CHIA MENG CO LTD AND ANOTHER v. TANA TANGWONGCHAI AND OTHERS

HCA 861/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 861 OF 2009

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BETWEEN

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J U D G M E N T

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Introduction

1.  This is a dispute involving the sale by the plaintiffs of very substantial quantities of rice from Thailand.  The sale of goods contracts (“the Contracts”) were entered into in August, September and November 2006.  The rice was all destined for delivery to Shenzhen, PRC.  Delivery took place sometime between September 2006 and February 2007.  The total contract price was in excess of US$30 million.  Only a small portion of it, about US$4.26 million, had been paid. 

Background

2.  Both plaintiffs are companies incorporated in Thailand.  At the material time, they were affiliated companies within the Chia Meng group of companies (“Chia Meng Group”), one of Thailand’s top ten rice exporters. 

3.  The 1^st defendant (“Mr Tana”), also known as Richard Tang, is an ethnic Chinese, born and brought up in Thailand.  At the material time, Mr Tana had business interests in inter alia Hong Kong and Thailand.  Mr Tana is Thai, Mandarin Chinese and English speaking. 

4.  The 2^nd defendant (“HK Chiva”), 3^rd defendant (“Jessy James HK”) and 4^th defendant (“Joy Rich”) are all companies incorporated in Hong Kong.  At the material time, these three companies were Mr Tana’s vehicles for business. 

5.  According to the Hong Kong Companies Registry records placed before this court, Mr Tana had been one of the directors and shareholders of :

(1)  Jessy James HK since at least June 2003;

(2)  Joy Rich since mid November 2005; and

(3)  HK Chiva since mid December 2005. 

6.  Subsequently, these three Hong Kong companies successively became wholly-owned by Mr Tana:

(1)  Jessy James HK in September 2006;

(2)  Joy Rich on 30 November 2006; and

(3)  HK Chiva on 24 January 2007. 

7.  As far as Joy Rich was concerned, before Mr Tana joined the company in mid November 2005, it was wholly owned by a Mr Yang Chi Wai (“Mr Yang”), also known as Oukeo Thao Kham, also known as Yang Jiwei, who was also its director.  Mr Yang dropped out of the company as director and shareholder a year later on 30 November 2006 when it became wholly owned by Mr Tana.  Between November 2005 and November 2006, Joy Rich had altogether three shareholders and directors: Mr Yang, Mr Tana and a Sitkrongwong Ekachai. 

8.  In Thailand, Mr Tana conducted business through a company by the name of Jessy Tames Corporation Limited (“Jessy James Thailand”). 

9.  The 5^th defendant (“STCM”) is a company incorporated under the laws of the PRC on 6 April 2006.  Its two original registered shareholders were “方澤萍” Fang Ze Ping (“Irene Fang”) and “馬振強” Ma Zhenqiang (“Mr Ma”).  According to STCM’s business licence dated 6 June 2006, Irene Fang was also its sole legal representative. 

10.  The official records of STCM show that on 31 July 1007, Irene Fang and Mr Ma transferred all their shares in STCM to Jessy James HK for RMB1 million.  The transfer of the shares, and the appointment of Mr Tana as STCM’s sole legal representative in place of Irene Fang, was approved by the relevant Shenzhen authorities by a notice dated 1 August 2007. 

Issues

11.  The plaintiffs’ principal claims are for the outstanding purchase price against HK Chiva, Joy Rich and STCM as buyers under the Contracts in the total sum of US$26,433,357.60 as follows:

(1)  The 1^st plaintiff claims:

(a) Against HK Chiva – US$1,054,403. 

(b) Against Joy Rich – US$9,823,124. 

(c) Against STCM – US$2,353,788. 

(2)  The 2^nd plaintiff claims:

(a) Against HK Chiva – US$8,741,402.60.  

(b) Against Joy Rich – US$4,460,640. 

12.  Further, the plaintiffs seek damages from Mr Tana equivalent to the total unpaid value of the rice delivered by the plaintiffs to HK Chiva, Joy Rich and STCM ie US$26,433,357.60, on the basis that they had been induced by a number of misrepresentations to deliver the rice under the Contracts. 

13.  The representations were said to have been made by sending to the plaintiffs a number of what appeared to be executed contracts whereby STCM agreed to sell large quantities of Thai rice to Shenzhen Cereals Group Co Ltd (“Shenzhen Cereals”), a large and reputable state-owned enterprise in the rice business.  

14.  On the plaintiffs’ case, the commercial significance of these purported contracts with Shenzhen Cereals, which were numbered “G-0047”, “G-0048”, “G-0049”, “G-0070” and “G-0071”, (“Shenzhen Cereals contracts”) was that they gave the plaintiffs the “comfort” of knowing that the relevant defendants had secured a big customer in the PRC for the rice, thereby providing the means for the payment of the purchase price to the plaintiffs.  The plaintiffs’ board of directors had resolved that STCM must enter into what they described as back-to-back contracts with Shenzhen Cereals and had told STCM that, otherwise, the plaintiffs would not make any delivery.  

15.  It should be noted that, under the Contracts, the buyers were not required to open letters of credit or provide other means of guaranteeing payment of the price.  The “comfort” of these Shenzhen Cereals contracts, whatever their worth, was all that the plaintiffs had when they shipped tons and tons of rice from Thailand.  The plaintiffs’ case was that the representations were false in that the Shenzhen Cereals contracts were all forged and Shenzhen Cereals had not entered into any contracts with STCM at all for the purchase of rice.  

16.  The plaintiffs’ claim in damages against Mr Tana was put on the basis of deceit and deceit alone ie Mr Tana fabricated or caused to be fabricated the Shenzhen Cereals contracts and presented them to the plaintiffs as genuine documents. 

17.  There is no claim in damages for misrepresentation or deceit against STCM. 

18.  The defendants’ pleaded defence is simple: it is one of complete denial. 

19.  As far as Mr Tana, HK Chiva, Jessy James HK and Joy Rich are concerned, they jointly deny:

(1)  being involved in any of the Contracts;

(2)  having made any contracts with the plaintiffs for the purchase of rice;

(3)  the plaintiffs had delivered any rice to them;

(4)  having knowledge of any representation that Shenzhen Cereals had agreed to buy rice from STCM, if such representation had been made;

(5)  the plaintiffs’ reliance on such representations was valid or reasonable. 

20.  Specifically, Mr Tana denies:

(1)  he had caused STCM, or anyone within STCM, to send the Shenzhen Cereals contracts to the plaintiffs;

(2)  he was involved in any transaction between Shenzhen Cereals and STCM;

(3)  having made or being involved in any representations that Shenzhen Cereals had agreed to buy rice from STCM;

(4)  if any such representation had been made, having any knowledge of it;

(5)  having had the telephone conversations or reached any oral agreement with Mrs Prapit in relation to the Contracts;

(6)  having had control of STCM or its employees at the time the representations or the Contracts were made;

(7)  he was involved in the fabrication of the Shenzhen Cereals contracts. 

21.  As for STCM, it appears from the defence that its case is also one of general denial or non-admission.

22.  The only positive case put forward in the defence is that between February 2006 and July 2007, HK Chiva and Joy Rich had been used by Mr Yang to make various payments to the plaintiffs totaling US$5.184 million odd. 

23.  The principal issues at this trial are:

(1)   Who were the buyers under the Contracts responsible for the payment of the purchase price?

(2)   What was the outstanding purchase price due under the Contracts?

(3)   Whether the plaintiffs had been induced by representations to enter into and deliver the rice under the Contracts? 

(4)   Who made those representations? 

(5)   Were those representations false?  

(6)   What should be the plaintiffs’ remedies?

The witnesses – general observations

24.  At trial, the plaintiffs called two witnesses:

(1)   Mrs Prapit Manathanya (“Mrs Prapit”), managing director of the 1^st plaintiff, and responsible for the rice production of the Chia Meng Group. 

(2)   Mr Dhanakorn Jittangboonya (“Mr Dhanakorn”), general manager of the 1^st plaintiff. 

25.  Pursuant to leave granted by Master Levy on the first day of trial, HK Chiva, Jessy James HK and Joy Rich were represented by Mr Tana.  Mr Tana testified for himself and these three companies. 

26.  I have carefully considered the testimony, as well as the demeanour, of all three witnesses, and assessed it against the documentary evidence and the known and undisputed surrounding circumstances of this case.  I have in particular considered the inherent probabilities or otherwise of the parties’ respective contentions, and assessed the witnesses’ credibility accordingly. 

27.  I find Mrs Prapit generally a truthful witness.  She gave her evidence clearly and calmly and her response to questions were mostly direct.  Her recollection of events, especially the dates, may at times be faulty but I would not attribute that to anything other than the natural effect of passage of time.  Her credibility has withstood the test of cross-examination. 

28.  I find Mr Dhanakorn a truthful and excellent witness.  His answers to questions are always direct and to the point.  His credibility has not been effectively challenged in cross-examination. 

29.  As for Mr Tana, I find him unforthcoming, sometimes evasive, when he testified in court.  I shall give one or two illustrations. 

30.  First, in his witness statement, Mr Tana stated that subsequent to February 2006, Mrs Prapit went to Shenzhen again and asked him to help her set up a company in Hong Kong which he duly did.  Other than that, he had no further involvement in any rice business talk with the 1^st plaintiff as Mrs Prapit had direct contact with Mr Yang.  In court, Mr Tana was asked whether he was in Shenzhen in July 2006 and met with inter alia Mrs Prapit and Mr Mei of Shenzhen Cereals (as to which see paragraphs 58 to 60 below).  His initial answer was that he in fact did not know about that July visit by Mrs Prapit.  Later, his answer was he had once seen Mrs Prapit and others at STCM’s new premises in Shenzhen and had a meal with them, but he had not discussed any business with Mrs Prapit. Then, Mr Tana was shown an email dated 28 July 2006 from Mr Dhanakorn to Mr Soumeth which referred to “the hospitality given by Mr Yang, Mr Thana, Mr Ma, Ms Fong and all the staff”(emphasis added).  The email clearly suggested a meeting between Mrs Prapit/Mr Dhanakorn and Mr Tana, Mr Yang and other staff of STCM in Shenzhen earlier that month.  Mr Tana eventually accepted that he had met Mrs Prapit et al in Shenzhen but he still insisted that he did not know which month it was. 

31.  Another example is that in court, Mr Tana insisted that he and Mr Yang had never done any business together, although for a short period of time, they had held shares in the same company (referring obviously to Joy Rich).  Whereas in his witness statement, Mr Tana had admitted that he and Mr Yang had discussed the possibility of doing some rice business together and the initial idea was to purchase rice from Thailand and resell it in the PRC whereby they would earn a profit margin of 3-5%.  This discussion eventually led to the First Sale, referred to in the next Section. 

32.  I also find parts of Mr Tana’s evidence beyond the realms of probabilities.  I have already pointed out in the preceding paragraph Mr Tana’s insistence that he and Mr Yang had not done business together.  Another example is Mr Tana’s assertion that after February/March 2006, the plaintiffs and Mr Yang decided to cut him out and, because of that, he had no further involvement with either the plaintiffs or Mr Yang in the rice business: see paragraphs 72-4 below.  I find the positions taken by Mr Tana untenable and unbelievable.  The reasons will become apparent later in this Judgment. 

33.  For these reasons, and for reasons to be elaborated below, I have considerable reservation about Mr Tana’s testimony.  On balance, whenever there is a direct conflict between Mrs Prapit/Mr Dhanakorn’s testimony and that of Mr Tana, I would be inclined to prefer the former. 

34.  Lastly, the 5^th defendant, STCM, was not legally represented and was absent throughout the trial. 

First sale of rice to Mr Tana (“First Sale”)

35.  Before I go into the principal issues, I wish to sidetrack to consider a couple of events which preceded the Contracts in question, and set out my findings in relation to them.  These events do have some bearing on my conclusions with regard to the principal issues. 

36.  It is common ground that prior to the Contracts in question, the 1^st plaintiff had sold some rice to one of Mr Tana’s companies and the transaction proceeded smoothly. 

37.  Mrs Prapit testified that she first met Mr Tana in November 2005 at the office of Jessy James Thailand which was located in a country club resort.  The meeting was set up because Mr Tana wanted to buy some rice for sale to China.  At the meeting, Mr Tana proposed to buy rice in the name of Jessy James Thailand from the 1^st plaintiff. 

38.  After the meeting, the 1^st plaintiff sent a quotation to Mr Tana for acceptance by Jessy James Thailand, which he duly did.  But before delivery, Mr Tana called Mrs Prapit and asked for the buyer’s name to be changed to Joy Rich, as it would be more convenient for him to transfer money from Hong Kong to pay for the rice. 

39.  There was some confusion in the evidence of Mrs Prapit as to whether the total value of rice sold by the 1^st plaintiff to Joy Rich was  US$1,435,339 or US$3,152,240.80.  Eventually, Mrs Prapit accepted in court that the former figure should be the correct one. 

40.  As this was the 1^st plaintiff’s first business with Mr Tana, it requested that the payment of the price be guaranteed, which was provided by cheques issued by Jessy James Thailand in the total sum of US$1,435,339.  Eventually, the 1^st plaintiff received full payment of the purchase price from Joy Rich. 

41.  Although they differed in their recollection of the details, Mr Tana’s evidence on the material aspects of this First Sale was consistent with Mrs Prapit’s testimony.  Suffice it for me to rule on balance of probabilities, which I now do, that what happened with regard to the First Sale was this: sometime in November 2005, Mr Tana and Mrs Prapit conducted their negotiation at the office of Jessy James Thailand; the buyer under this First Sale was initially Jessy James Thailand, and security in the form of a cheque or cheques were provided to the 1^st plaintiff; Mr Tana subsequently requested the 1^st plaintiff to change the name of the buyer to Joy Rich as this would facilitate the payment of the purchase price directly by Joy Rich in Hong Kong; accordingly, Joy Rich became the contracting party under this First Sale and was responsible for the payment of the price; eventually, the 1^st plaintiff received full payment of the purchase price. 

42.  As admitted by Mr Tana in his statement which he tried to retract in court, the First Sale was a joint business venture between him and Mr Yang.  Indeed, according to Mr Tana, it was Mr Yang who suggested to him to approach the 1^st plaintiff with a view to purchasing rice from Thailand for resale in the PRC, and it was also Mr Yang who asked him to request the 1^st plaintiff to change the contracting party from Jesse James Thailand to Joy Rich. 

43.  It is apparent that in this joint rice business, Mr Tana and Mr Yang intended to use and did use companies that they jointly or separately owned as vehicles for business, and the choice was largely a matter of expedience.  Hence, the original vehicle used as the contracting party for this joint business was Jesse James Thailand.  But this business vehicle could be changed and was changed to Joy Rich, a company in which Mr Tana and Mr Yang were two of the three shareholders and directors back in November 2005. 

44.  In early February 2006, after all the rice under the First Sale had been delivered, Mr Tana invited the management of the Chia Meng Group to visit Shenzhen to observe the rice market there.  The Chia Meng Group’s management accepted the invitation and sent a delegation to Shenzhen consisting of Mrs Prapit, Mr Taval, Chairman of the 1^st plaintiff, two directors of the 2^nd plaintiff and a Mr Dennis Ding (“Mr Ding”), the sales and overseas marketing manager of the 2^nd plaintiff. 

45.  When the delegation was in Shenzhen, Mr Tana introduced Mr Yang to them as his friend and business partner, and also his sales manager handling his rice business in PRC.  Mr Tana and Mr Yang took the delegation to the office of Shenzhen Fruit and Vegetables Company Ltd, a state-owned company, and introduced Irene Fang and Mr Soumeth Kamwongsa (“Mr Soumeth”) to them.  Irene Fang was a Chinese national said to be working for Mr Yang, while Mr Soumeth was introduced as an import manager working for both Mr Tana and Mr Yang. 

46.  During that visit, Mr Tana and Mr Yang gave a presentation to the delegation about their business plan to develop a rice market in the PRC for the Chia Meng Group.  According to the plan, the Chia Meng Group would supply rice to Tian Di Co Ltd (“Tian Di”), a Chinese state-owned enterprise, for distribution to supermarkets, and Mr Tana wished to set up a joint venture company with the Chia Meng Group to invest in this business.  Mr Tana and Mr Yang took the delegation to see the rice market in Shenzhen, visited various department stores to observe Tian Di’s distribution business, and met Tian Di’s executives over a meal.  

47.  What I have set out above is a summary of Mrs Prapit’s evidence on this February visit to Shenzhen. 

48.  On the other hand, Mr Tana’s evidence on what happened during this visit was rather brief and vague.

49.  According to him, in February 2006, Mrs Prapit came with a delegation to Shenzhen and visited Mr Yang and him.  Mr Yang took them to see the market place and his vegetables company.  Mr Yang also took the delegation and Mr Tana to see the people of Tian Di, a company which Mr Tana denied having any business with.  Mr Yang introduced his staff Irene Fang to Mrs Prapit.  During the said visit, they had discussion on exploring business opportunity, but it was Mr Yang who did most of the talking.  Mr Tana denied mentioning to Mrs Prapit of any 3 years’ plan for the 1^st plaintiff to get into the China market as she alleged. 

50.  It is worth noting that Mr Tana accepted in court that it was he who invited the Chia Meng Group to visit Shenzhen (albeit he insisted it was Mr Yang who asked him to send the invitation) in order to introduce the rice market there to the plaintiffs, and that it was he who introduced Mr Yang to the plaintiffs while they were in Shenzhen.  Further, in his evidence, Mr Tana did not specifically deny during that visit, a joint presentation was given to the delegation about their business plan to develop a rice market in the PRC for the Chia Meng Group. 

51.  I am satisfied on balance that Mrs Prapit’s description of this visit is truthful and I accept her testimony as summarized above.  This February visit reinforces my view that the First Sale was only the beginning and that Mr Tana and Mr Yang intended to continue their joint rice business in collaboration with the Chia Meng Group after the First Sale. 

52.  Just to complete the picture, shortly after the February trip, Mrs Prapit and others went to Shenzhen again in March 2006 to meet with Mr Tana.  The purpose of the visit was to register a new company in Hong Kong and to open a bank account for this new company.  It is accepted by Mr Tana that he did take them to Hong Kong to register the new company.  I do not find anything significant about this trip which assists my deliberation on the factual issues in this case. 

The claim in contract

53.  I now come back to the Contracts. 

Contracts for Thai Hom Mali rice of the 2004/2005 crop

54.  The first two Contracts were in respect of 30,000 MT of Thai Hom Mali rice of the 2004/2005 crop (“the 04/05 rice”), hence the frequent reference by the plaintiffs’ witnesses to the 04/05 rice as “Old Rice” and the Contracts as the “Old Rice Contracts”. 

55.  Their terms were recorded in two written sales contracts dated 16 August 2006 ie the 1^st plaintiff’s written Sales Contract No 0608000635 countersigned by STCM for 19,998 MT and the 2^nd plaintiff’s written Sales Contract No 0608001272 countersigned by STCM for 9,998 MT.  The purchase price was US$458 per MT FOB Bangkok or Laem Chabang. 

56.  Clearly, the original contracting parties were the 1^st and 2^nd plaintiffs as sellers and STCM as buyer. 

57.  According to Mrs Prapit’s testimony, the way in which these two contracts came about is this. 

58.  In July 2006, she made a visit to Shenzhen together with Mr Dhanakorn and Mrs Nayapak, the finance manager of the 1^st plaintiff.  The purpose of the trip was to follow up with Mr Tana about outstanding payments from the First Sale.  Mrs Prapit’s delegation met Mr Tana and Mr Yang at STCM’s premises which had just been newly set up and renovated.  They were shown around the new premises and introduced to Mr Ma.  They sat in the office that Mr Tana occupied, discussed the outstanding payments from the First Sale, which Mr Tana and Mr Yang said would be settled promptly.  

59.  When the discussion turned to importing rice into China, Mr Yang said he would like to introduce to the plaintiffs high level executives from Shenzhen Cereals, in particular, a Mei Guo Hui (“Mr Mei”), the third highest ranking executive at Shenzhen Cereals, who was also a minister.  In front of Mrs Prapit, he called Mr Mei and asked him to come to STCM’s office, and within half an hour, Mr Mei arrived. Mr Mei told Mrs Prapit’s delegation that the inventory of Shenzhen Cereals was short of 30,000 to 40,000 MT of rice, whereas Mrs Prapit told Mr Mei that the Chia Meng Group had about 40,000 MT of old rice left over from the 2004/2005 stock which they could sell.  Mr Mei was interested.  They discussed some preliminary terms, and Mr Mei asked to see samples of the rice, and they agreed to meet a second time.  

60.  As Mr Yang was Thai and Mandarin Chinese speaking, he acted as the interpreter for Mrs Prapit and Mr Mei throughout their discussion.  As for Mr Tana, during Mrs Prapit’s discussion with Mr Yang, and later Mr Mei, he stepped in and out of his office, and was well aware that the parties were discussing the sale of rice toShenzhen Cereals.   

61.  Later in July 2006, Mrs Prapit went to Shenzhen again.  It is common ground that Mr Tana did not go along.  While in Shenzhen, Mrs Prapit met with Mr Yang and Mr Mei at STCM’s premises.  With Mr Yang as the interpreter, she negotiated and eventually agreed with Mr Mei to sell to Shenzhen Cereals 30,000 MT of the 04/05 rice at US$460 per MT.  She said Mr Yang asked for a “management fee” of US$2 per MT to be paid to STCM for this deal.  What I think she meant was that Mr Yang demanded a commission for brokering this deal. 

62.  When Mrs Prapit went back to Thailand, she asked Mr Dhanakorn to prepare a written quotation and send it to Mr Yang for Shenzhen Cereals to sign.  The quotation shown to this court was identified as Sales Quotation No 026/2006 (Revision #1) dated 4 August 2006, addressed to “Shenzhen Cereals Group Co Ltd” It was in respect of 30,000 MT of “Thai Hom Mali 100% Grade B Old Crop, 92% (as per sample)” at US$458 per MT. 

63.  When the quotation was returned, it was signed by Mr Yang on behalf of STCM, and affixed with a STCM chop.  Mrs Prapit spoke to Mr Yang on the phone shortly afterwards and she told him it was not right for him to sign the quotation because the buyer was Shenzhen Cereals.  She also asked him to get Shenzhen Cereals to sign the quotation.  Mr Yang explained that Shenzhen Cereals wanted STCM to act as the buyer instead, and would in turn buy the rice from STCM, for various reasons which I need not recite.   

64.  After speaking to Mr Yang on the phone, Mrs Prapit then discussed this issue at a meeting of the plaintiffs’ board of directors.  The exact date of this meeting is unclear from the evidence.  The directors all took the view that for such a large transaction, STCM would need a confirmed buyer for the rice in the PRC so that the plaintiffs would have the assurance that STCM could pay for it.  They resolved that STCM must enter into a back-to-back contract with Shenzhen Cereals to buy all the plaintiffs’ rice.  They thought Shenzhen Cereals was a large state-owned enterprise and would be unlikely to renege on payment. 

65.  Mrs Prapit then called Mr Yang and Irene Fang about the resolution of the plaintiffs’ board of directors, and told them that without the back-to-back contract with Shenzhen Cereals, the plaintiffs would not deliver any rice to STCM.  Mrs Prapit said she also called Mr Tana and told him about the change of the buyer to STCM.  Mr Tana was aware of it, and Mrs Prapit told him the plaintiffs’ requirement of a back-to-back contract before they would go ahead with the sale of the rice to STCM. Mr Tana said he would get Mr Yang to arrange it. 

66.  On 19 August 2006, Mr Dhanakorn received an email from Mr Soumeth, STCM’s import manager, an email attaching a copy of an executed contract in Chinese dated 8 August 2006 whereby STCM agreed to sell to Shenzhen Cereals 30,000 MT of the 04/05 rice at RMB 4,400 per MT (“Shenzhen Cereals contract G-0047”). 

67.  Meanwhile, the plaintiffs had prepared a revised Sales Quotation No 026/2006 (Revision #2) addressed to STCM and sent it to Mr Yang.  This revised Sale Quotation was dated 5 August 2006. 

68.  Subsequently, the Plaintiffs prepared the two written Sales Contracts No 0608000635 and No 0608001272 referred to in paragraph 55 above on the terms of this revised Sales Quotation.  Mr Yang countersigned both contracts on behalf of STCM.  Both contracts were dated 16 August 2006. 

69.  On Mrs Prapit’s account, it was after Mr Ding had examinedShenzhen Cereals contract G-0047, and being satisfied that it was in good order, that the plaintiffs’ board of directors decided to go ahead with the deal with STCM.  Mr Dhanakorn then prepared the Sales Quotation No 026/2006 (Revision #2), and then the two written Sales Contracts referred to above. 

70.  In my view, this part of Mrs Prapit’s recollection is likely to be mistaken.  If the plaintiffs’ board of directors had agreed to accept STCM as the new buyer only after receiving Shenzhen Cereals contract G-0047, then the Sales Quotation No 026/2006 (Revision #2) and the two written Sales Contracts must have been prepared on or after 19 August 2006.  In that event, these documents would have been dated on or after 19 August 2006.  In fact, they were dated 5 and 16 August 2006 respectively.  There was no inherent reason why the plaintiffs or Mr Dhanakorn should backdate the quotation to 5 August 2006 or the two written Sales Contracts to 16 August 2006.  None have been put forward. On balance, I prefer what was recorded in the contemporaneous documents, rather than a witness’s understandably imperfect recollection of dates of events which took place years ago, even though I accept Mrs Prapit as generally an honest witness. 

71.  Indeed, Mr Dhanakorn frankly admitted in court that the plaintiffs received the Shenzhen Cereals contract G-0047 only after they had received the two written Sales Contracts from STCM.  He was insistent that without the Shenzhen Cereals contract G-0047, the plaintiffs would cancel the two contracts with STCM. 

72.  On the other hand, Mr Tana’s evidence was that after helping Mrs Prapit to set up a company in Hong Kong, presumably in March 2006, he had no further involvement in any discussion with the plaintiffs regarding the purchase of rice as they had direct contact with Mr Yang.  The impression that he wished to convey was that the plaintiffs and Mr Yang deliberately cut him out of the rice business altogether.  While Mr Tana denied having the telephone conversation with Mrs Prapit about the change of the buyer to STCM and the plaintiffs’ requirement of a back-to-back contract, he did not specifically challenge Mrs Prapit’s evidence that he was present during her first visit to Shenzhen in July 2006 described above.  In fact, during his own cross-examination, Mr Tana eventually accepted that he had met Mrs Prapit and others in Shenzhen at STCM’s new premises but he insisted that he did not know which month it was: see paragraph 30 above. 

73.  Mr Tana’s assertion that the plaintiffs and Mr Yang wanted to cut him out and, because of that, he had no further involvement in the rice business, does not bear the slightest scrutiny.  

74.  For one, Mr Yang would not have used HK Chiva and Joy Rich to make payments to the plaintiffs for the rice.  On Mr Tana’s own pleaded case, there were more than a dozen of such payments which lasted until July 2007.  If Mr Yang had wished to cut Mr Tana out from what was supposed to be their joint rice business, he would have kept his dealings with the plaintiffs secret from Mr Tana.  Using companies in which Mr Tana was a director and shareholder was hardly consistent with the objective of secrecy.  For another, if Mr Tana had known that his business partner, Mr Yang, dealt with the plaintiffs without him, he would not have allowed the two companies to be Mr Yang’s “paying agents” for such a long period of time.  It might be recalled that Mr Tana became the sole shareholder of Joy Rich in November 2006 and HK Chiva in January 2007.  He had the means to stop the two companies from being used for Mr Yang’s own purposes.  Further, common sense dictates that he would at least have made a fuss with Mr Yang. Yet there was no evidence of any fallout between him and Mr Yang at that time. 

75.  I am satisfied on balance that Mrs Prapit’s account of the events leading to the two Old Rice Contracts, other than the part referred to in paragraph 69 above, was truthful.  I am satisfied that the plaintiffs had initially negotiated with Shenzhen Cereals on the sale of the 04/05 rice but eventually entered into binding contracts with STCM as the buyer.  The plaintiffs required STCM to enter into back-to-back contracts with Shenzhen Cereals and made this requirement known to STCM and Mr Tana.  On 19 August 2006, after they had entered into binding contracts with STCM, the plaintiffs received the Shenzhen Cereals contract G-0047 from STCM. 

76.  In particular, I am satisfied that Mr Tana was present during the first July 2006 visit by the plaintiffs to Shenzhen.  Mr Tana’s presence during the discussion between Mrs Prapit, Mr Yang and Mr Mei at the premises of STCM and his knowledge of their discussion was significant in that it is consistent with the notion that he and Mr Yang were still in the rice business together, and inconsistent with Mr Tana’s extravagant claim that he had no further involvement in the rice business by then. 

Shipments under the Old Rice Contracts

77.  The plaintiffs commenced shipment of the 04/05 rice from Thailand to Shekou, Shenzhen in late August / early September 2006.  The shipments were amply supported by a massive amount of shipping documentation.  With a few exceptions, a comprehensive set of shipping documents would include an invoice, a bill of lading, a packing list, a certificate of weight/quality, a certificate of packing, a certificate of fumigation, a certificate of pesticide residues, a health certificate of containers and a certificate of crop year. 

78.  As far as the 1^st plaintiff was concerned, the first shipment was evidenced by a bill of lading dated 1 September 2006.  The invoice no CM309/2006 was dated 1 September 2006 and addressed to STCM.  It covered 2,200 MT of the 04/05 rice in the total amount of US$1,007,600.  The price per MT stated on the invoice was US$458, as stated in the two Old Rice Contracts.  There were six shipments from the 1^st plaintiff to STCM.  The last shipment was evidenced by a bill of lading dated 17 September 2006.  The invoice no CM348/2006 was dated 17 September 2006 and covered 1,518 MT of the 04/05 rice in the total amount of US$695,244. 

79.  The total amount of the 04/05 rice shipped by the 1^st plaintiff to STCM was US$4,665,188. The 1^st plaintiff accepted that it had received part payment of US$2,311,400.  The 1^st plaintiff therefore claims the outstanding balance of US$2,353,788 from STCM. 

Change of identity of buyer to Joy Rich

80.  After the first six shipments, the buyer shown on the 1^st plaintiff’s invoices as well as other shipping documentation was changed to Joy Rich.  The first such shipment was evidenced by a bill of lading dated 26 September 2006.  The invoice no CM358/2006 was dated 26 September 2006 and covered 1,540 MT of the 04/05 rice in the total amount of US$777,700.  There were eight shipments from the 1^st plaintiff to Joy Rich.  The last shipment was evidenced by a bill of lading dated 3 November 2006.  The invoice no CM402/2006 was dated 3 November 2006 and covered 1,012 MT of the 04/05 rice in the total amount of US$511,060. 

81.  As far as the 2^nd plaintiff was concerned, there was no shipment to STCM at all.  Instead, there were altogether seven shipments to Joy Rich.  Its first shipment was evidenced by a bill of lading dated 3 November 2006.  The invoice no B2541/06 was dated 8 November 2006 and covered 1,188 MT of the 04/05 rice in the total amount of US$599,940.  The last shipment was evidenced by a bill of lading dated 1 December 2006.  The invoice no B2786/06 was dated 2 December 2006 and covered 1,540 MT of the 04/05 rice in the total amount of US$777,700. 

82.  So, the question is: how did the change of the buyer from STCM to Joy Rich come about?

83.  The explanation given by Mrs Prapit was that after three shipments of the 04/05 rice, Mr Tana told Mrs Prapit on the phone that he would like to change the buyer for the rice which had not been shipped.  For the Hom Mali rice, including the 04/05 rice, the identity of the buyer was changed from STCM to Joy Rich.  For the Pathumthani rice (“Pathum rice”), the identity of the buyer was changed from STCM to Hong Kong Chiva.  Mr Tana told her that the reason for these changes was to make it easier to transfer money out of Hong Kong, instead of China, to pay for the rice.  

84.  The reference to Pathum rice is a reference to the contract for the sale of 33,000 MT of Pathum rice by the 2^nd plaintiff, detailed in the next Section. 

85.  The natural and more probable explanation for the change in the identity of the buyer to Joy Rich is that a request for the change had been made to the plaintiffs.  On balance, I am satisfied that Mr Tana was the person who made the request.  He resided in Thailand and, by reason of his proximity to the plaintiffs and his common language with Mrs Prapit, was the natural person to make the request, among the two directors of Joy Rich.  Even if I am wrong on that, I am satisfied that Mr Tana was well aware of the request to change the buyer to Joy Rich and had consent to it being made.  Consistent with Mr Tana and Mr Yang’s mode of operation in the First Sale, it seems a matter of expedience which corporate vehicle they chose to use to act as a buyer from the plaintiffs.  In the First Sale, the buyer was changed from Jessy James Thailand (Mr Tana’s own company) to Joy Rich (co-owned by Mr Tana and Mr Yang) to facilitate payment from Hong Kong direct.  There is nothing out of the ordinary for them to follow the same practice this time round, and changed the buyer from STCM to Joy Rich, for the same reason. 

86.  Among the documentary evidence was an email dated 18 September 2006 from Mr Soumeth (as import director of STCM) to Mr Ding, attaching a table with information on which lot of rice should be delivered and billed to which company.  The email stated inter alia that for the Thai Hom Mali rice ie 04/05 rice and 05/06 rice (as to which see paragraph 93 below), all bills must be sent to Joy Rich. Unless there was a scheme to defraud Joy Rich so as to make it liable to pay for rice which was in fact purchased by and shipped to STCM (and none has been pleaded), Mr Soumeth would not have sent that email to the plaintiffs without the knowledge and consent of both Mr Yang and Mr Tana: in September 2006, both Mr Tana and Mr Yang were directors of Joy Rich. 

87.  In the same email, Mr Soumeth also stated that for the Pathum rice, all bills must be sent to HK Chiva.  Again, unless there was a scheme to defraud HK Chiva so as to make it liable to pay for rice which it did not purchase and had not received (and none has been pleaded), Mr Soumeth would not have sent that email to the plaintiffs without the knowledge and consent of Mr Tana.  At that time, only Mr Tana (but not Mr Yang) was a director of HK Chiva.  Mr Soumeth could not have taken any action in the name of HK Chiva without the blessing of Mr Tana. 

88.  Further, it is Joy Rich’s own case that it (and HK Chiva) had made various payments to the plaintiffs between February 2006 and July 2007 in the total sum of US$5.184m.  I shall disregard those four payments made in February and May 2006 for the time being as they could not possibly relate to any of the Contracts in question. The schedule of payments pleaded in the Defence showed that Joy Rich had made nine payments to the plaintiffs after 30 November 2006, when it became wholly-owned by Mr Tana.  It seems to me inconceivable that Mr Tana would have allowed or acquiesced in those payments unless he and Mr Yang were in the rice business together, and they both consented to Joy Rich taking over as the buyer under the two Old Rice Contracts.  

89.  My conclusion is therefore that for the two Old Rice Contracts, the buyer had been changed to Joy Rich with the consent of two of its directors viz Mr Yang and Mr Tana, and Joy Rich is liable for the price. 

90.  In all the 1^st plaintiff’s and 2^nd plaintiff’s invoices to Joy Rich, the price per MT was stated to be US$505.  This is to be contrasted with the price stated in the Sales Quotation and the two Old Rice Contracts, which was only US$458. 

91.  Counsel for the plaintiffs has not been able to refer this court to any part of the evidence which explained when, how and between whom the increase in the purchase price from US$458 to US$505 per MT was agreed. If the plaintiffs and Joy Rich had indeed agreed to increase the purchase price of the 04/05 rice, this is something which the plaintiffs should adduce direct evidence on, instead of asking the court to draw an inference in their favour from the invoices.  In these circumstances, I am not satisfied that the plaintiffs have proved that US$505 per MT was the revised purchase price for the 04/05 rice, as agreed with Joy Rich.  

92.  The total quantities of the 04/05 rice shipped by the 1^st plaintiff and 2^nd plaintiff to Joy Rich were 9,812 MT and 9,328 MT respectively.  

(1)   On the basis of US$458 per MT, the 1^st plaintiff’s total claim against Joy Rich should be US$4,493,896.  The 1^st plaintiff accepted that it had received part payment of US$1,262,416.  The balance due should be US$3,231,480. 

(2)   On the basis of US$458 per MT, the 2^nd plaintiff’s total claim against Joy Rich should be US$4,272,224.  The 2^nd plaintiff accepted that it had received part payment of US$250,000.  The balance due should be US$4,022,224. 

Contracts for Pathum rice and Thai Hom Mali rice of 2005/06 crop

93.  The next two contracts were negotiated and entered into in September 2006 in respect of (1) Pathum rice and (2) Thai Hom Mali rice 2005/06 crop (“05/06 rice”). 

94.  The terms of the contract in respect of the Pathum rice were recorded in the 2^nd plaintiff’s written Sales Contract No 06009001395 dated 18 September 2006 addressed to HK Chiva and apparently signed by Mr Tana.  It was in respect of 33,000 MT at the price of US$445 per MT for 3,000 MT and US$434 for the balance, FOB Bangkok or Laem Chabang. 

95.  The quantity was subsequently revised downwards in November 2006 to around 25,000 MT, consisting of:

(1)   22,990 MT, as recorded in the 2^nd plaintiff’s written (revised) Sales Contract No 06009001395 dated 15 November 2006 addressed to HK Chiva at the price of US$445 per MT for 3,000 MT and US$434 for the balance, and

(2)   2,486 MT, as recorded in the 1^st plaintiff’s Sales Contract No 0611000930 dated 17 November 2006 addressed to HK Chiva at the price of US$434 per MT. 

96.  Prima facie, the contracting parties for the Pathum rice were the 2^nd plaintiff as seller and HK Chiva as buyer, while the 1^st plaintiff subsequently also agreed to sell a small quantity ie 2,486 MT to HK Chiva. 

97.  The terms of the contract in respect of the 05/06 rice were recorded in the 1^st plaintiff’s written Sales Contract No 0600900719 dated 18 September 2006 addressed to Joy Rich and signed by Mr Yang.  It was in respect of 7,700 MT at the price of US$540 per MT, FOB Bangkok or Laem Chabang. 

98.  Prima facie, the contracting parties were the 1^st plaintiff as seller and Joy Rich as buyer. 

99.  According to Mrs Prapit’s testimony, the way in which these two contracts came about followed very much the same pattern as the negotiations relating to the two Old Rice Contracts. 

100.  As a result of inquiries made by Mr Soumeth acting on Mr Yang’s instructions, Mrs Prapit went to Shenzhen on 17 September 2006 with Mr Dhanakorn to meet up with Mr Yang and Mr Mei.  She had taken with her some samples of Hom Mali rice and Pathum rice to show to Mr Mei.  As with the Old Rice Contracts, Shenzhen Cereals would be the ultimate buyer of the rice but it would be STCM who would purchase direct from the Chia Meng Group.  Again, as in the past, Mrs Prapit told Mr Mei that the Chia Meng Group would need Shenzhen Cereals to enter into back-to-back contracts to purchase the rice from STCM, to which Mr Mei said that he would arrange for them.  They then negotiated on the prices and terms of payment, and eventually reached an agreement of US$540 per MT FOB for 7,700 MT of 05/06 rice and US$434 per MT FOB for 33,000 MT of Pathum rice. Again, Mr Yang acting as an interpreter for the two. 

101.  Although Mr Tana was not present, Mrs Prapit said she had kept Mr Tana informed of what was happening and the result of the negotiations by speaking to him on the phone. According to Mrs Prapit, Mr Tana was agreeable to the deal. 

102.  Subsequently, Mr Tana called Mrs Prapit and said he would like to change the identity of the buyers. For the Hom Mali rice, including the unshipped 04/05 rice and the 05/06 rice, the identity of the buyer was changed from STCM to Joy Rich.  For the Pathum rice, the identity of the buyer was changed from STCM to Hong Kong Chiva.  Mr Tana told her that the reason for these changes was to make it easier to transfer money out of Hong Kong, instead of China, to pay for the rice.  This was the same telephone conversation referred to in paragraph 83 above. 

103.  Subsequently, Mr Soumeth sent to an email to Mr Ding dated 18 September 2006, which was the one referred to in paragraph 86 above, attaching a table with information instructing the plaintiffs which lot of rice should be delivered and billed to which company.  After their staff had worked out the plaintiffs’ delivery schedule, Mrs Prapit and Mr Dhanakorn had met with Mr Tana once at his country club to discuss the delivery schedule, which he approved.  Afterwards, the plaintiffs received back from Mr Soumeth the two signed contracts referred to in paragraphs 94 and 97 above.  The contract for the Pathumthani rice was signed in the name of Hong Kong Chiva by Mr Tana, while the contract for the 05/06 rice was signed in the name of Joy Rich by Mr Yang.  

104.  Mr Tana’s evidence, like his pleadings, was one of general denial. 

105.  In particular, Mr Tana denied having signed the Sales Contract No 06009001395 addressed to HK Chiva.  I find his denial rather unconvincing.  In cross-examination, Mr Tana was shown the Sales Contract and asked whether the signature on it was his.  His initial response was that it looked very much like his signature; then he said he could not recall that it was his signature; and then he said he was not the one who signed it because he had never seen such a document.  Eventually, when asked by the court whether he had ever signed a contract worth US$14m, Mr Tana said, in his life, he had never seen such a big contract, and he said “I should say, this was not signed by me.  I am talking about this contract.  ”

106.  I find his answers a strange way to respond to a very straightforward question.  I have carefully observed Mr Tana’s demeanour during this line of examination.  I did not see the sense of outrage or concern that one would expect from someone whose signature has been forged and put on a US$14m sales contract, or someone whose company had been named as the buyer under a US$14m sales contract without his consent or even knowledge. 

107.  Further, I would expect Mr Tana to have taken some serious action against Mr Yang as the implication of his evidence was that it was Mr Yang who named HK Chiva as the buyer without his consent or knowledge and forged his signature on the Sales Contract.  I would, for instance, expect Mr Tana to report the forgery to the police.  I would expect Mr Tana to specifically plead in the Defence that his signature on Sales Contract No 06009001395 had been forged by Mr Yang or with his connivance. I would expect Mr Tana to confront Mr Yang when he found out that Mr Yang had entered into contracts in the name of HK Chiva (as well as Joy Rich) without telling him.  But there is no evidence of any of the above. 

108.  In these circumstances, I find that his denial of having signed Sales Contract No 06009001395 dated 18 September 2006 incredible.  Similarly, I find Mr Tana’s claim that he did not know about or consent to HK Chiva and Joy Rich entering into the contract for the purchase of the Pathum rice or the 05/06 rice unbelievable. 

109.  To conclude, I am satisfied on balance that Mrs Prapit’s account of the events leading to the two contracts, as summarized above, was truthful.  I am satisfied that Mr Tana had made the request to Mrs Prapit for changing the identity of the buyer of the Hom Mali rice, including the unshipped 04/05 rice and the 05/06 rice, to Joy Rich, and for changing the buyer of the Pathum rice to HK Chiva. At the very least, he was well aware of the existence of the contracts in respect of the 04/05 rice, the 05/06 rice and the Pathum rice in question, and had consented to a request being made for the identity of the buyers under the contracts to be changed.  Lastly, I am also satisfied that after receiving the email from Mr Soumeth to Mr Ding dated 18 September 2006 referred to in paragraph 86 above, Mrs Prapit and Mr Dhanakorn had met with Mr Tana to discussed the revised delivery schedule which Mr Tana approved. 

110.  My conclusion is therefore that in relation to the contract for Pathum rice, the buyer was HK Chiva, and this was done with the consent of its director, Mr Tana.  This fact has been correctly reflected in the 2^nd plaintiff’s written Sales Contract No 06009001395 dated 18 September 2006 to HK Chiva.  In relation to the contract for 05/06 rice, the buyer was Joy Rich, and this was done with the consent of two of its directors viz Mr Yang and Mr Tana.  This fact has been correctly reflected in the 1^st plaintiff’s written Sales Contract No 0600900719 dated 18 September 2006 to Joy Rich. 

111.  To complete the picture, it was only on 30 September 2006 and 9 October 2006 respectively that the plaintiffs received by fax the requested back-to-back contracts. 

(1)   The document received on 30 September 2006 came from Mr Soumeth.  It was an executed contract in Chinese dated 8 September 2006 whereby STCM agreed to sell to Shenzhen Cereals 33,000 MT of Pathum rice at RMB 4,150 per MT (“Shenzhen Cereals contract G-0049”). 

(2)   The document received on 9 October 2006 came from Mr Soumeth’s assistant, Ms Joy Nie.  It was an executed contract in Chinese dated 8 September 2006 whereby STCM agreed to sell to Shenzhen Cereals 7,700 MT of the 05/06 rice at RMB 5,100 per MT (“Shenzhen Cereals contract G-0048”). 

Shipments

112.  Like those of the 04/05 rice, the shipments were amply supported by a massive amount of shipping documentation.  

113.  For the Pathum rice, the first shipment from the 2^nd plaintiff to HK Chiva was evidenced by a bill of lading dated 7 October 2006.  The invoice no B2342/06 was dated 10 October 2006 and addressed to HK Chiva.  It covered 2,200 MT of the Pathum rice in the total amount of US$979,000.  There were altogether eight shipments from the 2^nd plaintiff to HK Chiva.  The last shipment was evidenced by a bill of lading dated 25 November 2006.  The invoice no B2702/06 was dated 30 November 2006 and covered 3,014 MT of the Pathum rice in the total amount of US$1,308,076. 

114.  The total quantity of the Pathum rice shipped by the 2^nd plaintiff to HK Chiva was 20,614 MT and worth US$8,979,476.  The 2^nd plaintiff accepted that it had received part payment of US$238,073.40.  The 2^nd plaintiff therefore claims the outstanding balance of US$8,741,402.60 from HK Chiva. 

115.  As for the 1^st plaintiff, there was only one shipment of 2,429.5 MT of Pathum rice to HK Chiva, as evidenced by a bill of lading dated 2 February 2007.  The invoice no CM037/2007 was dated 2 February 2007 and addressed to HK Chiva.  It was in the sum of US$1,054,403.  The 1^st plaintiff claims this sum from HK Chiva. 

116.  For the 05/06 rice, there were only three shipments from the 1^st plaintiff to Joy Rich which were evidenced by bills of lading dated 20 October, and 17 & 18 November 2006.  The total quantity of the 05/06 rice shipped by the 1^st plaintiff to Joy Rich was 3,300 MT and worth US$1,782,000.  The 1^st plaintiff accepted that it had received part payment of US$297,000.  The 1^st plaintiff therefore claims the outstanding balance of US$1,485,000 from Joy Rich. 

Contract for Thai Hom Mali rice 2006/07 crop

117.  The next contract was negotiated and entered into in November 2006 in respect of Thai Hom Mali rice 2006/07 crop (“06/07 rice”). 

118.  The terms of the contract were recorded in the 1^st plaintiff’s written Sales Contract No 0611000911 dated 9 November 2006 addressed to Joy Rich.  It was in respect of 10,000 MT at the price of US$470 per MT, FOB Bangkok or Laem Chabang. 

119.  Prima facie, the contracting parties were the 1^st plaintiff as seller and Joy Rich as buyer. 

120.  I accept Mrs Prapit’s testimony that this transaction was handled in much the same way as the previous ones: in November 2006, Mrs Prapit went to Shenzhen upon the inquiry of Mr Yang for new Hom Mali rice of the 2006/07 crop.  She negotiated the terms with Mr Mei in the presence of Mr Yang at the office of Shenzhen Cereals.  The price and quantity agreed were those stated on the 1^st plaintiff’s written Sales Contract No 0611000911. I also accept Mrs Prapit’s testimony that she had called Mr Tana to confirm the transaction. 

121.  In the premises, I am satisfied that for this contract for 10,000 MT of 06/07 rice, the buyer was Joy Rich, and this was done with the consent of two of its directors viz Mr Yang and Mr Tana.  This fact has been correctly reflected in the 1^st plaintiff’s written Sales Contract No 0611000911 dated 9 November 2006 to Joy Rich. 

122.  After the contract, the plaintiffs received from Irene Fang the requested back-to-back contracts in late November 2006.  They were:

(1)   An executed contract in Chinese dated 20 November 2006 whereby STCM agreed to sell to Shenzhen Cereals 1,980 MT of the 06/07 rice at RMB 4,353 per MT (“Shenzhen Cereals contract G-0070”). 

(2)   An executed contract in Chinese dated 20 November 2006 whereby STCM agreed to sell to Shenzhen Cereals 8,020 MT of the 06/07 rice at RMB 4,353 per MT (“Shenzhen Cereals contract G-0071”). 

123.  The shipments for this contract were amply supported by a massive amount of shipping documentation.  

124.  The first shipment was evidenced by a bill of lading dated 19 December 2006.  The invoice no CM438/2006 was dated 19 December 2006 and addressed to Joy Rich.  It covered 1,870.5 MT of the 06/07 rice in the total amount of US$879,135.  There were altogether seven shipments from the 1^st plaintiff to Joy Rich.  The last shipment was evidenced by a bill of lading dated 2 February 2007.  The total quantity of the 06/07 rice shipped by the 1^st plaintiff to Joy Rich was 9,884 MT and worth US$4,645,480.  The 1^st plaintiff claims this sum from Joy Rich. 

The claim in misrepresentation

125.  Just to recap, the plaintiffs’ pleaded case is that Mr Tana and/or STCM caused

(1)   Mr Soumeth to send Shenzhen Cereals contract G-0047 to the plaintiffs on 19 August 2006, and this constituted a representation to the plaintiffs that STCM had entered into a binding contract with Shenzhen Cereals for the sale of 30,000 MT of the 04/05 rice;

(2)   Mr Soumeth to send Shenzhen Cereals contract G-0049 to the plaintiffs on 30 September 2006, and this constituted a representation to the plaintiffs that STCM had entered into a binding contract with Shenzhen Cereals for the sale of 33,000 MT of Pathum rice;

(3)   Mr Soumeth’s assistant, Ms Joy Nie to send Shenzhen Cereals contract G-0048 to the plaintiffs on 9 October 2006 and this constituted a representation to the plaintiffs that STCM had entered into a binding contract with Shenzhen Cereals for the sale of 7,700 MT of the 05/06 rice;

(4)   Irene Fang to send Shenzhen Cereals contract G-0070 and Shenzhen Cereals contract G-0071 to the plaintiffs in late November 2006 and this constituted a representation to the plaintiffs that STCM had entered into binding contracts with Shenzhen Cereals for the sale of a total 10,000 MT of the 06/07 rice. 

126.  The representations were said to be false in that Shenzhen Cereals had not agreed, whether by the Shenzhen Cereals contracts G-0047, G-0048, G-0049, G-0070 and G-0071, or at all, to buy any rice from STCM. 

127.  There are two matters which I can dispose of quickly. 

128.  First, according to my findings, the plaintiffs had entered into concluded contracts with STCM, HK Chiva and Joy Rich, as the case may be, before the relevant Shenzhen Cereals contracts were sent to them – in other words before the relevant representations were made.  It means that the plaintiffs cannot be said to have been induced by any of the representations to enter into the Contracts in question. 

129.  This is a point taken by the defendants in the defence, which I accept.  The plaintiffs’ claims that they were entitled to rescind and did rescind all the Contracts in August 2007, as well as the other matters pleaded in the Statement of Claim as consequential upon rescission, are  misconceived. 

130.  But that is not the end of the matter. 

131.  It is axiomatic that if the plaintiffs had not been induced by misrepresentations to enter into the Contracts, they cannot claim rescission of the Contracts on that basis.  But, if the plaintiffs have acted to their detriment and suffered losses as a result of fraudulent misrepresentations, or deceit, they should in principle be entitled to compensatory damages. 

132.  In the great majority of cases, the manner in which a claimant acts to his detriment in reliance on a misrepresentation is to enter into a contract (typically an unfavorable one) with the defendant.  That does not mean that that is the only detriment recognized by the law. 

133.  I need only give two examples. 

(1)   First, wasted expenses incurred as a result of fraudulent misrepresentations can be recoverable.  In Richardson v Silvester (1873) LR 9 QB 34, where the defendant falsely advertised in a paper that a farm was to be let by tender, the claimant recovered damages in respect of useless expenses he had incurred in going to inspect the farm and in employing others to value it.  In Wilkinson v Downton [1897] 2 QB 57, where the defendant, as a practical joke, falsely informed the claimant that her husband had just been injured in an accident, the claimant recovered inter alia the expenses of train fares of third parties whom she sent to see her husband. 

(2)   Second, if the fraudulent misrepresentation has led to a permanent deprivation of goods, the claimant is entitled to recover the market value of them: Smith Kline & French Laboratories v Long [1989] 1 WLR 1.  In that case, the claimants, who were engaged in the manufacture and sale of pharmaceutical products, were tricked by the defendant into selling large quantities of tablets to a company of which he was managing director, on the understanding, based on the defendant’s fraudulent misrepresentations, that the tablets were to go to Central Africa for distribution there.  In fact the company sold the tablets to customers in Holland.  The company became insolvent before paying to the claimants the full purchase price.  Had the claimants known that the tablets would be sold in Europe, they would not have sold to the company at any price. The Court of Appeal awarded the claimants the market value of the tablets as damages, subject to the claimants giving credit for part of the purchase price which they had received from the company.  

134.  Second, I have no difficulty accepting the testimony of Mrs Prapit and Mr Dhanakorn that without the “comfort” of the Shenzhen Cereals contracts, the plaintiffs would not have made any deliveries under the Contracts in question.  In other words, I am satisfied that the plaintiffs had been induced by the Shenzhen Cereals contracts to make deliveries under the Contracts to HK Chiva, Joy Rich and STCM notwithstanding the absence of any guarantee of payment.  In so far as the plaintiffs cannot recover the purchase price from these companies, and have suffered losses, they have acted to their detriment as a result of the Shenzhen Cereals contracts. 

135.  Now, the first critical issue in relation to this claim is: Who were responsible for making the representation?

136.  I readily accept that when Mr Soumeth, Miss Joy Nie and Irene Fang sent the Shenzhen Cereals contracts to the plaintiffs, they acted in the name and on behalf of STCM.  But what was Mr Tana’s role in it? 

137.  There is no direct evidence that Mr Tana caused or procured Mr Soumeth and others to send the Shenzhen Cereals contracts to the plaintiffs.  Mrs Prapit’s evidence was that she had told Mr Tana on the phone of the requirement that there should be in place a back-to-back contract with Shenzhen Cereals.  Mr Dhanakorn’s evidence in court was to the effect that he believed Mr Yang had told Mr Tana about this requirement that there should be a back-to-back contract with Shenzhen Cereals.  So taking the plaintiffs’ case to the highest, they have established in evidence that Mr Tana knew about the requirement.  But that is not the same as establishing that Mr Tana caused or procured Mr Soumeth and others in STCM to send the Shenzhen Cereals contracts to the plaintiffs.  A company director is not liable for the tortuous act of a company employee unless he had authorized, directed and procured the act complained of: C Evans Ltd v Spritebrand Ltd [1985] 1 WLR 317. 

138.  On the records, Mr Tana was not even a director or legal representative of STCM back in August or November 2006.  Of course, the fact that he did not have an official position does not mean that Mr Tana could not have been in control of STCM.  But Mr Tana’s interest in and control of STCM, if any, is a contentious matter.  The plaintiffs’ case is that Mr Tana was the ultimate beneficial owner and in control of STCM since incorporation.  Irene Fang and Mr Ma were only his two nominees.  Mr Tana’s case is that prior to July 2007, he had no involvement in STCM.  It was Mr Yang who beneficially owned and controlled STCM.  Even after Mr Tana had purchased from Irene Fang and Mr Ma their shares in STCM in July 2007, Mr Yang was still the person who managed and controlled STCM. 

139.  I must say the evidence adduced by the plaintiffs on this issue is very flimsy and confusing.  As an illustration of the latter point, they have put in evidence both an unsigned statement of Irene Fang and a signed statement of Mr Yang. Irene Fang claimed it was Mr Yang who asked her to incorporate STCM and that she held the shares in STCM as his nominee.  Mr Yang was in charge of everything in STCM.  Mr Yang, on the other hand, claimed that he had no interest in STCM: it was Mr Tana who provided all the funding for the capital of STCM and owned 100% of STCM. 

140.  Neither Irene Fang nor Mr Yang gave evidence before this court. 

141.  The unsigned statement of Irene Fang was prepared in September 2008 after she had been interviewed by the plaintiffs’ solicitors in Thailand. The fact that she was unwilling to sign the statement clearly indicates to me that very little weight, if at all, can be given to its contents.

142.  The statement of Mr Yang was dated 19 June 2009, and prepared after he had been interviewed by the plaintiffs’ Thai solicitors in Hong Kong.  From its contents, by then, Mr Yang had already fallen out with Mr Tana: he said Mr Tana forced him to resign from STCM in June 2008 so that Mr Tana could tell the plaintiffs that Mr Yang had run away with their money.  In view of that, it is quite conceivable that Mr Yang had the motive and personal interest, and I take it no higher than that, in casting Mr Tana in a bad light so as to absolve himself. 

143.  Lastly, I should point out that in November 2007, the plaintiffs had filed a police complaint against Irene Fang and Mr Yang, alongside Mr Tana and Mr Soumeth, in Thailand.  It seems to me neither Irene Fang nor Mr Yang can be regarded as completely disinterested parties.  I am not prepared to accept their evidence at face value without it being tested through the rigor of cross-examination in court.

144.  In my view, the evidence is so unsatisfactory that I must reject the plaintiffs’ case that Mr Tana was the ultimate beneficial owner of STCM and in control of it since incorporation. 

145.  In his oral closing submissions, Mr Wright, counsel for the plaintiffs, very fairly accepted that there was no evidence that directly linked Mr Tana to the making of the Shenzhen Cereals contracts or to the sending of those Shenzhen Cereals contracts to the plaintiffs.  Mr Wright also accepted and stressed that he was not alleging Mr Tana was guilty of any fraudulent misrepresentation, nor that he had any legal liability under section 3 of the Misrepresentation Ordinance.

146.  In my view, Mr Wright’s aforesaid concession has been properly made.  I am in no way satisfied on the evidence that the plaintiffs have proved their case that Mr Tana had made any representation by sending or causing to be sent to the plaintiffs the Shenzhen Cereals contracts. 

147.  As a fallback position, Mr Wright suggested in his oral closing submissions that Mr Tana’s liability could be based on his negligent failure to take steps to ensure the Shenzhen Cereals contracts were genuine.  The short answer is that this is not what the plaintiffs have pleaded and I am not prepared to entertain an unpleaded alternative case against Mr Tana introduced on the last day of trial. 

148.  The next critical issue is: Were the representations false?

149.  In his oral closing submissions, Mr Wright told this court that the plaintiffs rely on Mrs Prapit’s evidence on her meetings with Shenzhen Cereals officials in August 2007 as well as part of the aforesaid unsigned statement of Irene Fang. 

150.  Mrs Prapit’s evidence was that, on 12 August 2007, Mr Dhanakorn, Mr Ding and her went to Shenzhen and met with Mr Huang Ming (“Mr Huang”), Shenzhen Cereals’ Chief Executive Officer.  Mr Huang also summoned Mr Chen, the second highest-ranking executive, to attend.  Mr Mei, the third highest-ranking executive was also present.  Mr Huang asked for and was shown all the Shenzhen Cereals contracts.  After examining them and checking with one of the clerks who managed the records of Shenzhen Cereals’ contracts in their computer database, Mr Huang told her that Shenzhen Cereals did not enter into or execute any of them.  He also said that the company seal impressed on those contracts was not Shenzhen Cereals’ seal.  Mr Chen on the other hand told her that he was the authorized signatory of Shenzhen Cereals, but the signatures on those contracts were not his.  While Mrs Prapit protested and pointed out that Mr Mei had been involved in negotiating the contracts all along, Mr Huang maintained that Shenzhen Cereals had not entered into those contracts.  Throughout the meeting, Mr Mei kept silent, only saying that he did not enter into any contracts with the Chia Meng Group. 

151.  Then, on 24 August 2007, Mrs Prapit went to Shenzhen again to meet with Mr Huang about the Shenzhen Cereals contracts and the possibility of re-exporting some of the rice back to Thailand.  Basically, she received the same answer from Mr Huang. 

152.  After the meeting with Shenzhen Cereals, Mrs Prapit wrote two letters to Mr Huang. The first letter was dated 4 September 2007 which very briefly recapped what she was told at the meeting.  The second letter was dated 20 September 2007 which, apart from recapping what she was told, sought an official written confirmation from Shenzhen Cereals that the Shenzhen Cereals contracts were all faked and that Shenzhen Cereals had never signed those contracts.  I need only to set out part of the 20 September 2007 as follows:

“Thank you for your precious time meeting with us and Mr. Suphot on August 24, 2007 afternoon time. In the meantime we thank Mr. Chen for pointing out to us that the Purchase Contract with number G0047, G0048, G0049, G0070, G0071 signed between Shenzhen Cereals Group Co., Ltd. and Shenzhen Thai Chia Meng Trading Co., Ltd. were all fake. Your esteemed company has never signed these mentioned Purchase Contracts with Shenzhen Thai Chia Meng Trading Co., Ltd. The mentioned Purchase Contracts were not registered in your computer system. As what Mr Chen pointed out to us during the meeting, Shenzhen Cereals Group Co., Ltd. can be the witness for us if necessary. I sincerely request your esteemed Company to issue your official letter to clarify that the above mentioned purchase contracts between Shenzhen Cereals Group Co., Ltd. and Shenzhen Thai Chia Meng Trading Co., Ltd. were all fake. Your esteemed company has never signed these mentioned Purchase Contracts with Shenzhen Thai Chia Meng Trading Co., Ltd.”

153.  For reasons unknown to this court, Shenzhen Cereals have never issued the official confirmation, despite several requests by the plaintiffs.  Under the advice of the plaintiffs’ Thai solicitors, the plaintiffs had also instructed a law firm in Shenzhen to write to Shenzhen Cereals to demand a formal response from them on the back-to-back contracts that they claimed not to have executed.  Shenzhen Cereals did not respond to that request either.  Nor has Mr Chen, or anyone else from Shenzhen Cereals, provided a statement to the plaintiffs or come forward to testify. 

154.  While in court, both Mrs Prapit and Mr Dhanakorn testified that it was Irene Fang who told them that the Shenzhen Cereals contracts were faked, and it was Mr Tana who asked her to prepare them.  During cross-examination, Mr Dhanakorn was specifically asked whether the officials from Shenzhen Cereals told them the Shenzhen Cereals contracts were faked.  To which Mr Dhanakorn’s reply was that the officials did not say the contracts were faked, just that the contracts were not theirs. 

155.  The tenor of Irene Fang’s unsigned statement suggests that there was no contract between STCM and Shenzhen Cereals for the sale of  the 04/05 rice prior to the arrival of the rice in the PRC.  It was only after the rice had arrived that Mr Yang realized he could not sell it and he went to Shenzhen Cereals and reached an agreement with Mr Mei.  The agreement was not a straightforward sale and purchase, as appeared in Shenzhen Cereals contract G-0047.  It was an arrangement whereby Shenzhen Cereals gave cash advances to STCM against STCM pledging the rice to Shenzhen Cereals as collateral.  Also, the quantity of rice involved was not 30,000 MT but 19,000 MT.  Curiously, there was no mention in this unsigned statement that the Shenzhen Cereals contracts were faked, or that it was Mr Tana who asked Irene Fang to prepare them. 

156.  For reasons which I have endeavoured to explain in paragraphs 139 – 143 above, I am not prepared to give Irene Fang’s unsigned statement any weight without it being tested through the rigor of cross-examination in court.  The statement was hearsay and unsigned, In fact, parts of it are contradicted by other evidence adduced by the plaintiffs in this case on other issues.  I cannot assess the truthfulness of the statement in a vacuum.  I am not prepared to ascribe any probative value to it – certainly not on such a serious allegation as the forgery of documents involving over US$30m worth of rice. 

157.  In my view, if the two highest-ranking officials of Shenzhen Cereals were telling the truth, I would expect Shenzhen Cereals to be willing to give the written confirmation requested by the plaintiffs.  If Shenzhen Cereals were unwilling to give the written confirmation, I would need to know the reason for their unwillingness as it would have a bearing on the veracity of their claim that the Shenzhen Cereals contracts were not their contracts. 

158.  I am not satisfied that just by proving, at one or two meetings, two officials of Shenzhen Cereals, who were apparently higher ranking than Mr Mei, had disclaimed those Shenzhen Cereals contracts, the plaintiffs have established on balance of probabilities that the Shenzhen Cereals contracts were instruments of fraud perpetrated by (whoever was in control of) STCM on them.  It is of course conceivable that the Shenzhen Cereals contracts were indeed forged.  It is also entirely conceivable that the two officials of Shenzhen Cereals disclaimed the Shenzhen Cereals contracts because they disapproved of what Mr Mei had done or they thought, rightly or wrongly, Mr Mei had exceeded his authority. 

159.  The burden is on the plaintiffs to prove their case that the Shenzhen Cereals contracts were forged, and the representations were for that reason false.  I am not so satisfied on balance of probabilities. 

160.  In these circumstances, while I have considerable sympathy for the plaintiffs, I have to dismiss their claims based on misrepresentation - whether for rescission or damages. 

Miscellaneous matters

161.  For completeness, I should mention that, on the pleadings, the plaintiffs have put forward an alternative case that the Contracts were void ab initio since they were all made conditional upon STCM having entered into back-to-back contracts with Shenzhen Cereals for the sale of the plaintiffs’ rice.  That condition had failed as there were in fact no such contracts between STCM and Shenzhen Cereals.  On the second day of trial, counsel for the plaintiffs indicated to this Court in his oral opening that he would not be running that alternative case, and I shall say no more of it. 

162.  Lastly, on the pleadings, the plaintiffs have made a claim against Jessy James HK on the basis that it was a constructive trustee of sums which it had received and which represented the sale proceeds of the rice bought by HK Chiva, Joy Rich and STCM from the plaintiffs.  Apparently, STCM had remitted two sums of RMB15 million and RMB 2,826,733.90 to Jessy James HK’s bank account on 30 October 2007 and 31 March 2008 respectively.  The plaintiffs’ case was that an inference should be drawn that these sums represented the sales proceeds of the rice which the plaintiffs had delivered under the Contracts. 

163.  I must say neither the evidential nor legal basis of this claim is readily apparent to this court.  In the course of his oral opening on the second day of trial, counsel for the plaintiffs indicated that his clients would not be pressing for judgment against Jessy James HK. Since there is no question of the Contracts being void ab initio, and since I have ruled that the plaintiffs were not entitled to rescind the Contracts, there is no question of the plaintiffs retaining property in any of the rice or being entitled to lay proprietary claims to the sales proceeds of the rice. 

164.  The claim against Jessy James HK is dismissed. 

Disposition

165.  There will be judgment in favour of the 1^st plaintiff:

(1)   under paragraph 79 above, against the 5^th Defendant STCM in the sum of US$2,353,788;

(2)   under paragraph 92 above, against the 4^th defendant Joy Rich in the sum of US$3,231,480;

(3)   under paragraph 115 above, against the 2^nd defendant HK Chiva in the sum of US$1,054,403;

(4)   under paragraph 116 above, against the 4^th defendant Joy Rich in the sum of US$1,485,000;

(5)   under paragraph 124 above, against the 4^th defendant Joy Rich in the sum of US$4,645,480. 

166.  There will be judgment in favour of the 2^nd plaintiff :

(1)   under paragraph 92 above, against the 4^th defendant Joy Rich in the sum of US$4,022,224;

(2)   under paragraph 114 above, against the 2^nd defendant HK Chiva in the sum of US$8,741,402.60. 

167.  The judgments will carry interest at 2% above the prevailing US dollar prime lending rate from the date of the Writ to the date of judgment.  Thereafter, interest will be payable at the judgment rate until payment. 

168.  The plaintiffs’ claims against the 1^st defendant Mr Tana and the 3^rd defendant Jessy James HK are dismissed. 

Costs

169.  There will be an Order Nisi that

(1)   the plaintiffs are to have the costs of the action against the 2^nd defendant HK Chiva, the 4^th defendant Joy Rich and the 5^th defendant STCM;

(2)   the 1^st defendant Mr Tana and the 3^rd defendant Jessy James HK are to have their costs of the action against the plaintiffs;

to be taxed if not agreed.