HO HUI LEUNG v. CHEUNG WAI LING AND ANOTHER

HCA 5212/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. HCA 5212 OF 1997

____________

____________

______________

J U D G M E N T

______________

1. The Plaintiff is this action is claiming two sums of money from the Defendants, namely $240,000 and $100,000. The original claim for the former was $300,000 but by an amendment with leave at the beginning of the hearing this was reduced to reflect the payment by the Defendants, admitted by the Plaintiff, of $60,000, in September 1994. The 1st Defendant has taken no part in this action and judgment in default of notice of intention to defend was entered against her on 15 July 1997. References to the Defendant herein will accordingly mean just the 2nd Defendant.

2. The Plaintiff is a businessman who, among his other interests during the time in question, had two boutiques in Nanning, China, selling ladies' fashions which he opened in March 1994. One of his business associates was the husband of the Defendant who has since died.

3. The Defendants were partners in a company called T & S Development Company ("T & S") which they had formed in July 1993, but which was not successful in carrying out any business until early 1994 when they set up a counter in a restaurant and commercial centre, also in Nanning, selling ladies accessories and jewellery.

4. It is the Plaintiff's case that, in about June 1994, he and the Defendants entered into a joint venture or partnership agreement under the terms of which the Defendants would purchase clothes in France from a company called Fumaco, of which the 1st Defendant had heard through a friend, the clothes would be sold through his shops in Nanning, and the profits would be split in a ratio of 6 to 4, the Plaintiff taking the larger share. He said that it was intended that a company would be incorporated with the Defendants and himself as shareholders and directors, that capital would be provided by him of $180,000 and by the Defendants of $120,000. However, the Plaintiff said that the Defendants told him that they could not pay their share and if he would pay initially, they would pay it later. He accordingly paid the sum of $300,000 into a joint account opened in the names of the three parties. Two days later, the same amount was withdrawn by means of a withdrawal form signed by him and the 1st Defendant, and paid into an account in the name of the Defendants. The same day the sum of $260,000 was transferred from that account into an account of T & S.

5. The Plaintiff maintains that the $300,000 was never spent on buying clothes, but used for expenses of T & S, and that he has never received any clothes from the Defendants, and that, apart from $60,000 paid to him by the Defendants in September 1994, he has not been repaid any part of it.

6. The Defendant, on the other hand, says that it was the Plaintiff who wanted to invest $300,000 in clothes from France for his shops, and the Defendants to make the purchase for him, with 30% of any profit going to them as their remuneration. She said that the money was accordingly paid by the Plaintiff into the joint account, transferred to their own account and then partly into the T & S account. The logic of such transfers is not now apparent, and the Defendant herself could offer no clear explanation, but I cannot find anything sinister in it in view of what later transpired, and to what purpose the money was clearly put. While the Defendant admits that the dealings with the Plaintiff were in the nature of a joint venture, it was not intended that they should invest any money themselves, and it was the Plaintiff who suggested the joint account.

7. I accept the Defendant's version of these dealings with the Plaintiff. He was an experienced businessman, while the Defendant at least was an amateur, trying her hand at running a business for the first time, without any obvious success, and with the main intention of trying to understand and keep in contact with her husband, with relations between them somewhat strained as a result of his having a mistress in the mainland. The Defendant's business not having any apparent source of income prior to their commencing the ladies accessories counter in Nanning, it is unlikely that they would be in a position to invest in a venture with the Plaintiff.

8. The next issue then is: were any clothes bought with the money supplied by the Plaintiff?

9. What is clear is that the French franc equivalent of about $261,000 was transferred from the T & S account to Fumaco, and the 1st Defendant went to France in July 1994 and bought a large consignment of clothes. The documentary evidence of this transaction is overwhelming, and shows that the 1st Defendant bought clothes to the value of about FF83,707, which converted to HK dollars comes to about $121,542. In addition to this, a sum of FF15,000, or about $21,780, was returned to the 1st Defendant by Fumaco from the credit she had with them, for the purpose of purchasing more clothes in the markets in Paris. The cost of the whole purchases in France was accordingly about $143,322. In addition to this, the Defendant puts the cost of the travel and related expenses for the trip, plus delivery by air freight of the goods, at about $37,000. Of the $300,000 they had, by the time the 1st Defendant returned from France, spent $180,322.

10. In September 1994 a remittance was made by Fumaco to the Defendants in the sum of $112,256, and it was about a week later that the Defendants paid $60,000 to the Plaintiff. It is the Defendant's case that this was the balance owing to the Plaintiff after deducting $20,000 expenses, both incurred and anticipated, of delivering the clothes to Nanning, including customs declarations, travelling expenses and entertainment of officials in Nanning, and office rent for three months, which I shall deal with shortly. Counsel for the Plaintiff sought to cast doubt on the origin of the remittance from Fumaco as it was in US dollars and sent to the Defendants direct, not to T & S. The Defendant says that they spoke on the telephone to Fumaco and asked them to send it to their account, but could not explain why it was not in French francs. Again, in spite of this, in the absence of any evidence to the contrary, the overwhelming conclusion must be that this sum represented the balance of the credit with Fumaco.

11. What then happened to the clothes purchased? Again it is clear from the documentary evidence, and in particular a letter from an air freight company to the Defendant's solicitors of 1 December 1998, that 6 cartons of ladies' garments were delivered from France to T & S in late July 1994. In the absence of evidence of any other purchase by the Defendants, it is the inescapable conclusion that these were the same purchases made by the 1st Defendant in France.

12. The Defendant says that it was part of the arrangement, and intended to keep costs down, that they would deliver the clothes to the Plaintiff in Nanning themselves, and that, in order to do so, they made three journeys to Nanning taking the clothes packed in large suitcases. There is evidence from their passports and home visit permits that these journeys were certainly made, and evidence that on one occasion they had to pay excess baggage. The arrangements for delivering the clothes in Nanning to the Plaintiff were complex and, like so much else in this case, far from adequately explained. What the Defendant says happened is that they were met at the airport by a Mr Li Ho or a Mr Pang Si Biu, with whom they left the clothes and who, in turn handed them on to the Plaintiff. This account was supported by evidence from Mr Li Ho, who was an official of the local Commerce and Industry Department, and who very frankly admitted that he assisted the Defendants, and indeed the Plaintiff, when they came to Nanning, by meeting them at the airport and arranging accommodation, and using his influence with the customs officials to ensure that there were no problems with the Defendants bringing in goods in excess of what was strictly permitted. He said that they brought in ladies' clothes two or three times, repacked them in nylon bags, and gave them to him. He would then arrange for the Plaintiff to collect them. Again, it is difficult to understand the somewhat complex arrangements which appear to have been used to effect delivery, but I accept what both the Defendant and Mr Li say about this, and that these goods were in fact delivered to the Plaintiff. Indeed, it is difficult to see what alternative explanation there can be in view of my finding above that the money provided by the Plaintiff was used to purchase clothes from the supplier in France. There is no evidence that the Defendants had any other reason to buy the clothes, nor that they had any other way of disposing of them for profit. They had no retail outlet themselves other than a counter in a restaurant complex, looked after by the staff there, and not big enough to function as a clothes shop. The only explanation consistent with the evidence before me is that the clothes were purchased for, and delivered to, the Plaintiff, for sale in his boutiques in Nanning. I can also see that, were they to send the clothes to Nanning by normal freight, not only would there be the additional cost of so doing, when their business took them there in any event, but it would also be more difficult to avoid custom fees and other charges. What they were doing was accordingly logical and sensible in the climate of doing business in China at that time.

13. Before I deal with the final matter under this part of the claim, namely whether the whole of the $300,000 has been properly accounted for, I have to go back to the claim for $100,000 and look at the evidence as to the payment and disposal of this sum.

14. There is no dispute that the Plaintiff made payments to the Defendants of the total sum of $100,000. This was done in three stages. The first two payments, of $20,000 and $30,000, were both made on 17 January 1994. The third, of $50,000, was paid on 3 March 1994. The Plaintiff's evidence as to the first two payments was to the effect that the Defendants requested a loan for the purpose of opening a fashion boutique, and upon payment of the first $20,000, said that it was not enough and asked for a further $30,000.

15. The Defendant's account is that the Plaintiff wished to save expenses by sharing the office space of T & S, and using their telephone, fax and secretarial services, for which he was prepared to pay $10,000 a month, and he paid 5 months in advance. There is little evidence to show what the total expenses of the Defendants' office was then, but it seems that under this arrangement the Plaintiff would be paying most of it. On other hand there is no evidence to support the Plaintiff's claim that the Defendants intended to open a fashion boutique or that they ever did so, and no evidence that they were doing any business then which had put them in financial difficulties. Indeed, they seem to have been doing no business at all, which would leave their office largely free for the Plaintiff to use for his affairs. It is also significant that when the Plaintiff put in an order on his own account to Fumaco in France in April 1994, the documentation was in the name of T & S with the address of their office, although payment was made by the Plaintiff personally.

16. I therefore again find the evidence of the Defendant persuasive, and, in the absence of any documentary evidence, in particular any receipt evidencing the loan, I accept her version that this was payment to her firm for use of it and its office facilities.

17. The Defendant's explanation for the third payment of $50,000 was that this was as a result of the Plaintiff's request for them to use their contacts in the trade to purchase for him some men's suits to sell in Nanning, also with the promise of 30% share of profits as remuneration. She said that they did purchase the suits and he took them to Nanning. There Mr Li Ho said he sought his assistance to sell them. The Plaintiff denies that this transaction ever took place.

18. The only documentary evidence once again is lacking in clarity and volume, consisting as it does of an "invoice" and "receipt", neither of which are clearly what they claim to be, written by the 1st Defendant and dated 17 November 1994, some eight months after the Defendant said the suits were purchased. The Defendant says that this was to explain to the Plaintiff how the $50,000 was used and to show what profit they expected to make. It does certainly refer both to the suits and the Plaintiff. Counsel for the Plaintiff has dismissed this as a self serving document created at a later stage. However, the Plaintiff has produced no documentary evidence to the contrary such as a receipt, and bearing in mind that this document does not appear to have been created fraudulently, in which case it would have been a simple matter to back date it to the time of the payment, and it was not made at a time when any proceedings were contemplated, it does lend support to the account of the Defendant rather than that of the Plaintiff.

19. I accordingly accept her evidence on this matter as well and find that the Plaintiff has failed to establish to my satisfaction, on a balance of probabilities, that any of these three payments were a loan to which he is now entitled to repayment.

20. Which brings me back to the initial matter of the $300,000 and an account of its disposal. The purchases in France, the expenses claimed by the Defendant, and the repayment of $60,000 to the Plaintiff leave a balance of about $30,000 if I allow some inaccuracies and possibly payment of bank charges and losses on foreign exchange. The Defendant says that this is accounted for by the further three months use by the Plaintiff of their office and facilities, as he had paid for five months, and his total use by September, the date of the repayment, was eight months. I have to say that this explanation has an attractive logic and, in the absence of any better from the Plaintiff, I am prepared to accept it. It has been a feature of all these dealings between the parties that they have been conducted with an informality which borders on carelessness and a total lack of concern for any regular or precise accounting. That the Plaintiff now has to rely on my impression of his credibility to try to establish his claim is largely his own fault. While I accept that the Defendants were not businesswomen in the wider sense and were happy to conduct their affairs informally, he had sufficient business experience to ensure that transactions, even between friends or relations of friends, were properly recorded and acknowledged. His case, and his credibility, has not been assisted by the fact that he waited nearly three years before making a formal demand for the sum he claims and commencing proceedings. Although he said in evidence that he had asked for payment in late 1994, I am not satisfied that this was anything other than a request for an account, which, in the informal way that the rest of these transactions took place, he received. He also said that he did not wish to press the matter while the Defendant's husband was still alive as he was a friend and business associate. He did not however say that he had asked the Defendant's husband to settle her debts, and, if as she says, relations with her husband were not good, he would have known this and have had no reason not to demand what he says he was owed earlier. He may have not had what was due to him to the last dollar and cent, but if anything is now owed, I am satisfied that it is impossible to say with any degree of accuracy what it is, and his claim must accordingly fail.

21. There has been comment from both sides, with some justification, during these proceedings of contradictory statements in evidence, in witness statements and in the pleadings themselves, which might have been more happily pleaded. It is, in my view, further evidence of the nature of the dealings, being confused and informal, together with inaccurate memories of events over five years ago, of which no proper record was kept, and it does not affect my conclusions as to credibility which I have reached above.

22. I accordingly dismiss the Plaintiff claims and give judgment for the Defendant with costs to be taxed. I also order that the sum of $340,000 paid into Court by the Defendant be paid out to her, and make a further order that the costs of the proceedings for a prohibition order and a Mareva injunction, reserved by Mr Justice Yeung, be to the Defendant to be taxed.