UNIVERSAL ELECTRONICS LTD v. CHAN HOI SHUN AND OTHERS t/a C.Y. SUPPLIES CO

DCCJ 724/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 724 OF 2008

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J U D G M E N T

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1.  The plaintiff Universal Electronics Limited (聯宇電子有限公司) is a retailer of computer consumable parts, selling consumable commodities including ink cartridges and toners. 

2.  Paragon Computers Suppliers (鵬堡电腦文儀) was a trading entity, wholly owned by a Mr. Chan Ming Fai (called “Fai” for short). Paragon Computers Suppliers (called “Paragon” for short) operated a retail shop at the Wanchai computer centre. Paragon sold computer items until it ceased business on 1 February 2007.

3.  The defendant C.Y. Supplies Company (駿業文儀公司) is a trading partnership running a business in selling computer consumable items to office users. The main trading partner of the defendant is a person by the name of Chan Hoi Shun (called “Hoi” for short).   C.Y. Supplies plies its trade by soliciting office users for purchase of office supplies.

4.  Paragon had been the customer of the plaintiff for 10 odd years. Paragon ceased business on 1 February 2007. Fai, the sole owner of Paragon, petitioned for his own bankruptcy on 8 February 2007 and was granted a bankruptcy order by court on 27 March 2007.

5.  It was the plaintiff’s case that Paragon had not paid for some HK$1.1 million of goods bought from the plaintiff. The defendant collected 12 lots of those unpaid goods, amounting to a total value of HK$631,257, within 3 weeks before Fai of Paragon petitioned for his own bankruptcy. Since the defendant was unable to provide documentary proof of the contracts of sale by way of purchase orders or payment invoices for those 12 lots of goods, the defendant must have colluded with Paragon to deceive the plaintiff of those 12 lots of goods collected by the defendant.

The plaintiff’s causes of action

6.  The plaintiff’s case was vaguely pleaded in its statement of claim. The fact that the plaintiff has elected to act in person a week before the trial commenced did not help to clear up the uncertainties about the plaintiff’s intended causes of action. The plaintiff’s pleaded case is confusing and difficult to grasp from its pleadings. The director’s homemade opening speech does not help to resolve the ambiguities. It seems the plaintiff’s case rested upon the following contentions:-

(i)  The plaintiff is claiming against the defendant for the sum of HK$631,257 for goods sold and delivered to the defendant, as evidenced by the 12 delivery orders and the respective invoices issued by the plaintiff to Paragon between December 2006 and January 2007 (paragraph 3 of the statement of claim).

(ii) The defendant and Paragon, acted dishonestly and with the intent to injure or cause loss to the plaintiff, unlawfully conspired to defraud the plaintiff, by:-

(a)   concealing the intended bankruptcy of Fai from the plaintiff;

(b)  ordering and collecting the goods from the plaintiff knowing Paragon was insolvent and had no intention to pay for those goods;

(c)   facilitating the defendant to collect the goods when both the defendant and Paragon had intended all along not to pay the plaintiff for the goods they collected;

(d)   assisting Fai of Paragon to act in breach of the trust Paragon owed to the plaintiff by collecting the goods allegedly on behalf of Paragon when the goods were in fact collected by the defendant (paragraph 5(v) of the statement of claim);

(e)   acting dishonestly to assist Fai of Paragon to dispose of the goods when Hoi of the defendant dishonestly represented himself to be an employee or agent of the Paragon when collecting the goods. Hoi acknowledged receipt of the goods and affixed the chop of Paragon on the receipts (paragraph 5(vi) of the statement of claim); and

(f)    facilitating the defendant to dispose of the unpaid goods of the plaintiff.

(paragraphs 4, 5 & 8 of the statement of claim)

(iii)    The defendant and Paragon colluded to act in breach of the trust owing to the plaintiff by Paragon by falsely representing to the plaintiff that the defendant was collecting the goods for and on behalf of Paragon. The defendant having been unjustly enriched, it would be unconscionable for the defendant to retain the goods (paragraphs 5(iv), 5(v), 5(ix), 6 and 7 of the statement of claim).

(iv)    The defendant acted in breach of its constructive trust owing to the plaintiff. The defendant is therefore liable to account to the plaintiff for the value of goods (paragraph 9 of the statement of claim). Alternatively the defendant is holding the goods on trust for the plaintiff and the plaintiff has a right to trace the value of the goods or has a claim of equitable title over the goods collected by the defendant (paragraph 10 of the statement of claims).

(v) the defendant acted in breach of its fiduciary duty owing to the plaintiff and is liable to the plaintiff for damages for breach of its fiduciary duty owing to the plaintiff (relief (3) sought in the prayer for reliefs in the statement of claim).

(vi)    A declaration that the defendant is holding the sum of HK$631,257, being the value of the 12 lots of goods, on trust for the plaintiff as a constructive trustee (relief (4) sought in the prayer for reliefs in the statement of claim).

(vii)    An order for an account to be taken in tracing the value of the goods or the plaintiff’s equitable title over the unpaid goods collected by the defendant (relief (5) of the prayer for reliefs sought in the statement of claim).

Evidence at Trial

7.  The plaintiff provided no evidence concerning the purchase orders Paragon placed with the plaintiff which gave rise to the 12 delivery orders in question. It was unclear if the purchase orders were placed exclusively for the defendant or were for other purchasers as well.

8.  It was not in dispute that the Official Receiver of the estate of Fai of Paragon did not possess any of the contracts of sale between Paragon and the defendant concerning the disputed 12 lots of goods.

9.  Hoi of the defendant did not deny he collected 12 lots of goods from the plaintiff over various dates in January 2007. Hoi collected the goods with Fai of Paragon on 29 December 2006. For the remaining 11 lots Hoi collected the goods by himself with the production of his own Hong Kong identity card.

10.  It was the defendant’s case that the defendant bought the goods in the course of its business with Paragon. All payments were made by the defendant to Paragon in cash. The defendant made reference to cash withdrawals in the bank accounts of Hoi to justify cash payments had been made to Paragon for the purchase (see Appendix for details).

11.  The defendant could not find the invoices for the 12 lots of goods. Hoi of the defendant believed the invoices could have been lost when the defendant moved office in about May to June 2007.

Rulings of the Court

(A) Damages for non-payment for goods sold and delivered

12.  The plaintiff’s intended claim for payment of the purchase price of the 12 lots of goods from the defendant is doomed to fail as there was no direct contracts of sale between the plaintiff and the defendant.

(B) Damages for misrepresentation

13.  Eleven of the 12 delivery notes were signed by Hoi of the defendant with the production of his own identity card.  Hoi did not sign with the company chop of Paragon.

14.  Though it was the plaintiff’s contention that Hoi of the defendant has misrepresented himself to be a member of the staff of Paragon in collecting the goods from the plaintiff, the plaintiff did not call upon any of its staff at the collection centre to testify about the events at the collection centre.

15.  Amongst the 12 collection receipts, Fai of Paragon had signed with the Paragon chop on the acknowledgement receipt of 29 December 2006. Though Hoi’s presence on 29 December 2006 was not apparent on the face of the delivery note, Hoi did not deny the fact that he was there together with Fai for the collection of the goods on 29 December 2006.

16.  For the remaining 11 delivery notes, Hoi of the defendant signed in his own name with the use of his own Hong Kong identity card. Hoi did not purport to sign as a staff of Paragon.  Paragon chop appeared on some of the delivery notes because the collection staff of the plaintiff had faxed the documents to Paragon for Paragon to affix its chop on the acknowledgement receipts before the goods were released to Hoi.

17.  There was no evidential basis for the court to accept the plaintiff’s contention that Hoi of the Defendant had misrepresented himself to be a member of Paragon staff when collecting the goods from the plaintiff.

18.  Further, it would have been far more logical for Hoi to secure the company chop of Paragon on the delivery notes to facilitate the collection of the goods on behalf of Paragon rather than for Hoi to sign for collection of the goods in his own name with the use of his own identity card if the defendant had colluded with Paragon to collect the goods in disguise.

(C) Right to trace the goods or over the sale proceeds of the 12 lots of collected goods?

19.  The contracts of sale in respect of the 12 lots of goods between the plaintiff and Paragon were evidenced by way of invoices and delivery notes. No retention of title clause was found in any of the invoices or the delivery notes. When there was no retention of title in any of the sales of the 12 lots, the plaintiff cannot pray in aid section 21 of the Sale of Goods Ordinance Cap 26 to suggest property in those delivered goods had been reserved, giving rise to a right to trace its title by the plaintiff.

20.  For unconditional sale of specific goods, property in the goods passed to the buyer when the contract was made. Title and property in those 12 delivered lots, as far as the plaintiff is concerned, passed to Paragon upon the making of the contract for the sale of those 12 lots, or the latest at delivery and acceptance of the goods (section 20 of Cap 26). The rights of an unpaid seller as set out in Part IV of Cap 26 include a right of lien over the undelivered goods or a right to stop the goods in transitu. There was no additional right to sue the subsequent buyers in detinue, conversion, or for the value of the unpaid goods.

(D) Defendant acting in breach of trust owing to the plaintiff giving rise to damages or an obligation to account ?

21.  In its statement of claim the plaintiff did not particularise the circumstances under which trust or constructive trust arose between the plaintiff and Paragon or that of between the plaintiff and the defendant. The likely category of trust that the plaintiff would be relying upon is a constructive trust which could have arisen had the defendant colluded with Paragon to act fraudulently in deceiving the plaintiff of its goods, whereby the plaintiff would not have sold or delivered the goods to Paragon had the plaintiff been made aware of the fact that Paragon had intended not to pay for the goods.

22.  The situation surrounding the purchase and payment of the 12 lots of goods by the defendant looked dubious, in that

(i) The defendant had kept some 35 invoices for purchase   made with Paragon from 2 January 2007 to 31 January 2007, yet all the invoices for the 12 lots in question were lost;

(ii) Similarly Fai of Paragon produced none of the purchase orders in respect of the 12 lots of goods to the Official Receiver;

(iii)   Hoi of the defendant said he made payment for relatively large sums of money in cash rather than by cheques or other electronic means of payment;

(iv)    The quantities of goods ordered by the defendant from Paragon was only HK$116,701 for the month of October and HK$ 52,388 for the month of November while the volume of business between the defendant and Paragon suddenly increased to HK$551,727 for the month of December with a total order of HK$226,123 made on the single day of 28 December 2006. The goods the defendant bought and collected from the plaintiff in respect of the Paragon purchases were HK$575,416 (HK$631,257 – HK$82,300 +HK$26,459) for just 17 days between 2 January 2007 and 19 January 2007.

23.  Fraud is a serious allegation to make against an individual. It is highly unsatisfactory for the plaintiff to have named Fai as a co-conspirator in the alleged crime without joining Fai as a party to this proceeding to give Fai a chance to account for his version of the events.

24.  There was no evidence to suggest the defendant was aware of the intended bankruptcy of Fai.

25.  The plaintiff did not exhibit the purchase orders of Paragon for the court to understand whether the purchase orders were placed exclusively on behalf of the defendant or were placed for a number of other customers of Paragon when the 12 lots of delivered goods were ordered from the plaintiff. 

26.  From the breakdown (exhibit P- 3) provided by the plaintiff, the dishonoured cheques of Paragon covered payments both for goods collected by the defendant as well as goods sold by Paragon to another buyer. It looked rather peculiar for Paragon to choose to collude with the defendant but not with the other buyer of Paragon when another HK$0.5 million of goods sold to the other buyer was also left unpaid. The plaintiff accepted there was no allegation of deception against the other buyer of the remaining unpaid goods as those purchases were substantiated by written contracts of purchase between Paragon and the buyer.

27.  The lack of contractual documents between Paragon and the defendant would not have excused the defendant from its obligation to pay Paragon, nor would it excuse Paragon from its obligation to pay the plaintiff. Fai had in fact fully acknowledged Paragon’s contractual obligation to pay the plaintiff HK$1.1 million of unpaid goods in his proof of debt filed for his bankruptcy petition.

28.  Had the defendant failed to pay Paragon the purchase price for the 12 lots of goods, Fai might have defrauded the creditors by failing to disclose an outstanding debt owing by the defendant to Paragon. Alternatively, if the defendant was acting in concert with Fai, the defendant could possibly have colluded in acts of fraudulent preference against all the creditors of Fai.

29.  Suspicious as it is surrounding the purchase and the manner of payment of the 12 lots of goods, there are a number of possible scenarios in the present fact circumstances:-

(i) Paragon ordered the 12 lots of goods, amongst other purchases of the defendant, in December 2006 and January 2007, in the normal course of its business. Fai’s bankruptcy petition was solely a product of Fai’s poor commercial management.

(ii)   The failure of Hoi to keep the invoices was a matter of poor management as opposed to an intentional act of deception.

(iii) Paragon colluded with the defendant to deceive the plaintiff of its goods, if the plaintiff could establish Paragon and the defendant intended at the time of purchase not to pay for the 12 lots of goods.

(iv)   Had payments for the 12 lots of goods not been made by the defendant to Paragon, Fai of Paragon and the defendant could have colluded to act to the prejudice of all the creditors of Fai when the defendant and Fai kept no documentary proof of the defendant’s outstanding debt owing to Fai.

(v)   The defendant maintained no documentary invoices to reflect its business turnover for tax purposes.

30.  The most important issue for which supporting or circumstantial evidence was lacking was Fai’s intention of not paying the plaintiff at the time Fai placed the purchase orders for those 12 batches of goods collected by the defendant. Further, the fact that Hoi of the defendant openly collected the goods in his personal name as opposed to presenting himself as a staff of Paragon reduced the suspicion of the defendant acting in disguise at the time of purchase and collection.

31.  The fundamental principle has always been he who alleges must prove his case. Collusion between Paragon and the defendant was one of the possible causes, but there was no evidence on which this court could draw the inference on balance of probability that Fai must have intended not to pay the plaintiff at the time of the placing of the purchase orders, and that the defendant must have acted in concert with Fai. I cannot say on balance the defendant must have colluded with Paragon to deceive the plaintiff.

32.  The plaintiff failed to prove its alleged breach of trust by the defendant.

33.  I do make a costs order nisi for the plaintiff to bear the costs of the defendant in these proceedings with certificate for counsel for the trial, except for 30 minutes on 17 August 2009 for considering the defence submissions and for the morning of 19 August 2009 from 9.30am to 12.18pm during which time defence counsel was not available for his own personal reason. Costs of the defendant for 30 minutes on 17 August 2009 and for the morning of 19 August 2009 from 9.30am to 12.18pm are to be borne by the plaintiff. This costs order nisi would become absolute in 14 days’ time unless either of the parties makes application to court for variation of the said order.

DCCJ-724/2008

  Appendix

Unpaid purchase price for the 12 delivery orders :-

29/12/06	$ 82,300
3/1/07	$116,600
5/1/07	$   2,845
5/1/07	$105,000
11/1/07	$115,400
12/1/07	$ 21,000
17/1/07	$   2,066
17/1/07	$   2,475
17/1/07	$ 24,960
17/1/07	$157,014
18/1/07	$  771
19/1/07	$  826
	$631,257

Cash withdrawals from Hoi’s personal account

(012-893-1-010001-5) with Bank of China:-

29/12/06	$153,600
2/1/07	$ 69,000
3/1/07	$ 10,000
8/1/07	$233,000
9/1/07	$ 30,000
12/1/07	$115,600
15/1/07	$ 25,000
18/1/07	$190,000
19/1/07	$ 10,000
24/1/07	$ 16,000
	$852,200