GABIA CO LTD v. WONG PAK WING

 DCCJ 4040/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4040 OF 2007

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BETWEEN

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JUDGMENT

Background

1.  It is not in dispute that the Plaintiff ("Gabia") entered into an agreement on 6 January 2004 ("Agreement") with a company known as Bond Motors Ltd. ("Bond") to purchase a new Mercedes Benz station wagon ("Vehicle"). The Vehicle was to be custom made, to colours specified by Gabia. Mr. Ronald Cheng is the authorized representative of Gabia, and the Defendant, Mr. Eddy Wong, is a director and shareholder of Bond. Mr. Ronald Cheng is a well-known figure in the local entertainment industry. Mr. Wong is an experienced car dealer who has been in the car dealing business for over 20 years. The parties are in dispute as to whether Bond was in breach of the Agreement in failing to deliver to Gabia a Mercedes Benz station wagon manufactured in 2005, and in particular, whether as a result of such breach on the part of Bond, Mr. Wong had personally agreed to repay to Gabia the sum of $160,000, by way of settlement or compromise of Gabia's claim against Bond for refund of the deposit of $200,000 paid by Gabia to Bond under the Agreement.

2.  The Vehicle was described in the Agreement as "Year: 2004". Under the column in the Agreement entitled "Remarks", it was specified as follows :

"Manufactured on (sic) April 2004. Fully refund if delivery after 15 July 2004."

3.  Gabia claims that in breach of the express terms of the Agreement, Bond failed to deliver the Vehicle by 15 July 2004, but that in about October 2004, Bond agreed to deliver to Gabia before 2 February 2005 a vehicle of the same make and model and of the same colour as the Vehicle, but one of 2005 manufacture ("Variation Agreement"). It is Gabia's case that the vehicle which Bond finally offered for delivery in about May 2005 was a Mercedes Benz station wagon manufactured in 2004, and not one manufactured in 2005 as had been promised and agreed under the Variation Agreement. Gabia refused to accept delivery and demanded refund of the deposit of $200,000 paid under the Agreement.

4.  Gabia claims that some time in July 2005, Mr. Abba Chan on behalf of Gabia reached agreement with Mr. Wong ("Settlement Agreement"), whereby in consideration of Gabia agreeing not to start legal proceedings against Bond in respect of its breach of contract, Mr. Wong would personally be liable to pay to Gabia a sum of $160,000 before 31 July 2005, by way of final settlement and compromise of the dispute between Gabia and Bond. Gabia claims that Mr. Wong failed to make payment of the agreed sum of $160,000.

5. By way of Defence, Mr. Wong denies that Bond was in breach of the Agreement. He claims that Gabia, acting through Mr. Cheng, had agreed with him acting on behalf of Bond to accept delivery of a facelift model of the Vehicle, with improvements and new options based on the 2005 model of the Mercedes Benz station wagon. The facelift model was generally understood to be, and referred to as, a 2005 model but was manufactured in 2004. Mr. Wong claims that he had explained this to Mr. Cheng, who had agreed to wait for the facelift model to be delivered in January 2005, before Chinese New Year.  Mr. Wong claims that it was Gabia which was in breach by failing to accept delivery of the facelift model after its arrival in Hong Kong in December 2004. Mr. Wong emphatically denies that he had ever agreed with Mr. Abba Chan that he would personally pay $160,000 to Gabia.

The Issues

6. The issues for determination at trial are:

(1) whether Bond was in breach of the Variation Agreement in failing to deliver a Mercedes Benz station wagon of the same model and colour as the Vehicle, but manufactured in 2005;

(2) whether the Settlement Agreement was concluded between Mr. Abba Chan on behalf of Gabia and Mr. Wong, whereby Mr. Wong personally agreed to pay $160,000 to Gabia.

7. The first issue identified does not in fact determine the liability of Mr. Wong, who is named as the only defendant in these proceedings. In my Judgment, this issue has more to do with the credibility of the witnesses called. Even if Gabia is right in contending that Bond was in breach of either the Agreement or the Variation Agreement, only Bond (and not Mr. Wong) is in law liable to Gabia as a result of such breach, whether to return the deposit paid, or for damages. Counsel for Mr. Wong claims that if Bond is not in breach of either the Agreement or the Variation Agreement, Gabia has not furnished good consideration for Mr. Wong's agreement to be personally liable for payment of the sum of $160,000. However, even if Gabia does not have any valid claim, or only a claim which is doubtful in law, against Bond for breach of agreement, if a genuine compromise or settlement was reached between Gabia and Mr. Wong in good faith, the compromise would still be valid and enforceable, unless there is evidence that Gabia knew that its claim was invalid (para 2-16 The Law and Practice of Compromise,  6th Edition, 2005).

Whether Bond was in breach of the Variation Agreement

8. As in any case, the onus is on Gabia, as Plaintiff, to prove its assertion of breach of contract on a balance of probabilities.  Where, at the end of the day, a plaintiff leaves the case on even scales and does not satisfy the Court that its loss is to be attributed to the fault of the other party, or if the Court is left in doubt, the plaintiff fails to discharge its burden of proof, and cannot succeed (So Fat v. Ken On Concrete Co. Ltd. unreported, CACV 193/1991, 17 July 1992).

9. Mr. Cheng does not dispute that at the time when the Agreement was made, he knew that the Vehicle he was purchasing was to be manufactured and imported into Hong Kong from overseas.  Mr. Cheng had also specified a particular and more unusual colour for the body and interior of the Vehicle (green and red).  It is also beyond dispute that Gabia was not purchasing directly from the manufacturer and official Hong Kong dealer of Mercedes Benz vehicles.  According to Mr. Wong, Mr. Cheng was introduced to him by a mutual friend of his and Mr. Cheng’s, as they knew that Mr. Wong had resources to procure a Mercedes Benz station wagon for Mr. Cheng at cost, through Mr. Wong’s contacts in the car dealing business.  It was suggested on behalf of Gabia that as Bond was a company which Mr. Wong had set up not too long before the Agreement, he was eager to make Bond’s name known in Mr. Cheng’s circle and hence agreed to procure the Vehicle for Mr. Cheng.  On the other hand, Mr. Wong claims that it was known to Mr. Cheng that his company would be placing the order for the Vehicle through another car dealer, Koon Wah Motor Cars Co. Ltd. (“Koon Wah”), at cost, without making any profit on its part, for supply to Gabia. Mr. Wong further claims that it was known to Mr. Cheng that if he were to purchase the Vehicle on the market, Gabia would have to pay a higher price and may occasion more delay.  On the evidence, it appears to me  that Bond and Mr. Wong were happy to use their contacts to secure a good deal for Mr. Cheng, and on the other hand, Mr. Cheng was equally happy to strike a good bargain.

10. The Agreement is dated 6 January 2004 and stipulated expressly that the Vehicle was to be manufactured in April 2004, for delivery by 15 July 2004.  Mr. Cheng admitted in the course of cross-examination that he had known that it would normally take at least 2 ½ months for the manufactured vehicle to be transported to Hong Kong and for the registration paperwork to be completed in Hong Kong before the car could be used on the road.  

11. There is no dispute that the Vehicle was not delivered by the date originally specified in the Agreement, i.e. 15 July 2004. It is Mr. Wong’s evidence that in May 2004, he was contacted by Mr. Li of Koon Wah, from which Bond had placed the order for the Vehicle for supply to Gabia under the Agreement.  Mr. Li informed Mr. Wong that according to their place in the queue for the Vehicle, manufacture of the Vehicle was due, and the Vehicle could be ready for delivery in July, but that a remodel of the Vehicle was expected in July 2004.  The remodeling meant that there would be some changes in the appearance of the car, and additional features and options for the 2004 model in question.  The price would remain the same, delivery would be due in January 2005, but the “renewed” model would still be considered and recorded as a vehicle manufactured in 2004. Mr. Wong explained in his testimony that it is in fact common in the trade for modifications to be made to the specifications and outlook of the make or model of a vehicle like the Mercedes once every 1 or 2 years.

12. Mr. Wong claims that on hearing the news of the remodel from Mr. Li, he did not want Mr. Cheng to have a new car delivered which would almost immediately become an outdated model.  He accordingly telephoned Mr. Cheng, to relay to him that there was a “facelift model” of the Vehicle, which would be manufactured in October 2004 if an order was placed and put in queue in July 2004.  Mr. Wong claims that he informed Mr. Cheng that the car which could be delivered in January 2005 was a 2005 model manufactured in 2004. He also explained on the telephone that the changes in the facelift model include more slanted headlights, corner-link steering and a remote controlled back bonnet. According to Mr. Wong, he asked Mr. Cheng if he would prefer to wait for the 2005 model with such “facelift” features, and Mr. Cheng said that he would wait.  It was agreed that instead of delivering the Vehicle by July 2004, Mr. Cheng would take delivery of the 2005 model in January 2005, before the Chinese New Year.

13. Mr. Cheng had no recollection of the telephone conversation to which Mr. Wong referred.  He accepted that he had been asked by Mr. Wong whether he would like to wait a few months for a new 2005 model, and that he had agreed to wait.  However, he could not remember that Mr. Wong had mentioned that there would be variations in the new model, or that it would still be a model manufactured in 2004 despite being called a 2005 model.  Mr. Cheng’s evidence is that it was only after he had received a fax from Bond in May 2005,with the chassis and engine numbers of the Vehicle which had arrived, and when Gabia was processing the insurance policy and registration licence for the Vehicle, that he discovered that the car delivered to him was a 2004 model, instead of a 2005 model as he had been promised.  He had not noticed that the documents which Bond faxed to Gabia on 9 May 2005 included references to “all new 2004” model, and to “Model Year 2005”. He had understood “2005 model” of the Vehicle to be a car manufactured in 2005.  He claims he had never queried how a car purporting to be manufactured outside Hong Kong in 2005 could be ready for delivery in Hong Kong in January 2005, or before Chinese New Year in 2005.

14. Mr. Li of Koon Wah confirmed in his evidence that he had told Mr. Wong in May 2004 that there would be a new model of the Vehicle in July 2004, with more options and features, and that Mr. Wong’s client might as well wait for the new car, which was a 2005 model manufactured in 2004.  Mr. Li claims that he was later informed by Mr. Wong that the client would wait.

15. Comparing the testimony of Mr. Cheng and Mr. Wong, I find that of Mr. Wong to be more credible and reliable.  Mr. Wong is an experienced car dealer, and I consider that he would have known that the year of manufacture of the car would be important to a purchaser, such that he would make it a point to mention to Mr. Cheng that the “facelift model” would be considered to be manufactured in 2004.  Although Mr. Cheng claims that Mr. Wong had only said to him that the vehicle to be delivered in January 2005 was a 2005 vehicle, and had not explained that there were differences in the 2004 model and the alleged 2005 model, he was only able to say at the end that he “could not remember” that Mr. Wong had told him over the telephone that there were changes in the specifications of the “facelift model” of the Vehicle, and that despite being called the “2005 model” the vehicle in question would still be manufactured in 2004.  It is in fact Mr. Cheng’s case that he was a very busy man and had left many things relating to the purchase of the Vehicle to his assistant, Toppy, and this may explain his lack of memory.  The documents which Bond faxed to Gabia on 9 May 2005 were handled by Toppy, and Mr. Cheng did not notice that they included references to “all new 2004” model, and to “Model Year 2005”. Nor could Mr. Cheng remember that Mr. Wong had called him in December to tell him that the car had arrived.  Mr. Cheng claims that Toppy had never told him that Mr. Wong had been pressing Gabia to take delivery of the car in early 2005.

16. On the entirety of the evidence, I find it incredulous that Mr. Cheng would have entered into the Variation Agreement (which even on his case was concluded in September or October 2004) on the basis that the car to be delivered in January 2005 or by Chinese New Year 2005 in place of the Vehicle was to be manufactured in 2005, when he knew or ought to have known that it would take at least 2 ½ months for a car to be manufactured and delivered in Hong Kong (as evidenced by the time schedule agreed to and specified in the Agreement).  By agreeing to the delivery date in January or before Chinese New Year 2005, Mr. Cheng must have realized that the car to be delivered to him under the Variation Agreement was manufactured in 2004.  He would have been extremely naive to believe otherwise.

17. On the evidence, I consider that it is inherently more probable that Mr. Wong had explained to Mr. Cheng, and Mr. Cheng had accepted, that the car to be delivered in January 2005 was based on the 2005 model of the Mercedes Benz station wagon but manufactured in 2004, and this was to be accepted in place of the Vehicle specified under the Agreement and meant for delivery in July 2004.

18. I also accept Mr. Wong’s evidence that the agreed replacement vehicle had arrived in Hong Kong in December 2004, and that Bond had pressed Gabia to take delivery of the replacement vehicle throughout December 2004 to May 2005.  It was only in early May 2005 that Bond was asked to send to Gabia details of the chassis and engine numbers so that Gabia could deal with the insurance policy and process the registration of the car.  Mr. Wong was informed shortly thereafter that due to the differences in the year of manufacture of the replacement vehicle and its model number, Gabia would not accept delivery.

19. To conclude, I am not satisfied on a balance of probabilities that Bond was in breach of the Agreement in failing to deliver the Vehicle by 15 July 2004.  The Agreement had been varied with the consent of both parties and replaced by the Variation Agreement, made either in May 2004 as Mr. Wong claims, or in September or October 2004 as Mr. Cheng alleges.  Nor am I satisfied on a balance of probabilities that Bond was in breach of the Variation Agreement in failing to deliver what Gabia claims was the subject matter of the Variation Agreement, a 2005 model of the Vehicle manufactured in 2005.

Whether the Settlement Agreement was concluded

20. The essential issue is whether there was a bona fide agreement reached between Mr. Abba Chan and Mr. Wong, to compromise Gabia’s claim against Bond for breach of contract.  There is no evidence to suggest that Gabia had reason to believe at the relevant time in July 2005 that its claims of alleged breach of the Agreement or the Variation Agreement were invalid, or had no basis.

21. On this issue, Mr. Chan gave evidence on his meeting with Mr. Wong and Mr. Li of Koon Wah at the Piano Bar in Happy Valley in July 2005. Mr. Chan is a trusted friend of Mr. Cheng.  Although Mr. Cheng claimed in his Statement that it was Mr. Wong who had invited Gabia to a meeting to resolve the matter, this is denied by Mr. Wong, and it is also Mr. Chan’s evidence that he had called Mr. Wong about the dispute with Gabia, and Mr. Wong agreed to his request for a meeting at the Piano Bar.  According to Mr. Chan, Mr. Cheng had informed him of Gabia’s dealings with Bond, and asked Mr. Chan to handle the matter on his behalf and to find a solution, as Mr. Cheng had no time.

22. It is Mr. Chan’s claim that he, Toppy, Mr. Wong, and Mr. Li of Koon Wah (who had accompanied Mr. Wong to the Bar) met from about 8:15 pm to 8:40 or 8:45 pm.  Mr. Chan claims that at the meeting, he had asked Mr. Wong whether he could deliver to Mr. Cheng a car manufactured in 2005.  Mr. Wong said he could not, and Mr. Chan asked for a refund of the money paid by Gabia.  According to Mr. Chan, agreement was reached whereby Mr. Wong promised, personally, to make payment to Mr. Cheng of a reduced sum of $160,000, so that Bond would not be involved.

23. Mr. Wong denies that he had personally agreed to make any payment.  He claims that there was no reason for him to assume personal liability.  He claims that if there was any breach of the Agreement or the Variation Agreement (which was denied), it was Bond which should be liable.

24. According to Mr. Wong’s evidence, Mr. Chan was moving from table to table throughout the time that they were at the Bar, and they had not discussed anything in detail.  Mr. Wong claims that Mr. Chan had come to their table on about 3 occasions during the 30 minutes that he and Mr. Li had stayed at the Bar.  Altogether, Mr. Chan had sat with them for less than 15 minutes, and throughout this time, he had done most if not all of the talking, repeating that they should give Mr. Chan face and settle the matter.  Mr. Wong claims that the venue was too noisy for any discussion, and that they had not discussed any terms of settlement.  According to Mr. Wong, no sum was mentioned during the evening at all.  Mr. Wong claims that he did not say anything when Mr. Chan asked them to give him face by settling the matter, but that did not mean that he agreed to settle. 

25. Mr. Li’s evidence is that the venue was so noisy that he could not hear much of what was said, save that he could confirm that he did hear Mr. Chan say in a loud voice that the matter should be settled.  He claims that he had not paid attention, and hence did not hear Mr. Wong say anything about assuming personal liability to Gabia or Mr. Cheng.  Mr. Li confirmed that Mr. Chan did not stay long at their table, and that any exchange that had taken place was for not more than 15 to 20 minutes.

26. The only other witness at the meeting, Toppy, was not called to give evidence.

27. The evidence of Mr. Chan and Messrs. Wong and Li are so polarized, that even on the question of the bill for the champagne consumed in the Bar, they have given different accounts. Mr. Chan claims that he had settled the bill for the evening, but Mr. Li and Mr. Wong were clear that it was Mr. Li who had to pay – much to his frustration.

28. In this case, both Mr. Chan and Mr. Wong are adamant concerning their respective accounts of the meeting.  In assessing witnesses’ credibility, and in determining the issue in this case of whether the Settlement Agreement was reached in the interval of the 15 to 30 minutes when Mr. Wong and Mr. Chan had sat together at the Bar, the Court should consider the totality of the witnesses’ evidence against the documentary evidence, and inferences based on inherent improbabilities and/or disputed facts (see the principles set out by Chung, J at para 12 of Star Glory Investment Ltd. v. Kai Tuo (H.K.) Technology Co. Ltd. & Ors. HCA 3523/2002, unreported 13 August 2005).

29. What I find to be more compelling is Mr. Wong’s claim that there was no reason whatsoever for him to have to assume personal liability in respect of the breach, if any, of Bond.  On the evidence, Bond was set up in September 2003.  It was a relatively new company.  Mr. Wong was a 50% shareholder and one of 2 directors.  Being an experienced businessman, Mr. Wong must have appreciated that as shareholder and even director of Bond, he is distinct from Bond as a legal entity, and will not have personal liability for the debts of Bond.  I cannot fathom the logic and can discern no reason whatsoever why Mr. Wong should have wished to assume personal responsibility for the corporate acts and liabilities of Bond.  As Mr. Chan was quick to point out, no pressure of any sort had been put by Gabia or  Mr. Chan on either Mr. Wong, or on Bond.  Nor is there evidence of pressure from Koon Wah in relation to the problem of the car. 

30. It goes without saying that I do not for any moment suggest that a shareholder and director can never assume the obligation and debts of a limited company. Each case must be decided on its own peculiar facts. The fact that the director in the case cited by Counsel for Gabia had commercial reason to pay the debts due from his company does not mean that other shareholders and directors will always find reason so to do. It suffices to say that as a matter of objective analysis of the facts of this case, I am unable to find that Mr. Wong has good reason to assume Bond's liabilities to Gabia.

31. In my judgment, it is inherently unlikely that Mr. Wong would have agreed to pay $160,000 out of his own pocket to Gabia, on a deal in which Bond had no profit in the first place.  It follows that I must reject Mr. Chan’s contention that the Settlement Agreement had been reached at the Piano Bar, as claimed.  Overall, I find Mr. Wong’s evidence on the meeting to be more credible and inherently probable.   

32. I would just add that it is totally unsafe to rely on the hearsay evidence of the newspaper report of what Mr. Cheng and one salesman surnamed Wong had allegedly said to the reporter, who was not called.  Nor does the report contain any matter which, in my Judgment, is material in deciding the central issues in the case.

Conclusion

33. As Gabia has failed to discharge its burden of proof, I dismiss the action and make an order nisi that the costs of the action are to be paid by Gabia to Mr. Wong, with certificate for Counsel, to be taxed if not agreed.