IGC HONG KONG LTD v. CHAUHAN, NILESH MANHARLAL t/a GOLD COINS GROUP

DCCJ 3522/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3522 OF 2009

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REASONS FOR JUDGMENT

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Introduction

1. The plaintiff succeeded in its summary judgment application before Master B. Mak on 9 March 2010 and judgment was entered against the defendant for the sum of US$103,371 and the plaintiff’s summarily assessed costs of HK$58,057 be borne by the defendant. This was the defendant’s appeal.

2. At the conclusion of the hearing, the defendant’s appeal was dismissed with costs to the plaintiff summarily assessed at HK$37,000. I indicated that my reasons would be given in writing to be handed down. This now I do.

Background Facts

3. Both the plaintiff and the defendant are diamond traders. The plaintiff is a subsidiary of a Belgian company, namely, IGC Group NV (“IGC Belgium”) and has its registered office in Ruttonjee Centre, Central. The defendant is a local sole proprietor.

4.  On 3 March 2006, the defendant together with another person went to the plaintiff’s office and concluded an agreement (“the Agreement”) whereby the defendant agreed to purchase 135.30 carats of diamonds (“the Diamonds”). The purchase price was US$117,377 and it was to be paid within 60 days from delivery by the plaintiff.

5.  The plaintiff delivered to the defendant the Diamonds on the same date. An invoice dated 15 March 2006 (“the Invoice”) in the sum of US$117,377 was sent to the defendant.

6.    In July 2008, the defendant returned some of the Diamonds of the value of US$14,006 to the plaintiff. The plaintiff agreed to set off the value of the returned diamonds against the outstanding purchase price and to this end it issued a credit note dated 30 July 2008 (“the Credit Note”).

7.   About a year later, on 10 June 2009, the plaintiff’s solicitors wrote to the defendant to demand the balance of the outstanding purchase price being US$103,371 (“the Sum”).

8. There was no written reply to the letter and the demand was not satisfied. On 31 July 2009, the plaintiff issued the Writ herein to claim for the Sum.

Plaintiff’s evidence

9.   Mr. Joris Graauwmans, General Manager of the plaintiff, filed evidence in support of the plaintiff’s application. He explained that he was employed by Inter Gems-Claes, the name of which was changed to IGC Group NV on 26 September 2005, until 31 August 2005. He assisted in setting up the plaintiff in Hong Kong in mid 2005 and he became General Manager of the plaintiff on 1 September 2005.

10. Mr. Graauwmans gave a detailed account of how the defendant visited the plaintiff’s registered office and subsequently concluded the Agreement. The defendant together with another person were received by Mr. Graauwmans and Mr. Clement of the plaintiff. To take the order of the defendant, Mr. Graauwmans took out two pieces of paper of IGC Belgium bearing its old name of Inter Gems-Claes and all the contact details of IGC Belgium.

11.Mr. Graauwmans gave these two pieces of paper to Mr. Clement and Mr. Clement made a record of the details of the diamonds ordered by the defendant on them. At the end, the defendant signed on the bottom of the second piece of paper to confirm the order. Mr. Graauwmans put a stamp of the bank account of the plaintiff opened with HSBC on each of the two pieces of paper and the defendant crossed out the details of the bank account of IGC Belgium printed on the second piece of paper.

Defendant’s pleading and evidence

12.  The defence’s pleaded case is that the Agreement was entered into by IGC Belgian and the defendant and the plaintiff was merely payment collection agent of IGC Belgian.

13. The defendant further avers that the defendant on 12 September 2007 issued IGC Belgium an invoice for the sum of US$184,138 being the purchase price of 199.50 carats of rough diamonds allegedly delivered   to IGC Belgium (“the defendant’s Invoice”).

14. On 26 May 2009, the defendant’s solicitors sent a demand letter to IGC Belgium (“the defendant’s Letter”) to demand the full sum of US$184,138. Now the defendant claims he is entitled to set off the said sum of US$184,138 against the Sum leaving a balance of US$80,767 (“the Balance”).

15.The defendant alleges that he is entitled to counterclaim the Balance. The defendant has not mounted any counterclaim though. This is understandable as IGC Belgium is not a party to this action.

16. The defendant himself made an affirmation to resist the application. He said he had started business relationship with IGC Belgium since 2002 or 2003 and all along he dealt with Mr. Clement. He was not aware of the incorporation of the plaintiff.

17. On 3 March 2006, he went to the plaintiff’s registered office at the request of Mr. Clement. Mr. Clement told him that there were two Chinese persons desirous of purchasing diamonds from the plaintiff but the plaintiff did not trust them. Hence, Mr. Clement wanted the defendant to be the middleman for them and the defendant would be entitled to commissions. The defendant agreed.

18. The defendant said now he recalled Mr. Clement writing down the details of the Diamonds on the two pieces of paper bearing the name and other details of Inter Gems-Claes. He said he did not know the change of name from Inter Gems-Claes to IGC Belgium in or around 2005. He thought he was purchasing the Diamonds from IGC Belgium. He said neither Mr. Graauwmans nor Mr. Clement told him expressly that the Diamonds were sold from the plaintiff but not from Inter Gems-Claes or IGC Belgium. He further denied having crossed out the details of the bank account of IGC Belgium printed on the second piece of paper.

19. That was all what the defendant said about the Agreement. In regard to the Invoice, the defendant said he did not pay much attention to the fact that it was not issued by IGC Belgium. He contended that even if he could realize that IGC Belgium and the plaintiff were two separate companies, he would merely think that the plaintiff was an agent of IGC Belgium and issued the Invoice on its behalf.

20. The defendant said nothing about the Credit Note though he accepted that he returned those diamonds described in the Credit Note to the plaintiff. 

21. With respect to his alleged sale of diamonds in the worth of US$184,138 to IGC Belgium, the defendant said the minimum about it in his affirmation and he merely exhibited the defendant’s Invoice and the defendant’s Letter.

Plaintiff’s reply affirmation 

22. Mr. Graauwmans filed his 2^nd affirmation to reply to the defendant’s allegations. First, he accepted that the defendant once dealt with IGC Belgium in or around 2005 through an agent in Belgium. He denied that Mr. Clement had met the defendant before 3 March 2006.

23. He then maintained that he personally called the defendant prior to 3 March 2006 to ask if the defendant was interested in purchasing diamonds from the plaintiff and then on-sell them to some Chinese buyers for profit. The defendant agreed to his suggestion.

24.  Mr. Graauwmans further exhibited photos of the main entrance of the plaintiff’s registered office. It can be seen that the name of the plaintiff “IGC Hong Kong” was conspicuously printed on the glass door.

25. Lastly, Mr. Graauwmans exhibited an invoice of IGC Belgium dated 30 November 2005 issued to the defendant. Mr. Graauwmans said this invoice could prove the defendant’s knowledge of the change of name of IGC Belgium.

Issues

26. Clearly the central defence of the defendant is that IGC Belgium was the contracting party to the Agreement and the plaintiff was a mere agent of IGC Belgium. In other words, the plaintiff has no locus to sue on the Agreement. It is common ground that the Agreement was made orally.

27.In this appeal, the defendant has to show that his defence is bona fide and arguable on credible evidence. The defendant has also to condescend to particulars.

Analysis

28. The defendant’s evidence did not begin to show that IGC Belgium was a contracting party to the Agreement acting through the plaintiff as its agent. There was no evidence of agency at all.

29. The relationship of principal and agent can be created by an express or implied agreement: Chitty on Contracts 13^th ed. Vol. II §31-020. The defendant adduced no evidence of such an agreement, be it express or implied.

30. On the other hand, Mr. Wong, counsel for the defendant, fairly accepted that there was no evidence of any representation by either Mr. Graauwmans or Mr. Clement that the plaintiff was only acting on behalf of IGC Belgium at the meeting on 3 March 2006. 

31. The defendant bases his whole case of agency on the two pieces of paper bearing the old name Inter Gems-Claes on which the details of the Diamonds were recorded by Mr. Clement and the defendant signed on 3 March 2006.

32. It is noteworthy that the two pieces of paper were not mentioned at all in the Defence. Only after the plaintiff had exhibited the same to the 1^st affirmation of Mr. Graauwmans that the defendant said that he recalled that Mr. Clement wrote on them the details of the Diamonds.

33.  At that time the plaintiff had been set up in Hong Kong less than 1 year and it was a subsidiary of IGC Belgium.  I do not find the plaintiff’s use of the old stationery of IGC Belgium in the course of its business carried on in its registered office remotely suggestive of the fact that the plaintiff was just an agent of IGC Belgium transacting business on its behalf in Hong Kong. 

34.  The defendant went to the registered office of the plaintiff to transact business. The defendant could not have missed the name of the plaintiff painted on the glass main door of the plaintiff’s office. No doubt the defendant intended to buy diamonds from IGC Belgium. It did not mean the defendant could only contract with IGC Belgium to buy the same nonetheless. In its own case, the Chinese buyers purchased the Diamonds from the defendant and the defendant could not possibly be said to be the agent of the plaintiff or IGC Belgium in his sub-sale of the Diamonds to the Chinese buyers.

35.  The plaintiff’s case is that the Diamonds were purchased from IGC Belgium and the relevant sales documents were exhibited in the 1^st affirmation of Mr. Graauwmans. This effectively negatives any agency relationship between the plaintiff and IGC Belgium in respect of the Diamonds. The defendant was simply unable to adduce any evidence to rebut this sale.

36.Further, there was nothing in the Invoice or the Credit Note that the plaintiff issued them merely an agent of IGC Belgium. There was no evidence that IGC Belgium was the undisclosed principal of these two documents. There is a bare assertion that the defendant thought they were issued by IGC Belgium. Even if the defendant was so mistaken, his perception was without factual basis and in any event could not suggest let alone prove the existence of agency.

37. Mr. Wong pointed out the discrepancies between the respective accounts of what happened on 3 March 2006 when the Agreement was concluded given by Mr. Graauwmans and the defendant. Mr. Wong said these discrepancies should call for a trial and both Mr. Graauwmans and Mr. Clement should be cross-examined especially when the Agreement was an oral one.

38. I made no attempt to resolve such discrepancies and I should not do so on affidavits. However, given the clear admission by the defendant that neither Mr. Graauwmans nor Mr. Clement at any stage made any representation to the defendant that the plaintiff was an agent selling the Diamonds to the defendant on the behalf of IGC, what they had said during their encounter is of little relevance to the crux of the purported defence.

39. In summary, I find the defendant’s present assertion that the plaintiff was a mere agent of the plaintiff not supported by credible evidence and incapable of belief. The defendant has failed to discharge his burden in this application to justify leave, conditional or unconditional, to defend.

40. I agree with Mr. Nip, counsel for the plaintiff, that the alleged debt owed to the defendant by IGC Belgium is a red-herring. Firstly, given my rejection of the purported defence, strictly speaking, whether IGC Belgium, a separate legal entity and a stranger to the Agreement, in fact, owes to the defendant any amount is irrelevant to the plaintiff’s claim.

41. I should nevertheless point out that the alleged liability of IGC Belgium only further highlights the incredibility of the defendant’s purported defence, as submitted by Mr. Nip. If IGC Belgium were indeed the principal in the Agreement, on 12 September 2007, when the defendant’s Invoice was issued, there was no reason why there was not any set-off (or at least requests for set-off) against the defendant’s liability under the Invoice, which was then long overdue.

42. Moreover, on the one hand, the defendant explained in his affirmation that he did not chase after IGC Belgium for the entire sum under the defendant’s Invoice (US$184,138) as he had in mind his own liability to pay IGC Belgium under the Invoice as reduced by the Credit Note and he thought the Balance would be settled by IGC Belgium very soon.

43. If the Balance was the amount the defendant genuinely thought he was entitled to after taking into account his alleged liability to IGC Belgium under the Agreement, it is only inexplicable that in the defendant’s Letter, his solicitors demanded settlement of the whole sum of US$184,138 instead of the Balance without any reference to his liability under the Agreement at all.

Conclusion

44. For the foregoing reasons, absent an arguable defence shown, I agree that summary judgment should be entered against the defendant. The defendant’s appeal fell to be dismissed accordingly.