4 months of payments from China State on hold and not paid to Ching in 2015. However, on 1 October 2015, the contract with China State had yet to be executed. Tsui again changed his account by saying the payments were not from China State, but with other companies for delivery of sand packaged in bags. The Plaintiff says Tsui’s evidence is utterly unbelievable;

(4) Tsui did not accept the Authorisation Letter in the morning and asked Ching to put on the Plaintiff’s company chop. Such a request was never mentioned in his witness statement. Further, Tsui also said that he had checked Ching’s identity card revealing his real name to be Ching Tai Lam (程大林). Notwithstanding repeated questions, Tsui was unable to provide an explanation as to why he never asked Ching to put down his real name on the Authorisation Letter.

109.  I agree with the above contentions that these inconsistencies indeed tend to throw doubt on the credibility of Tsui as a witness.

110.  On the other hand, the Defendant contends that the following features shows the Authorisation Letter was authentic:

(1) Tsui was able to produce the original Authorisation Letter;

(2) The Authorisation Letter contains a wrong Chinese character “援” (the correct Chinese word should be “授”), if the Authorisation Letter was intentionally forged at a much later stage, the forger would probably not forge a document that contains a clear typographical error;

(3) The company chop on the Authorisation Letter appears to be identical to the Plaintiff’s chop. This was confirmed during cross-examination of Tam;

(4) Tam has never complained or had knowledge that Ching has forged the Plaintiff’s company chop;

(5) During cross-examination, Tam confirmed he did not see Ching signing on the Authorisation Letter, therefore he has no knowledge whether the signature of the Authorisation Letter indeed belongs to Ching;

(6) On the other hand, during cross-examination of Tsui, he confirmed the original Authorisation Letter was handed over to him by Ching in person; and

(7) Tsui also explained the reason why he requested Ching to sign the Authorisation Letter was to ensure that the Plaintiff would not chase after him for sums he already paid[5]. This also implies Ching had the authority to receive cash for and on behalf of the Plaintiff. It is indisputable that Ching did receive cash for the purchase of river sand on behalf of the Plaintiff which was authorised by Tam, therefore, the content of the Authorisation Letter indeed reflects the truth.

111.  The Defendant submits that, on the face of the Authorisation Letter, it appears to be authentic. In fact, even taking into account the Plaintiff’s case, Ching was always authorised by the Plaintiff to receive payments for river sand from the Defendant, hence, there should be no dispute as to the truthfulness of the content of the Authorisation Letter.

112.  Apart from the authenticity issue, the Defendant also relies on the Authorisation Letter to explain Tsui’s understanding that Ching was all along acting on behalf of the Plaintiff[6]. Logically, in the Defendant’s case, Tsui would deal with a person held out to be a representative of the Plaintiff either on dealings on river sand or setting-off the purchase price of the same by rental of the tipper trucks. The Defendant says these two dealings are inextricably linked.

The Written Agreement and Truck Rental Agreement

113.  The Defendant submitted that if the Plaintiff was alleging fraud, it is duty bound to provide particulars to the allegation in pleadings: Order 18 rule 12 of the RDC.

114.  The Plaintiff however says that in Tsui’s own words, he was aware of the bizarre features concerning the Written Agreement. I agree that such features do cast considerable doubt on the authenticity of the Written Agreement.

115.  Firstly, Tsui admitted under cross-examination that after Ching had signed, he noticed Ching’s signature on the Written Agreement to be different from his usual signature.

116.  Secondly, Tsui said he trusted Ching so he did not ask for another signature. However, Tsui previously said that he did not trust Ching, and had asked Ching to execute the Authorisation Letter in September and October 2015. There was no valid reason as to why Tsui suddenly trusted Ching again.

117.  Thirdly, when questioned by the court, Tsui said he felt surprised when Ching added the date to the Written Agreement by hand. This was a strange reaction given the inclusion of the date for any agreement was a perfectly normal matter.

118.  Fourthly, Tsui affixed a long chop for this Written Agreement which was the only time that a long chop was used in the Defendant’s documents. Tsui’s explanation was that he had a long chop in his car only for that one day for other car dealings.

119.  Fifthly, the location of the execution of the Written Agreement was also open to question. Tsui initially said it was executed at Ching’s storage area in Tuen Mun. However, when explaining the handwritten date by Ching, Tsui said the Written Document was signed in his vehicle. The Plaintiff says this was another lie exposed in open court.

120.  Sixthly, in Tsui’s own words, a company chop could easily be fabricated. The Plaintiff is of the view that the Plaintiff’s chop might have been fabricated with the same method as explained by Tsui.

121.  Further, Tsui said in his statement that Ching proposed the Plaintiff would pay HK$95,000 as monthly rent to the Defendant for each tipper truck for 3 years. However, Tsui said during his evidence that it was himself who proposed the monthly rent to be HK$95,000. Tsui later also said that the trucks should be kept by the Defendant during weekends and holidays and the rental fees of HK$95,000 were to be deducted accordingly. This was never mentioned in his statement.

122.  The Plaintiff further submitted that both the Written Agreement and the Truck Rental Agreement were contrary to any business common sense. This is essential when considering the inherent improbability of the Defendant’s case.

123.  Firstly, the Written Agreement involved an enormous amount of profit which was hardly consistent with the Defendant’s financial condition. Tsui clarified that the Defendant had reached its business peak in around 2014 or 2015 with a turnover of around HK$5 million and a pure profit of around HK$600,000 a year. However, the profit to be generated from the Written Agreement per year would be HK$9.5 million: HK$950,000 (rental fees per truck per month) x 10 trucks. This figure was 15 times the Defendant’s profit in its peak year. Had the rental of trucks been so profitable, it is difficult to understand why the Defendant did not buy more trucks and rent them all out.

124.  Further, Tsui’s evidence regarding the maintenance and repair of trucks under the Written Agreement was contrary to his own witness statement. Tsui explained in his witness statement that he agreed to the amendment to the Written Agreement (reducing the number of trucks to be rented from 10 to 2) since the Plaintiff was willing to cover all the costs related to the maintenance and repair work of the trucks to compensate his loss of overall profits. However, during his cross-examination, he admitted that the above statement meant that the Plaintiff or Ching was originally not required to cover maintenance and repair. He admitted his oral evidence was different from what he put down in his statement.

125.  It was also odd for Tsui to deal with Ching who he knew was bankrupted when the Written Agreement was executed. Tsui’s timeline was that Ching revealed his bankruptcy after the execution of the contract with China State in December 2015. Somehow, Tsui continued his trust in Ching and was willing to lend the trucks to a bankrupt person in mid-2016. The Plaintiff contends this makes no business sense.

126.  It also makes no commercial sense for Tsui to agree to install gears worth hundreds of thousands of dollars in the trucks when it was never stated under the Written Agreement that gears should be provided. He even said no receipts were obtained for the purchase of radio telecommunication system and did not include such purchase for tax returns. The Plaintiff says Tsui’s evidence in this regard is unbelievable.

127.  The Plaintiff submitted, and I agree, that the existence of the Truck Rental Agreement for the rental of 2 trucks was unbelievable. Tsui stated in his witness statement that in or around mid-July 2016, Ching reached out to him again and told him the Plaintiff did not need all 10 tipper trucks, thus, Ching asked him to only let to the Plaintiff 2 trucks. The Plaintiff says Tsui talked about an entirely new story in his oral evidence:

(1) Tsui said it was he himself initiating the change from rental of 10 trucks to just 2 under cross-examination;

(2) It was said that Ching wanted 10 trucks, but the motor traders could only provide 2 trucks at a time. This does not tally with Tsui’s previous account that it was Ching who requested to change to 2 trucks as he did not need 10. Tsui admitted that his version given in court was never included in his witness statement;

(3) The Plaintiff says it was illogical for Tsui to propose a reduction in the number of trucks being rented out if he could earn HK$9.5 million of pure profit from the Written Agreement.

128.  As the Plaintiff has submitted, the lack of any contemporaneous documents in relation to the Written Agreement or the Truck Rental Agreement is fatal to the Defendant’s case. The Defendant’s only record was a final invoice dated 10 August 2017 which does not assist her case at all. Under this final invoice, there was no mention of any set-off of any payment due to the Plaintiff for sand supply. In any event, there was no record of Tsui chasing for rental fees from 15 July 2017 to 9 August 2017.

129.  In fact, when the parties attempted to settle the dispute by exchange of emails, there was never any sort of mention by the Defendant of: (a) the Written Agreement, (b) the Truck Rental Agreement and (c) the set-off arrangement. Tsui attempted to put the blame on his staff for forgetting to put matters about rental fees for the trucks into writing.

130.  In my view, it is utterly unbelievable that there is scant documentary evidence in support of the Written Agreement (apart from the document itself) and the Truck Rental Agreement. As mentioned above, there is no records of demands for payment save for the final invoice aforesaid. There were no written internal management or accounting records of the Defendant showing what was overdue.

131.  The Plaintiff also says that none of the agreements were commercially sound and the terms and conditions of these agreements were unrealistic. In any event, the Plaintiff submitted that even if the Court rejects its case concerning the Truck Purchase Trust Agreement in its entirety, the Defendant still bears the burden to prove its case concerning set-off and counterclaim.

132.  The Plaintiff also says there was a clear and common intention that the benefits of the hire purchase agreement dated 13 July 2016 had been assigned to the Plaintiff. There was also reliance by the Plaintiff and it is now unconscionable for the Defendant to deny the Plaintiff’s ownership of T1 and T2.

133.  Tsui was unable to rebut the facts mentioned above that the Plaintiff took out the insurance policy for both T1 and T2, settled the monthly instalments, employed the drivers and bore the running costs of the trucks.

134.  The Plaintiff says it has produced a contemporaneous document, namely the Memorandum in which Ching had on 2 November 2017 confirmed the existence of the Trucks Purchase Truck Agreement. Tam was in some difficulty in explaining what he meant by him and Ching each holding 50% of the ownerships of the tipper trucks. However, upon further clarification, it was quite obvious what he truly meant was to ensure the assets were divided up before the new shareholder joined the Plaintiff. In that way, Tam did not want any new shareholder to share the ownership of the tipper trucks.

135.  The Plaintiff also says the existence of the Truck Purchase Trust Agreement was impliedly admitted by the Defendant’s own email mentioned above. Tsui said he instructed his staff to type the email. In particular, it was stated that the two tipper trucks should be legally transferred to the Plaintiff. The Plaintiff says, which I accept, the only logical explanation for that is that the tipper trucks were beneficially owned by the Plaintiff.

136.  The Plaintiff further submitted that the Defendant spent a considerable amount of time going through the topic of Ching receiving HK$400,000 from the Defendant. It is said this is not a relevant issue at all as the Defendant has confirmed that the Plaintiff’s claim on delivery of sand was not challenged. The Defendant was also not challenging the quantum for such sand delivery.

137.  As for the so-called attack on the credibility of Tam on this topic, the Plaintiff submitted there was never any record or receipt from Ching about the Defendant’s payment of HK$400,000. The Defendant specifically requested Ching to sign payment records every time, but the only time that the Defendant failed to do so was concerning this HK$400,000. The Plaintiff says this would appear to be so coincidental.

138.  In any event, the Plaintiff says the payment of HK$400,000 was a bare assertion. The inference the Defendant invited the Court to draw that Tam received the payment but concealed from the truth was far-fetched and not born out of evidence.

139.  On the other hand, the Defendant submitted that the Written Agreement is authentic, in that it was signed and chopped by Tsui and Ching on behalf of the Plaintiff. Tsui has given evidence as to why he used a “rectangular” chop rather than the “circular” chop for the Defendant. Firstly, it was because his accounting staff told him the “rectangular” chop was usually used for agreements. Also, according to Tsui, it just so happened the “rectangular” chop was placed in his vehicle on that day.

140.  It is submitted by the Defendant that these are all believable reasons why on the day of signing the Written Agreement, Tsui used the “rectangular” chop. It also transpires that Tsui did not care which company chop Ching used as long as the chop was a company for the Plaintiff. It is difficult to discern any suspicious feature of the Written Agreement that indicates it was fabricated or not authentic.

141.  In the opening submissions of the Plaintiff, it was only mentioned the seemingly different signature of Ching on the Written Agreement from other documents may have “some bearing” as to the authenticity of the Written Agreement.

142.  However, the Defendant’s submission is that if one were to purposefully fabricate the Written Agreement, he would likely “replicate” other signatures of Ching rather than “invent” a completely different signature since that would be more suspicious. The Defendant submitted that possible explanation of the seemingly “different” signature could be that Ching has two versions of signature. Again, given Ching was absent from the trial, neither witness was able to give evidence to conclusively determine whether this is the case or not. The court should not speculate as Tsui is not in a position to confirm why Ching chose to sign on the Written Agreement in this manner. Under such circumstances, I am inclined to think that this point works both ways, and is neither here nor there, particularly in light of the fact that Ching has not testified at the trial.

143.  The Defendant says Tsui explained that when he entered into the Written Agreement with the Plaintiff, he did not anticipate this agreement would be disputed in Court. As a result, he did not conduct a meticulous investigation as to why Ching’s signature was different from his usual signature.

144.  Subsequently, when the Plaintiff defaulted on the rental payment of T1 and T2, Tsui admitted during cross-examination that he did not ask Ching to sign using his usual signature, Tsui explained he was not worried at the time because as the Defendant had yet to pay the full purchase price for some of the river sand.

145.  On the other hand, another challenge of the Written Agreement put forward by the Plaintiff seems to be renting 10 tipper trucks would be too expensive and not commercially viable for the Plaintiff so it seems impossible that the Plaintiff would have agreed to the Written Agreement. In response to this, Tsui explained during cross-examination that Ching requested the Defendant to lend 2 tipper trucks to the Plaintiff first, then to lend 2 more to the Plaintiff in 2016, because the Plaintiff did not have sufficient cash.

146.  The Defendant says Tsui’s explanation on renting 2 tipper trucks as a start was consistent throughout his testimony. On the last day of the trial, Tsui was questioned again on the same issue and he reiterated that Ching had requested to rent only two tipper trucks initially, with the understanding that additional trucks would be rented at a later stage. Consequently, Tsui reasoned that there was no practical necessity to execute a separate agreement specifying "2 tipper trucks only," as he believed Ching's promise remained valid.

147.  Overall, the Defendant says there is no specific attribute or characteristic of the Written Agreement that pointed to the same being not authentic. The Written Agreement serves as an important indicator that the Truck Rental Agreement did exist and the purchase price claimed by the Plaintiff should be set-off.

148.  In my view, there is only so much that can be said about a document itself on its face. Given the various factors pointed out by the Plaintiff as to the inconsistencies and bizarre features in the evidence of Tsui, and in particular given the scant contemporaneous documentary evidence in support of the Written Agreement and the Truck Rental Agreement, I do not accept his evidence that eventually the Truck Rental Agreement had been entered into. As for the Written Agreement, for the same reasons stated above, I do not attach any weight to the document either.

149.  Instead, I accept the evidence of Tam particularly in relation to the arrangements regarding the tipper trucks. I find that there was indeed the Truck Purchase Trust Agreement, and that the tipper trucks T1 and T2 were indeed held on trust by the Defendant for the Plaintiff at the material times. It is plain as a pikestaff, and it is not disputed in any event, that although the Defendant had applied for and entered into the relevant hire purchase agreement for the trucks, it was the Plaintiff who had been repaying the bank loan, apart from the various other running costs of the trucks, including the salaries of the drivers. The Defendant has not mentioned anything in its pleadings and in the witness statements of Tsui about who was to be responsible for repaying the hire purchase loans when the alleged Truck Rental Agreement was entered into. It is simply inconceivable that the parties would be silent on that when the alleged Truck Rental Agreement was allegedly made.

150.  Independent from the consideration whether an agreed trust existed, based on the agreed arrangements between the parties, I also find that there existed a common intention constructive trust, alternatively a resulting trust, by reason of the detriment suffered, or the payments made (in particular the hire purchase payments), by the Plaintiff.

The authority of Ching

151.  Regardless of any internal agreement between Tam and Ching pertaining to the affairs of the Plaintiff, the Defendant says the fact remains that Ching was the sale representative presented as being in charge of the transactions between the Defendant and the Plaintiff. The Defendant says as an outsider, it cannot be held responsible for investigating the internal management practice of the Plaintiff.

152.  In this regard, the Plaintiff submitted that the Defendant’s reliance on the involvement of Ching in the course of business of the Plaintiff and that river sand was delivered to the Defendant on invoices issued is not a valid ground. Reference was made to Freeman and Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd & Anor [1964] 1 All ER 630 at 644E-H where Lord Diplock stated what constitutes ostensible authority:

“An ‘apparent’ or ‘ostensible’ authority…is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted on by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the ‘apparent’ authority, so as to render the principal liable to perform any obligations imposed on him by such contract.” [underline added]

153.  The Defendant’s cited case of Egyptian International Foreign Trade Co v Soplex Wholesale Supplies Ltd and P S Refson & Co Ltd, The Raffaella [1985] BCLC 404 at 421 further supplemented that:

“Whether a person has represented something is a question of fact; but, if the representation relied on is solely that the agent held an office or a job of a kind which is known in commerce or industry, then the representation amounts to no more than that the agent has authority to enter on behalf of the principal into contracts with other persons of the kind which an agent so acting in the conduct of his principal’s business has normally ‘actual’ authority to enter into…”

154.  Here, the Plaintiff says the role of Ching as a sales representative of the Plaintiff was restricted to following up on the Defendant’s accounts and making sure the Defendant was happy with the supply of river sand and service. The Written Agreement that purportedly loaned 10 trucks clearly did not fall within what a sales representative so acting in the conduct in his principal’s business has normally actual authority to enter into. It is contended by the Plaintiff that the Written Agreement concerning truck rental simply had no connection with the Plaintiff’s business in supplying river sand.

155.  The Plaintiff further submitted that the Authorisation Letter, even if assuming it is authentic, adds nothing to the Defendant’s case. The representation concerning the agent’s authority must be made by a person or persons who had actual authority to manage the business of the company either generally or in respect of those matters to which the contract relates: Freeman and Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd & Anor [1964] 1 All ER 630 at 646. In any event, it is also submitted by the Plaintiff that the Authorisation Letter has a restrictive scope, i.e. only for receiving payment. It did not authorise Ching to enter into the Truck Rental Agreement on behalf of the Plaintiff.

156.  The Plaintiff further submitted it was Tsui himself who thought Ching to have authority by his own mistake or fanciful wish. Tsui himself admitted that he was under a misunderstanding that Ching was a director. The Plaintiff says this is fatal to the Defendant’s case as the Plaintiff does not bear the consequences where the Defendant mistakenly thought Ching to have proper authority. Ching’s own representation as a boss of the Plaintiff was, nevertheless, invalid to give rise to any authority: W Hing Construction Co Ltd v Boost Investments Ltd [2009] 2 HKLRD 501 at §82; Bowstead and Reynolds on Agency (22^nd Edition) at 8-19.

157.  The other ground advanced by the Defendant to establish Ching’s authority is his use of the Plaintiff’s company chop. The Plaintiff says there is also no merit in this ground: the permission to use the company chop referred to in TS Office System Ltd v Wing Kee Produce Ltd [2015] 1 HKLRD 479 was not a “blank cheque”. Use of a chop per se was not sufficient to give rise to authority for the execution of a loan agreement, see Zhang Kan (張侃) v SPH (Hong Kong) International Trading Co Ltd (尚品滙 (香港) 國際貿易有限公司) [2022] 3 HKLRD 813 at §24[7].

158.  The Plaintiff says the above factors are equally applicable here:

(a) the rental of trucks involved was quite a significant amount (involving 10 trucks and over HK$9.5 million a year);

(b) Ching was a sales representative and did not appear to be empowered to rent items on behalf of the Plaintiff;

(c) it was unusual to request a rental of 10 trucks from a customer who bought sand from the Plaintiff;

(d) the representation came from Ching who had not actual authority;

(e) the Written Agreement or the subsequent Truck Rental Agreement was not one in the usual course of dealings between parties. Tsui repeatedly emphasised that truck rental services were not part of its usual business.

159.  The Plaintiff says Tsui’s evidence was clear that he was not certain that the Written Agreement was executed with the Plaintiff[8]. This implicates that Tsui did not consider Ching to be of authority to act on behalf of the Plaintiff.

160.  The Plaintiff further says the fact that Tsui was aware of Tam’s existence and control of the Plaintiff was also detrimental to the Defendant’s case.

161.  For such reasons, the Plaintiff says the court should hold that Ching had no authority to execute any of the Written Agreement or Truck Rental Agreement on behalf of the Plaintiff. He also had no authority to set-off any accounts with the Defendant.

162.  However, the Defendant says that despite Tam was supposed to monitor the “major affairs” of the Plaintiff, Ching could receive a sum as substantial as HK$490,000 cash on behalf of the Plaintiff without Tam’s presence as Ching had signed the receipt. Tam’s account was self-contradictory in that he said he would not even check to see whether Ching has returned the HK$490,000 cash to the Plaintiff until the accounting lady had processed the sum[9]. It is difficult to imagine Ching could receive such a substantial sum if he was not indeed authorised by the Plaintiff to do so.

163.  It transpires that the practice of the Plaintiff is essentially, while some individuals received payments of HK$490,000 in cash, no one checked if the sum received was correct; the process of how the sum was returned to the Plaintiff is unknown or unclear and it appears to be a lack of transparency of how and through whom the Plaintiff receives money.

164.  During cross-examination, it became clear that it is the Plaintiff’s practice that Tam would not check on documents signed by Ching. For instances, Ching signed and used the Plaintiff’s company chop on a motor vehicle registration. Tam was not present when Ching signed, Tam can only assume the signature belongs to Ching. The Defendant thus says it is evident that Tam did not “actively” authorise all of Ching's actions on behalf of the Plaintiff. Instead, Tam permitted Ching to deal with the affairs of the Plaintiff with a significant degree of autonomy and without any oversight or supervision. Tam has seemingly placed a considerable degree of trust and confidence in Ching in handling matters related to the Defendant. This implies that Ching was acting within the scope of his authorised responsibilities, this includes every dealing with the Defendant.

165.  Further, the Defendant submits the Plaintiff's contention that the Written Agreement was fabricated because Ching did not use the Plaintiff's 'rectangular' company chop stating 'authorized signatory' is untenable. From the documents adduced, it is apparent that the Plaintiff does not consistently use the 'rectangular' company chop on other documents, nor do other documents belonging to the Plaintiff necessarily contained a reference to 'authorised signatory'.

166.  The Defendant says on the face of the evidence of Tam as a whole, it appears that Ching was the person held out to represent the Plaintiff in all the dealings with the Defendant no matter whether Ching was appointed as a director.

167.  With regard to the above contentions made by the parties concerning the authority of Ching, given my finding that the Truck Rental Agreement was not entered into, and instead there existed the Truck Purchase Trust Agreement, it is not strictly necessary for me to rule on whether Ching had authority to enter into the Truck Rental Agreement (and for that matter the Written Agreement as well).

168.  However, in light of the various submissions made, I would observe that when the parties initially entered into the agreement for the supply of river sand, it appears to me that Ching did have the authority to negotiate the same with the Defendant. The evidence shows, even on the Plaintiff’s own case, that Ching had been allowed to participate in the transactions for the delivery of river sand, including the receipt of payment for the delivered sand.

169.  As to whether the agreement for the delivery of river sand was entered into through Ching, or by way of the sales agreement alleged by the Plaintiff without the involvement of Ching, given there is no dispute as to the delivery of the river sand for the claimed amount, it is also not strictly necessary for me to rule on this point.

170.  It is plain to me however on the evidence that Ching had been held out as a person authorised to deal with such transactions.

171.  Nevertheless, concerning the use of the company chop of the Plaintiff, I take the view that the fact that Ching had possession of the company chop of the Plaintiff should not be blown up out of proportions in the circumstances of this case. In my view, the fact he had possession and use of the company chop is not determinative of the issue per se.

Judgment

172.  For the reasons set out above, I find in favour of the Plaintiff and dismiss the Defendant’s counterclaim.

173.  I therefore give judgment for the Plaintiff in the sum of HK$1,598,450.60, with interest thereon calculated at half judgment rate from the date of the issue of the writ until judgment, and thereafter at judgment rate until full settlement.

174.  I also make an order nisi that the costs of the action, including the costs of the trial (save for the costs order already made in respect of the Defendant’s application by summons dated 30 January 2024 referred to above), be paid by the Defendant to the Plaintiff, to be taxed if not agreed, with Certificate for Counsel.

175.  Lastly, I would thank counsel for their able assistance throughout the trial.