SHENZHEN BAOMING CERAMICS CO. LTD. v. COMPANION-CHINA LTD.

HCA9059/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.9059 OF 1999

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J U D G M E N T

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Facts

1. The plaintiff and the defendant entered into an agreement ("the 1st Agreement") for the supply of raw tiles. Subsequent to this agreement, the parties further entered into an agreement ("the Settlement Agreement"), in which the parties agreed to terminate the 1st Agreement. In the Settlement Agreement, the parties agreed that as of 2 September 1998, the defendant had not paid the plaintiff the sum of $4,305,758.49, being the balance of purchase price under the 1st Agreement and RMB7,447.86, being expenses paid by the plaintiff on the defendant's behalf. The parties agreed that the defendant would pay these sums by instalments.

2. The plaintiff claimed that $2,349,394.86 and RMB7,447.86 had remained unpaid by the defendant under the Settlement Agreement. The plaintiff applied for summary judgment against the defendant for these sums and interest together with other claims. The other claims were not pursued upon by the plaintiff.

3. The defendant admitted that under the Settlement Agreement, $1,859,755.88 had remained unpaid. The master gave judgment to the plaintiff for this sum with interest. The defendant now appeals.

The defence

4. The defendant had raised a number of defence on the Settlement Agreement, namely, the quantum was not correct and the plaintiff had represented to the defendant that the Settlement Agreement was to be entered into as a matter of formality only. More importantly, the defendant stated that it only entered into the 1st Agreement as an agent for its subsidiary, St Galarie Tiles Limited ("St Galarie"). The Settlement Agreement, although signed by the defendant, was also entered into between St Galarie and the plaintiff.

Agency

5. Whether the defendant entered into these two agreements as agent for St Galarie is clearly an issue that has to be resolved in the plaintiff's favour before it is entitled to summary judgment. The two agreements were signed by the defendant without any qualification that it was only acting as an agent. However, that is not the end of the matter because it is said that at the time when the 1st Agreement was entered, the defendant had expressly informed the plaintiff that the defendant was the holding company of St Galarie and the contract was actually between the plaintiff and St Galarie. The plaintiff raised no objections to this.

6. The defendant in the first affirmation of Mr Leung Kwok Wa stated that :-

"Other than lending its name to the said Agreement (i.e. the 1st Agreement), the Defendant took no part in the deal. There was no contract of sale and purchase between the Defendant and SGT (i.e. St. Galarie). Raw tiles would bear SGT's logo and be sent to SGT direct. Coating process would be carried out by SGT. SGT paid the Plaintiff for raw tiles supplied to SGT. SGT was solely responsible for the sale of the ceramic tiles. The profit and loss from the said Agreement would be attributed to SGT. Most of the relevant documents have been stored away given the lapse of time. I managed to retrieve some payment vouchers and banks statements evidencing payment by SGT to the Plaintiff for the raw tiles supplied."

Documents evidencing payment by St Galarie were exhibited.

The law

7. The law in this regard is clear. Halsbury's Laws of England, 4th Ed., Reissue, Vol.1(2), para 170 stated that :

"Where an agent in making a contract discloses both the existence and the name of a principal on whose behalf he purports to make it, the agent is not, as a general rule, liable on the contract to the other contracting party."

Halsbury's Laws of Hong Kong, Vol.1, para.15.065 stated that :

"The law is not that, because the principal is liable on the contract with the third party, the agent cannot be. The agent is liable unless he expressly or impliedly negatived his liability. Whether he has incurred personal liability on the contract depends on the intention of the parties to be deduced from the nature and terms of the particular contract and the surrounding circumstances, ...

Where the contract is oral, there is a presumption against personal liability of the agent.

Where the contract is written, the document as a whole must be considered to determine whether personal liability was intended. It does not matter if words of qualification such as 'on account of' or 'as agents' are found in the body of the document or following the signature."

Extrinsic evidence

8. Mr Chong, counsel for the plaintiff, argued that extrinsic evidence is not admissible to contradict the terms of the agreements. In Bowstead and Reynolds on Agency, 16th Ed., para.9037, it is stated that :

"Where it is clear from the terms of a written contract made by an agent that he contracted personally, extrinsic evidence is not admissible to show that, notwithstanding the terms of the contract, it was the intention of the parties that he should not be personally liable on it, because such evidence would be contradictory to the written contract."

In Wu Man Kin Eddie v. Cable & Wireless Systems Ltd [1989] 2 HKC 478, Godfrey JA held that :

"If you wish to escape personal liability on a contract which you sign, because you are signing it not on your own behalf but for and on behalf of a principal, named or not, you must make this clear when you sign : see Basma v Weekes [1950] AC 441."

9. What the defendant had done at the time when the 1st Agreement was entered into was to inform the plaintiff expressly that the contract was made between St Galarie and the plaintiff. If one is to consider the whole of the surrounding circumstances, then clearly this is a matter that should be taken into account.

"Where an agent contracts in his own name but not in terms which are consistent only with his having done so as principal, oral evidence may be admitted to prove the identity of the principal."

Halsbury's Laws of England at para 137.

10. In Danziger v Thompson & Others [1944] 1 KB 654, a person is described as a tenant in a written agreement for letting, it was held that oral evidence is admissible to prove that person is an agent. Lawrence J held that :

"In my opinion, the description 'tenant' no more negatives agency than would the description 'contracting party'."

Plaintiff had not disputed agency

11. In this case, the issue of agency is expressly raised by the defendant, but surprising the plaintiff has never responded to this issue by filing any evidence in reply. One would expect the plaintiff to respond if there was never any discussion on this issue. It is not the defendant's case that when the Settlement Agreement was entered into, there was a further discussion concerning the capacity in which the defendant entered into the Settlement Agreement. In my view, this is not necessarily fatal to the defendant's case in the Settlement Agreement. After all, this may well be a continuation of the contractual arrangement that the parties had agreed upon when the 1st Agreement was entered into. Certainly, it had not been stated by the plaintiff that when the Settlement Agreement was signed, it had chosen to look upon the defendant to be responsible for the purchase price under the 1st Agreement instead of St Galarie.

Triable issue on who is liable on the Settlement Agreement

12. Mr Chong submitted that the terms of the Settlement Agreement clearly stated that the plaintiff had not been paid a substantial amount of money. The defence raised by the defendant is nothing but a delaying tactic. While the plaintiff may be entitled to a substantial sum of money, who is ultimately liable for these sums has to be resolved first. This being the case, judgment should not be entered for the plaintiff. In my view, there clearly is a triable issue on whether the defendant is personally liable under the Settlement Agreement. I am not convinced that the defence raised is so incredible that it should be rejected.

It is not necessary for me to consider arguments on the question of set-off that is relied upon by the defendant in this case.

Conclusion

13. Accordingly, the appeal is allowed and the judgment is set aside. The defendant is given unconditional leave to defend the action.

Costs

14. The order nisi is that the costs before the master be in the cause of the action, the defendant is entitled to the costs of the appeal.