CHIU SHING t/a B.C. TRADING CO v. WIDE UNION CO LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. The plaintiff Chiu Shing (Chiu) is an importer/exporter and distributor of native products and is the sole proprietor of B.C. Trading Co. It is the evidence of Chiu that in January 1987 he owned a consignment of peanuts of 40/50 and 50/60 specification which was stored at Chivas Godown in Chai Wan it was suggested by a friend Li Choi Fai of the Export Federation of Zhenshen that Tsui Chung Fai (Tsui) of Wide Union Company Limited (Wide Union) might be interested in purchasing the consignment of peanuts. Chiu claims that Tsui rang him and arranged a meeting at the offices of Wide Union in Bonham Strand East. When he arrived at Wide Union he met with Tsui, who introduced to him Tong Shu Sun (Tong) as a colleague in Wide Union and there was an exchange of business cards between the three men. Chiu in the course of his evidence-in-chief produced the business card of Tong on which was printed the name, address and telephone number-of Wide Union. The card does not show Tong as holding any particular office with the company. Chiu could not initially produce the card that he says he received from Tsui but later in the proceedings he was able to do so. His explanation was that the card had been handed by him to his then solicitors, but had not been passed on by those solicitors to the solicitors that he subsequently retained. There are documents which support this explanation and I accepted it as true.

2. After the meeting at Wide Union, Chiu, Tsui and Tong went together to the Chivas Godown and inspected the peanuts. Chiu says he was advised by Tong in the presence of Tsui that he would be informed of any decision made by the company as soon as possible and that, some days later, Tsui told him by telephone that the transaction relating to the peanuts would be handled by Tong. On the 22nd January 1987, Tong called at Tsui's office and agreed to purchase the peanuts of 40/50 specification - a total of 150 tons at the rate of US$470 per ton. Chiu drew up a contract which, inter alia, provided for payment to be made either by a letter of credit opened by Wide Union or by a cashier's order. Tong took the contract away and returned it later the same day with the chop of Wide Union endorsed and signed by Tong. Tong then asked for a clause to be added providing for the letter of credit to be opened by Wo Shun Hong at a price of US$480 per ton and for US$10 per ton to be refunded to Tong. Tong's explanation for this was that the peanuts had been sold on to Wo Shun Hong and that the US$10 per ton refunded represented Wide Union's profit. Chiu agreed to the additional clause.

3. On the 6th February 1987, Tong, purporting to act for and on behalf of Wide Union, agreed with Chiu to purchase the peanuts of 50/60 specification being the balance of the consignment. Chiu prepared a contract providing for a purchase price of US$59,800 to be paid by Wide Union opening a letter of credit within ten days. Tong took the contract away and when he returned to Chiu's office later the same day, he told Chiu that the end buyer would be a company' in Indonesia which would pay US$470 per ton leaving Wide Union with a profit of US$10 per ton. The contract had already been chopped by Wide Union and had Tong's signature under the chop. Tong then asked Chiu to advance the commission in conisideration for which Wide Union would sign an undertaking to refund the commission if the Indonesian company did not open the letter of credit within the required time. Chiu agreed and was given the undertaking on Wide Union letter head, chopped by Wide Union and signed by Tong. Tong then asked for the cheque to be made out to him personally as he was the person handling the transaction on behalf of Wide Union. Chiu again agreed to this and gave Tong a cheque made payable to Tong in the sum of HK$10,062. Tong then left Chiu's office and returned later the same day with a Wide Union receipt signed by Tong for the amount he had received.

4. On the 11th February at Tong's request, Chiu gave to Tong a cheque with the payee's name left blank in the sum of HK$10,708 being commission on the first contract. Tong said he would settle the matter with his company and gave Chiu a Wide Union receipt signed by Tong for the sum of HK$10,708. The receipt was noted as commission on peanuts 138 tons. On 19th February 1987 Chiu issued a further cheque to Tong for HK$124 being the balance of commission on the sale and again Tong gave him a Wide Union receipt. This transaction was successfully concluded, Chiu being paid by Wo Shun Hong for the peanuts.

5. Chiu became concerned when the letter of credit was not opened, but on the 14th March 1987 Tong came to his office with a Wide Union cheque for HK$465,244 post-dated to the 23rd March 1987, the sum being the payment due on the purchase price. Tong's was the only signature on the cheque. Chiu handed a delivery order in respect of the peanuts to Tong, the order being made out to B.C. Trading Co. or order. A receipt for the delivery order was made out on B. C. Trading Co. letter head and Tong then left, taking this receipt with him, which he later returned the same day chopped by Wide Union and signed with a signature which is illegible. During the period from the 14th March 1987 to the 25th March 1987, Chiu spoke to Tong who assured him that the cheque would be met when presented. Chiu also spoke by telephone to Tong at Wide Union office on a number of occassions to discuss other business proposals. It is Chiu's evidence that Tong was not always available in the office in the mornings but would always respond to any message left for him with the Wide Union office staff.

6. Chiu presented the cheque for payment on the 25th March 1987 but it was dishonoured, marked 'refer to drawer'. Mr To, the then manager of the Hang Seng Bank at Shatin, gave evidence that the cheque was dishonoured because there was insufficient funds in the account. Chiu rang Wide Union and spoke with Tsui explaining the difficulties over the cheque. Tsui said he would have to speak to Tong but when Tong could not be located, Chiu and Tsui made a joint report to the police as to his activities. It is now believed that Tong is resident in Australia. The plaintiff seeks to recover from Wide Union the amount of HK$465,244 being the amount of the dishonoured cheque. It is the defence case that Tong had no authority, actual or ostensible, to enter into contracts or signed cheques for and on behalf of Wide Union, and that the company is not responsible for Tong's fraudulent acts.

7. Tsui, who is a director of Wide Union, gave evidence of having operated in business as a trader from 1979 and of incorporting Wide Union in 1985. He also operated a transport company and from 1973 to 1982 or 1983; a company of which Tong was a representative employed Tsui's transport company to deliver its goods. After 1983, Tsui says he did not see Tong again until he visited the Wide Union office in 1985 and advised that he had recently returned from Australia. Tong was anxious to develop a business connection with Tsui and stated that he was a partner of Wo Shun Hong of Taiwan. After this initial meeting Tong frequently visited Wide Union with a view to buying or selling goods and several transactions were successfully concluded between the parties. The procedure was for Tong to introduce a buyer or seller to Wide Union, and if a contract was completed, Wide Union would pay Tong a commission. In 1986, Tsui was asked by Tong for consent to use Wide Union as his business address. As Tong was an old friend, who had helped Tsui financially when he was establishing his business, Tsui agreed to this request and made a desk available to Tong in the Wide Union office. About one month later Tong complained of in-coming callers asking for him getting confused by the name Wide Union and requested Tsui to allow him to print his name card showing Wide Union's name, address and telephone numbers. Tsui again agreed but insisted that as Tong was not an employee of Wide Union, the card should not show Tong as having any position of responsibility within the company. Accordingly the name cards were printed showing Tong's name but no title. It is Tsui's evidence that this was done to alert recipients of the card to the fact that Tong was not a person able to make decisions of importance on behalf of the company. Tsui further states that Tong was never employed by Wide Union nor was he empowered to negotiate or to enter into transactions for and on behalf of the company.

8. In November 1986, Tong suggested to Tsui that Wide Union open a bank account with the Hang Seng Bank Shatin Branch where Mr To, a friend of Tong's, was the manager. Tsui agreed and Tong arranged the necessary documentation. It is Tsui's evidence that the resolution and specimen signature card provided for Tsui and Tsui's brother to be the authorized signatories. The documents which were filed however, included Tong as a third signatory. This was not discovered by Tsui until December 1986 after the company had received the first bank statement. This statement showed that an unauthorized sum of $450 had been withdrawn from the account and upon a check being made with the bank, Tsui discovered that Tong was on the bank records as an authorized signatory. When Tsui taxed Tong with this, Tong denied to have done anything improper. On the 6th December 1986, Tsui completed a fresh set of documents for the bank deleting Tong as a signatory. These documents were filed with the bank but were then misplaced. Accordingly, on the 8th December 1986, Tsui completed another set of documents which stated the authorized signatories to be Tsui solely or Tsui's brother and a Miss Lee, an employee of Wide Union, jointly. These documents were filed with the bank, but the bank is now unable to locate them. As far as Tsui was concerned, the problem created by Tong had been resolved. Unknown to him, however, Tong had been advised by Mr To, the bank manager, that Tong's name had been deleted from the authorized signatories. It is To's evidence that Tong then told him he was a majority shareholder in Wide Union and asked that To defer action on the amending resolution until Tong had had a chance to discuss it with the company. To agreed to this proposal but heard nothing further from Tong. Tsui's evidence as to the Hang Seng Bank account gains some support from the evidence of Miss Bau Lai Ping. Miss Bau was employed by Wide Union during the period from December 1984 to November 1987. It is her evidence that in November 1986 Tong prepared documents to open the Hang Seng Bank account and that when the documents were signed by Tsui, Tong's name did not appear on the documents. In December 1986 when the bank statement arrived it was discovered that the cheque for $450 had not been authorized and she was instructed to collect and prepare bank documents notifying the authorized signatories to be Tsui solely or Tsui's brother and Miss Lee jointly. On the 6th December 1986, she delivered the signed documents to the Hang Seng Bank head office. On the 8th December 1986, she was instructed to prepare a further set of documents in the same terms which she did and then delivered these to the bank after they had been signed. It is also her evidence that from the end of 1985 Tong was a regular visitor to the offices of Wide Union and that in due course he was assigned a desk in the office.  She states that Tong was not an employee of Wide Union but used the office as a place from which to conduct his own business. His attendance at the office was irregular, sometimes 1 or 2 days a week, sometimes 5+ days each week. She did not know the exact relationship between Tsui and Tong, but recalled that Tong pressed Tsui to allow him to print his name card showing the company name, address and telephone number. It was her evidence that after the printing of these cards, Tong held himself out as member of the company.

9. I am satisfied on the basis of the evidence which comes from Tsui, To and Miss Bau that the events relating to the opening of the account and the subsequent resolutions changing the names of the signatories occurred in the manner described by Tsui.

10. In January 1987, Tsui received another bank statement for the month of December 1986 which showed a withdrawal on the 10th December 1986 of $20,000 by means of cheque No. 003622 which came from the opening cheque book given to Tong. As this payment had been unauthorized, Tsui, on the 3rd December 1987, challenged Tong as to the withdrawal and a heated argument ensued. Tong admitted withdrawing the funds but claimed that he was using overdraft facilities which he would be responsible for. Tsui agreed not to report the matter to the police provided that Tong surrendered his name cards which showed the Wide Union name, address and telephone number and made restitution of the $20,000. Tong agreed and Tsui says that he destroyed the surrendered name cards. After Tong left, Tsui says that he in subsequent meetings with Tong was not willing to talk to him. However, Tsui did not formally evict Tong from his desk at Wide Union nor did he order him not to return to the office. He concedes that Tong did come to the office on a number of occasions after the 3rd January 1987 but says that the purpose for such visits was simply to collect his personal belongings. The $20,000, Tsui concedes, has never been repaid by Tong.

11. In the middle of January 1987, Tsui's evidence is that Chiu came to the office of Wide Union without an appointment. He had earlier received a telephone call from Li Chui Fai of the Export Federation of Zhenshen advising him that Li had goods stored in Hong Kong which he wanted Tsui to inspect with a view to buy. When Chiu arrived, Tsui was speaking on the telephone and saw Tong, who happened to be in the office, talking to Chiu. When he finished his telephone call, Tong brought Chiu forward to his desk and introduced him as Chiu who had come through the contact of Mr Li. They discussed the consignment of peanuts which was in the Chivas Godown in Chai Wan. The three men then went to the godown to inspect the goods. It is Tsui's evidence that he did not exchange name cards with Chiu because he believed Chin to be representing Li and did not see the necessity for such an exchange. He did not see any exchange of cards between Chiu and Tong. On the MTR to Chai Wan, Tong told Chiu he was a partner in the Wo Shun Hong which bought and sold goods in large quantities. Tsui denies having told Chiu Tong was a colleague in Wide Union or that he had delegated to Tong the power to negotiate the peanut transaction on behalf of the company. It is his evidence that after the inspection he rang Shu Kee in Singapore to negotiate a sale of the peanuts but was unsuccessful and accordingly when Chiu rang on the day after the inspection, he advised him that Wide Union would not purchase the peanuts. He did not see Chiu again until they made a joint report to the police about Tong's activities. Tsui saw Tong on one further occasion after the inspection, early in March 1987 when Tong asked him if he was interested in purchasing a consignment of 50/60 specification of peanuts. Tsui told Tong he was not interested.

12. Hau Hon Cheung, a trader, gave evidence of being asked by Tong in early 1987 to purchase a consignment of 50/60 specification peanuts, being part of a larger consignment owned by B.C. Trading Co. He agreed to do so and was asked to open a letter of credit in favour of Shing Ching Co. a firm owned by Tong. However, Tong later advised him that a purchaser had been found for the total consignment and his proposed deal did not therefore proceed.

13. The defence submitted that the circumstances surrounding the handing over of the delivery order by Chiu to Tong are such as to arouse suspicion as to Chiu's credibility. The receipt for the delivery order is on B.C. Trading Co. letter head whereas the other receipts purporting to come from Wide Union are on Wide Union letter head and receipt forms. The signature under the chop is illegible. There is a chop of the China and South East Bank Limited on the delivery order and a date of the 18th March 1987 appears. It is submitted that if the date was endorsed by the plaintiff on the 18th March 1987, this is a contradiction of Chiu's evidence that he handed over the delivery order on the 14th March 1987. Unfortunately no evidence was called by either the plaintiff or the defendant from the bank or from Chivas Godown in an attempt to clarify the date of the endorsement of the bank chop and the name of the person who took delivery of the consignment of peanuts. On the evidence that I have before me, I am unable to say that the documents put Chiu's credibility in question. I find that Chiu did hand the delivery order to Tong on the 14th March 1987 and I am satisfied that there is no evidence which supports a suggestion of fraudulent collusion between Chiu and Tong as to the disposition of the peanuts.

14. While I accept the defence evidence relating to the bank resolutions and the authorized signatories, I do not accept Tsui's evidence that his business relationship with Tong had been severed in early January 1987 and that Tong's visits to the office of Wide Union after this date were purely to collect his personal effects. Nor do I accept Tsui's evidence that it was purely coincidental that Tong happened to be in the office of Wide Union on the day when Chiu called to discuss the peanut transaction. I am satisfied that Chiu did call to see Tsui through the introduction of Li, that the appointment was arranged, that Tsui introduced Tong as being an associate of Wide Union, and that they did exchange name cards as is the usual practice in Hong Kong. I accept that the business cards of Tsui and Tong produced by Chiu are the cards which he received from them on this occasion.

15. I am of the view that Tsui had a much closer business relationship with Tong than he was prepared to admit and that this relationship was still on-going when Tsui introduced Tong to Chiu. I also do not accept Tsui's evidence that he specifically told Chiu that Wide Union would not purchase the peanuts. It flies in the face of common sense that if Chiu had been told this by Tsui, he would then proceed to enter into the contracts with Wide Union for the purchase of the peanuts.

16. In respect of the plaintiff's case I do not accept as true Chiu's claim that Tsui specifically told him that Tong would be negotiating and conducting the peanut transaction on behalf of the company. While I am satisfied that Tsui, in January 1987, was still prepared to use Tong's contacts and knowledge of the native products business for the benefit of Wide Union, I do not accept that he would have given wide authority to Tong to act on behalf of the company in a business transaction - particularly after Tong's actions in relation to the bank account had been revealed. I am satisfied that Tong did not have any actual authority to sign contracts, cheques or receipts nor to receive commissions on behalf of Wide Union.

17. In my judgment Chiu came to believe Tong was associated with Wide Union from the events which took place on the occasion when Chiu first met Tsui and Tong at the offices of Wide Union in January 1987. He saw that Tong had a desk in the office, Tsui introduced him as a colleague in the company, there was an exchange of name cards including Tong's showing the name, address and telephone number of Wide Union, the three men discussed the peanut transaction and then went to Chai Wan to inspect the goods. Having regard to these events, Chiu was entitled to believe that Tong was in the employ of Wide Union. The question to be answered is whether these events were such as to also entitle Chiu to believe, as he seems to have done, that Tong had ostensible authority to act for and on behalf of Wide Union, whereas he had no such actual authority.

18. Tong's name card did not show Tong as holding any position of authority or responsibility within the company and Tsui did not hold out to Chiu that Tong had an executive position. He was simply introduced as a colleague in the company. There is nothing which comes from the card or the introduction nor from the subsequent discussion and visit to Chai Wan from which it could be said that Tsui was holding out Tong to be a person of authority within the company. At best Chiu was only entitled to believe that Tong was an employee of Wide Union and it could not be within the ostensible authority of an employee without an executive post to sign contracts and cheques on behalf of that company. The doctrine of ostensible authority does not, therefore, apply and Wide Union cannot be held responsible for the unauthorized acts of Tong.

19. Even if the doctrine did apply, there were events which occurred in the negotiations between Chiu and Tong which should have started alarm bells ringing in Chiu's mind as to Tong's status with Wide Union. After the first contract had been chopped and signed by Tong, he asked for a clause to be added to the effect that Wo Shun Hong would open the letter of credit and that US$10 per ton would be refunded not to Wide Union but to Tong. Chiu was obviously concerned about this unusual request as he asked Tong about it. He was satisfied with Tong's advice that he would explain it to the company.  In his evidence Chiu said that he did not know that Tong was related in any way to Wo Shun Hong. However, in his statement to the police he stated that Tong was a broker for Wo Shun Hong. When this apparent inconsistency was drawn to his attention, Chiu admitted that in respect of the first contract he regarded Tong as a broker of Wo Shun Hong. In addition in the statement Chiu referred to starting business with Wide Union in February 1987 and that he had also had a transaction with Tong which was completed very successfully. The first contract was dated the 22nd January 1987 and the second contract the 6th February 1987. The transaction which Tong referred to in the statement was clearly the first contract dated the 22nd January 1987. Chiu was initially therefore being less than honest about his understanding of Tong's business relationship with Wo Shun Hong. He knew, after the first contract was signed, that Tong in addition to being associated with Wide Union had a business connection with Wo Shun Hong as a broker. If he had properly considered the matter he must have realized that Tong's actions were at least suspicious, a suspicion which should have been confirmed following Tong's actions in relation to the second contract. In respect of this contract Tong was even more blatant - he had Chiu make out the commission cheque with Tong as the payee. The payee on the cheque for the commission on the first contract was at Tong's request left blank. In both instances Chiu says he accepted Tong's explanation for this unusual behaviour and in addition was given receipts on Wide Union receipt forms. However, these receipts were signed by Tong and not by Tsui or any other person of authority in Wide Union. In respect of the undertaking given in return for the delivery order, Chiu made no enquiry as to the identity of or the office held by the signatory, nor did he enquire as to the validity of cheque signed solely by Tong.

20. I find that these circumstances were such as would put a reasonable person on enquiry as to Tong's authority to sign documents and cheques on behalf of Wide Union and that such enquiry would have revealed to Chiu the fraudulent nature of Tong's activities. Therefore if I had found there was ostensible authority the plaintiffs case would still fail.

21. The plaintiff's claim is dismissed and there will be judgment to the defendant on the counterclaim with costs of the action to the defendant.