YUN CHU CHEMICAL INDUSTRIAL CO. LTD. v. KEEN LLOYD LTD.

1993, No.A5167

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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The Plaintiff's case

1. The Plaintiff is claiming against the Defendant US$116,139.50 being the balance of the price of goods sold and delivered by the Plaintiff to the Defendant. The Plaintiff is a company in Taiwan. It is a supplier of a chemical called Expandable Polystyrene ("EPS"). The Plaintiff had business dealings with the Defendant since 1988. The Defendant purchased the EPS from the Plaintiff. Initially payment was by letters of credit. After June 1989, the parties changed the method of payment for the purchase of goods. This was done at the request of the Defendant. Instead of payment by letters of credit, payment was by way of telegraphic transfer (TT). The Plaintiff agreed to the change because they trusted the Defendant. This was based on the one year business transaction they had with each other and the Defendant also said that it would buy more goods from the Plaintiff. Initially, the Defendant was prompt with its payment but later on there were delays in the payment. According to Mr Liu, the director of the Plaintiff, in 1991, the mode of payment by the Defendant was still acceptable, however by 1992 there were delays in the payment. As of 13th October 1993, the amount due to the Plaintiff by the Defendant was US$116,139.50.

The Defendant's case

2. The Defendant agreed that prior to 1990, it had purchased chemical industrial materials from the Plaintiff for the purpose of selling the goods to China. In 1991 it stopped buying from the Plaintiff because it did not make any profit and the Defendant had other business to do such as sale and purchase of cars, car accessories, operation of factories and a transport business. In 1990 or 1991, Mr Liu of the Plaintiff and Mr Chun of the Defendant met in Hong Kong, Mr Liu requested Mr Chun to collect goods sent by the Plaintiff to Hong Kong and to transport the goods to destinated companies in China. The Defendant would be paid US$15 per ton for procedural fees. This was agreed by Mr Chun. In 1993, the Defendant stopped helping the Plaintiff in the transport of goods.

3. The Defendant denied that between 1991 and 1992 it had placed any order for the purchase of goods from the Plaintiff. Mr Chun said that the goods were transported to a company in Dong Guan, China by the name of Guandong Dong Guan Chemical Engineering Import and Export Company ("the Dong Guan Company"). Mr Chun said that he did not know the mode of payment between the Dong Guan Company and the Plaintiff but part of the payment was sent by one Mr Lo of the Dong Guan Company to an associate company of Mr Chun in Guanzhou by the name of Guanzhou Pao Cheong Plastic Products Limited ("Pao Cheong"). Pao Cheong would notify the Defendant of the money sent by Dong Guan and the Defendant would then remit the money to Taiwan. The Defendant would be notified in Hong Kong by the Plaintiff and the shipping company to collect the goods. The goods were collected by way of letters of guarantee, the original bill of lading was not provided to the Defendant. After delivery, goods would be transported in the same container to China. The Defendant was involved in the remission of the money because Mr Liu could not remit Renmenbei to China so that the money passed through the Defendant's company to Taiwan.

The issue

4. The issue in this case is whether the Defendant had purchased the goods from the Plaintiff or whether the goods were delivered by the Plaintiff to the Defendant from Taiwan to Hong Kong so that the Defendant may assist the Plaintiff in transporting the goods to China. The evidence show that in 1991, the value of goods supplied by the Plaintiff to the Defendant was over US$1.5 million. This is not challenged by the Defendant. On average, the monthly shipment of goods from Taiwan to Hong Kong was about US$70,000 to US$100,000. Prior to 1993, Taiwan businessmen were not allowed to trade with their counterparts in China.

Assessment of Evidence

5. In assessing the evidence, let me say immediately that there are certain aspects of Mr Liu's evidence which are not satisfactory. For example, the impression one gets from his testimony is that he wished to avoid associating himself with the trading activities in China and also his relationship with Mr Lo of the Dong Guan Company whom he maintained was his friend and had no business dealings whatsoever. His evidence regarding the undated invoice and bill of lading is also not satisfactory. He said the invoice was not dated because the shipment date had not yet been obtained from the shipment company. However, after the shipment date was obtained, he said that the invoice together with the shipping documents, such as packing list and bill of lading, were not sent to anyone. This answer came as a surprise as it is the Plaintiff's case that the invoice evidenced the sale of goods from the Plaintiff to the Defendant. It is only after I have reminded him of the purpose of a bill of lading that he stated that the invoice together with the documents had been sent to the Defendant.

6. The Defendant's case as put to him was that the invoice was only used for the purpose of obtaining the export licence from the Taiwanese authority and not evidence of the sale. He agreed with this suggestion and it was only in re-examination that he said that the invoice was also used for the purpose of the sale to the Defendant.

Sale by Plaintiff to Defendant

7. Notwithstanding the unsatisfactory aspect of Mr Liu's evidence and bearing in mind the prohibition of trade between Taiwan and China during the period prior to 1993, I find Mr Liu's evidence regarding the nature of the transaction with the Defendant to be true. His reluctance to deal with the China trading activities in his evidence is probably due to his concern with implications of a Taiwanese national having contact with China and not a deliberate attempt to conceal the true relationship between the Plaintiff and the Defendant. He probably had asked Mr Lo to assist his Taiwanese business counterpart Mr Liu Ti Chuen in the transaction with two Chinese companies which I shall refer to later, but there is no evidence that there was any partnership relationship between Mr Liu and Mr Lo. I accept that the Plaintiff had sold EPS to the Defendant and not simply asking the Defendant to be a conduit in the transportation of goods.

Proof of sale

8. The Defendant argued that the Plaintiff had failed to prove the existence of sales contracts between it and the Defendant. The Plaintiff's case is that the orders were placed by the Defendant by fax and telephone. Mr Poon, Counsel for the Defendant submitted that there were 14 shipments in 1992 but the Plaintiff only produced 4 orders and 2 of which did not even contain any reference to price. The Defendant's telephone bills did not show any telephone calls to Taiwan.

9. Before I examine the evidence, it is necessary to bear in mind that the Defendant's case is not putting the Plaintiff to strict proof of each of the orders. The case is that its role was to help the Plaintiff to transport the goods to China. Hence, the absence of detail evidence of each of the orders is not something that should be held against the Plaintiff. In any event, neither of the matters raised by Mr Poon are, in my view, sufficient to say that the Plaintiff has not proved its case. Mr Chun, apart from being asked to look at the telephone bills, was not even asked if the telephone number in the bill was the only telephone the Defendant had. The Defendant had certainly faxed documents, namely pages 54, 56, 58 and 60 of the Bundle to Taiwan and if it is suggested that the four orders were the only orders placed, then the simplest way is to produce the telephone bills of the Defendant for the fax as well.

10. In my view, the invoices of the Plaintiff are the best evidence of the sale to the Defendant. The Defence did not say that the invoices were never received by the Defendant. It is never suggested to Mr Liu that he had never sent the invoices to the Defendant. Another type of evidence which confirmed the sale to the Defendant is found in the statement of account at pages 53, 62, 64, 67 and 69 of the bundle. They show the state of account between the parties. Mr Chun's belated denial of ever receiving document Nos.62, 64, 67 and 69 is telling when neither the Defendant's witness statements nor cross-examination of Mr Liu had ever indicated that there would be any challenge to the statement of account. There is simply no evidence to suggest that these documents were fabricated. The Plaintiff would be too clever indeed to fabricate these documents. Mr Chun has not denied that he had received the statement of account at page 53 which showed that the amount due to the Plaintiff by the Defendant was at US$116,139.50.

11. Mr Liu was cross-examined about the method of placing orders by the Defendant. He said orders were placed either in writing, by telephone or by fax. He was referred to a number of letters from the Defendant to the Plaintiff which I have referred to earlier, namely pages 54, 56, 58 and 60 of the bundle in which the Defendant requested shipment of containers. The suggestion was that this was a very odd way of placing orders because there was no reference to the price in the documents. I do not find the absence of price in the orders would cast doubt on the Plaintiff's case that the goods were sold to the Defendant. Certainly, I accept that the Plaintiff had put down the price of the goods on two of the documents and faxed them back to the Defendant. The documents produced by the Defendant were for the months of June, July and August 1992, by which time the parties had carried out a substantial amount of trading activities. I am satisfied that the price was either discussed in telephone conversations, in fax exchanges or were subsequently recorded in the invoice sent by the Plaintiff to the Defendant.

Defence not credible

12. The Defendant's case is simply not credible. I just cannot accept that if the Defendant's role was merely to transport the goods from Hong Kong to China, the Defendant would go to such great length as to prepare invoices indicating different quantity and different price for the same goods in the container which were shipped from Taiwan to Hong Kong and destined for China. The contents of the invoices were admitted to be false by Mr Chun and his staff, Ms Cheung. They said this was done to save custom duties. It is improbable for a transporter to be involved in the remission of proceeds of sale from the ultimate buyer in China to the Plaintiff in Taiwan.

Mr Chun's evidence

13. Mr Chun is not a credible witness. His evidence that the goods were obtained from the shipping company by letters of guarantee without the bill of lading is not something contained in the witness statement and is not put to Mr Liu in the cross-examination. There was no discovery of the letter of guarantee. His evidence was that Mr Liu and Mr Lo were partners in a factory in China. Again, this is not contained in his witness statement and the allegation was never put to Mr Liu. His evidence was that when he met Mr Liu again after the Defendant had stopped transporting the goods to the Plaintiff, they talked about their private live. This is something startling. At that stage, according to the Plaintiff, the Defendant owed the Plaintiff in excess of US$100,000. There was a demand by the Plaintiff in June 1993 for repayment of the money. It is surprise that the parties did not in fact discuss the debt.

The 2 Chinese companies

14. The documents at pages 332, 335, 338 and 341 were letters faxed by the Plaintiff to the Defendant. These documents which were disclosed by the Defendant, were in respect of transactions with two companies in Cheugdu and Xian in China. The Defendant's case as put to Mr Liu in his cross-examination was that the letters were instructions sent by him to Mr Chun asking him to act as a middleman for the sale of goods to the Chinese companies. The suggestion being that the Defendant's role in its dealings with the Plaintiff was that of a transporter and the Plaintiff was actually involved in the direct negotiation with the ultimate buyers of the goods. There was no suggestion whatsoever that the Mr Chun referred to in the letters were someone other than Mr Chun of the Defendant who gave evidence in Court.

15. In his evidence, Mr Chun said that the Mr Chun referred to in the letters was a Mr Chun in Dong Guan and not him personally. The letters were addressed to him but only for forward transmission to Dong Guan. This is a matter that was not put to Mr Liu in his evidence. I cannot see how the omission can be a misunderstanding between Mr Chun and his lawyer as he alleged. The two Chinese companies were already previously dealt with in the Further and Better Particulars of the Defence. When the Defendant's case was put to Mr Liu, Mr Chun was present in Court, as he was throughout the proceedings. If there was a misunderstanding, I cannot see why this matter could not be corrected when Mr Liu resumed giving evidence the following day after the adjournment.

Bill of lading

16. The transaction between the parties in 1991 was in excess of US$1.5 million, it is inherently improbable that the Plaintiff would ship the goods to Hong Kong and allow the Defendant to take delivery so that it may transport the same to China without imposing any obligation on the Defendant to pay for the purchase price. The Defendant said that it did not receive the original bill of lading. The absence of this document did not have the slightest effect on the Defendant's obligation to pay for the goods. If the absence of the original bill of lading is intended to show that the Defendant had no control over the goods, then this is simply not supported by the evidence. The Defendant had actually taken delivery of the goods. The containers were delivered from Hong Kong to China by road and the bill of lading would not assume any significance because there is no evidence to show that the ultimate buyers in China would require the bill of lading to obtain the container.

Instructions

17. Mr Chun's evidence that it was Mr Liu who instructed him to write down on the invoice a smaller quantity of goods and a different price was not convincing. Certainly, Mr Liu had not been tested on this point. Furthermore, Mr Chun's evidence is contradicted by Ms Cheung's evidence that it was Mr Lo who instructed her to provide the details.

Gratuitous transport

18. The Defence as pleaded was that the Defendant transported the goods on a gratuitous basis. However, Mr Chun's evidence revealed that there was a handling charge of US$15 per ton. In the witness statement of Mr Chun, he said that the transportation cost of the container was about $4,000 but because of the trivial amount, the Defendant had not charged the Plaintiff. He agreed that he had not made demand for the transportation charge or the processing fees of US$15 per ton. A rough calculation of the transportation cost and the processing fees for the containers in 1992 was about HK$90,000. He agreed that the Defendant had not sought this claim by way of counterclaim, but he had notified his lawyer that the Defendant would claim for this sum after the case is over. I find the explanation unacceptable. $90,000 is about 10% of the Plaintiff's claim. It just does not make business sense for not pursuing this claim notwithstanding Mr Chun's belated evidence that his motor business has a turnover of hundreds of million dollars.

Remittance

19. Furthermore, the Defendant had made regular remittance to the Plaintiff of the sums which the Defendant said was received from Mr Lo in Dong Guan. Apart from one remittance, all the documents showed that the Defendant remitted the same $240,000 to the Plaintiff. Apart from not deducting the transportation charge and the handling charge from this money before it was eventually remitted to the Plaintiff, the Defendant actually incurred an additional $100 by way of bank charge. This is simply not consistent with the alleged role of the Defendant as a transporter of the goods only.

Denial of receiving documents

20. Mr Chun further stated that he had not received the letter of demand of June 1993 from the Plaintiff. He also said that he had not received the letters from the Plaintiff showing the state of accounts between the parties. This denial is again startling. These allegations, if true, will constitute an important part of the Defence. Yet, Mr Liu had never been confronted in his evidence with these allegations. Mr Chun again attributed this to a misunderstanding between him and his lawyers. I just cannot accept this allegation. If his lawyers had been instructed on these matters, I have no doubt that the defence's case would be put to Mr Liu.

Invoices

21. The Defendant said eight of the delivery to China as evidenced by the Defendant's invoices were in fact at a price lower than the Plaintiff's price. It was submitted that it made no sense because if the Defendant was actually selling the goods itself, it would be making a loss. It must be pointed out that the invoices referred to a lesser quantity than the quantity in the Plaintiff's invoices as well. What is more important is that the Defendant's evidence stated that the contents of the manifest and the invoices were false. They were aimed at cheating the authorities of tax.

Memoranda from China

22. Regarding the remission to China, there were memoranda from Pao Cheung to the Defendant stating that it had received purchase price of EPS from Mr Lo of the Dong Guan Company and asked for their transmission to the Plaintiff. The authenticities of these documents were challenged and the Defendant had given no evidence about how these documents came into existence and why Pao Cheung was involved. I can see no value being attached to these documents.

Mr Kwok's evidence

23. The Defendant's case is not strengthened by the evidence of Mr Kwok, a former partner of Lung Wan Plastic Trading Company ("Lung Wan"). Mr Kwok gave very fragmented evidence. He said he was instructed by Dong Guan Company to transport the EPS to China. The EPS was delivered by the Plaintiff. He was paid transportation fees by the Dong Guan Company while he also received US$15 - US$20 per metric ton from the Plaintiff for his profit. He also remitted money to the Plaintiff after receiving the money from the Dong Guan Company.

24. He appeared to be a reluctant witness and was hesitant in his answers. In cross-examination it was revealed that he owed Mr Chun several million dollars. He did not say who had made the arrangement with him regarding the transportation. The invoices from the Plaintiff to Lung Wan showed that payments of the goods in the invoices were to be made by way of letters of credit. Although he said that there was no problem with payment with the letter of credit because he had received the money from China, he certainly did not go as far as to say that payment for the goods evidenced by that particular invoice would only be paid by Lung Wan after Lung Wan had received the money from the Dong Guan Company.

25. If Mr Kwok's evidence is intended to support the Defendant's case that the Defendant had never purchased the goods from the Plaintiff, then I must say such purpose has not been achieved. Although Mr Kwok said his witness statement was truthful, the contents of his statement was not referred to by him in his evidence. There were discrepancies between his witness statement and his evidence which he did not even attempt to clarify.

Ms Cheung's evidence

26. Likewise, the evidence of Ms Cheung, the shipping clerk of the Defendant does not support the Defendant's case. Her evidence is that after Mr Lo of Dong Guan Company placed an order with Mr Liu of the Plaintiff, he would tell her that he had ordered goods from Taiwan. He would tell Ms Cheung when the goods would arrive and later he would ask her to ask Mr Liu when shipment would arrive. She sent the letters at pages 54, 56, 58 and 60 to the Plaintiff in order to chase Mr Liu for shipment. What Ms Cheung said just does not make sense. Notwithstanding the prohibition, it is clear from her evidence that Mr Lo was able to place orders with the Plaintiff. If that is the case, I just do not see why Mr Lo should ask the Defendant to chase the Plaintiff for shipment. The letter of 11th June 1990 at page 60 of the bundle actually contradicted her evidence that she chased Mr Liu on behalf of Mr Lo and that the Defendant had never purchased EPS from the Plaintiff. The document actually said "Our company now wanted to place order for the following goods, namely EPS, in a 20 feet container". Pausing here, it should be noted that the translation in the document is incorrect. The translation said "We wish to place ...." - whereas the Chinese document said "Our Company now want to place ...".

Conclusion

27. I find that the true nature of the transaction between the parties is that the Plaintiff sold the goods to the Defendant. In turn, the Defendant either sold the goods to the Dong Guan Company or that it had a joint venture with the Dong Guan Company which required the EPS. Whatever it is, the Defendant was the purchaser of the EPS and is liable for the balance of the purchase price.

I find for the Plaintiff and accordingly give judgment in the sum of US$116,139.50. There shall be interest at judgment rate from the date of the service of the writ to payment and costs of the action to the Plaintiff.

(P. Cheung)

Judge of the High Court