HI-WATT INTERNATIONAL ENTERPRISES LTD v. MULTI-LUCK DEVELOPMENT LTD AND ANOTHER

HCA 4305/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4305 OF 2001

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REASONS  FOR  JUDGMENT

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Introduction

1.  At the end of the trial of this action, I entered judgment with interest and costs in favour of the plaintiff.  The following are the reasons for the judgment.

Background Facts

2.  Prior to about 2001, the plaintiff and the 1^st defendant were closely related.  There was a partial overlap in their directorship and the office premises and staff were also shared.

3.  As can be expected, there have also been funds flowing between the two companies.

Issues in this Action

4.  The plaintiff claimed the sum of HK$1.25 million odd from the 1^st defendant.  The claim was based on a real account stated.  By the time of the trial, the plaintiff only pursued its claim against the 1^st defendant (“the defendant”).  The account stated was allegedly evidenced in a document executed by the defendant on 3 April 1996 (“the Apr 96 accounts”).

5.  The defendant, on the other hand, denied that the Apr 96 accounts were a real account stated.  In the defence pleadings, it was agreed there were cross-debts between the two companies.  However, the defendant pleaded that the indebtedness shown in the Apr 96 accounts was only:-

(a)     the result of the plaintiff’s accounting staff (which also prepared the defendant’s books and accounts) mistakenly treating the plaintiff’s repayments to the defendant and the plaintiff’s use of the defendant’s banking facilities as the defendant’s debts;

(b)    the result of the plaintiff’s accounting staff wrongly charging the defendant for interest in the defendant’s books and accounts.

It was claimed that the Apr 96 accounts was executed upon the plaintiff’s misrepresentation that the Apr 96 accounts accurately recorded the true state of accounts.  The words “on the face of the accounts” (在帳面上) were inserted into the Apr 96 accounts to indicate that the parties recognized the need for the defendant to verify the accounts.

Important Documents

6.  The first important document is naturally the Apr 96 accounts.  The relevant parts read:-

“[被告人]原是振興輕工供銷聯合總公司與[原告人]的合資公司。一九九四年 … [被告人]成為振興公司在港的獨資公司。

根據[原告人]和[被告人]的要求，… 雙方就[原告人]，[被告人]，華興三方從一九八八年至一九九五年十月期間的往來帳，債權債務進行了認真的對帳清理 … 雙方對存在問題及處理意見達成共識協議如下 :

…

在帳面上， … [被告人]應收各種款項共計港幣12,329,511.81元，經對帳核實，其中 … [原告人]佔用港幣3,669,581.72元 …

在帳面上，[被告人]虧損港幣1,861,981.58元，減去九四年盈利港幣118,937.54元，實際虧損1,743,044.04元。雙方 … 同意 … 由[原告人]和華興公司兩方各負擔一半 … 即[原告人]負擔港幣871,522.02元 …

在帳面上，[被告人]應付[原告人]港幣5,797,707.33元，而[原告人]佔用[被告人]港幣4,541,103.74元（其中應負擔虧損港幣871,522.02） … 兩帳比對，[被告人]多佔用[原告人]港幣1,256,603.59元 … 此款項付還給[原告人]，則[被告人]與[原告人]的往來帳全部核對清楚和清理完[畢]。

…

[被告人]的銀行信用額擔保，應轉由振興公司負責，與銀行的債務關係，應由[被告人]承擔，與[原告人]無關。

… ”。

7.  The other relevant document was a letter dated 19 May 2001 (that is, more than 5 years after the date of the Apr 96 accounts) signed by the 2^nd defendant.  The important parts are:-

“… 關於一九九六年四月三日簽訂清理帳目的協議。

對帳後，[被告人]佔用[原告人]港幣1256603.59元，‘華興’公司分期清還給[被告人]，由[被告人]還給[原告人]，並於一九九五年，由華興公司直接還給[原告人]港幣244377.34元 …

清理帳目本應順利進行，但是，由於廣州華興公司於一九九七年接到 … [通知] ，‘華興’公司龍先生悉知[原告人]尚未還款給[中國人民]保險公司，故即全都停止還款給[原告人] … 另外，廣州高力公司佔用廣州華興人民幣206109.36 … ”

(“the May 01 letter”).

8.  The above documents have been included in the bundles agreed for use at trial.  Hence, their authenticity and admissibility were undisputed.

9.  As set out below, I rejected the testimony of defence witnesses and found the testimony of the plaintiff witnesses to have no weight in the determination of the issues in this action.

10.  However, I agreed with the plaintiff that the above documents should be given full weight.  As stated above, there was no dispute regarding their authenticity or admissibility.  There was also no dispute that the 2^nd defendant has authority to sign them.  Further, as the plaintiff correctly submitted, they were consistent with a number of what can be regarded as contemporaneous documents such as:-

(1)     the trial balance of the defendant up to October 1995;

(2)     the defendant’s account ledger relating to the current account with the plaintiff for the period from January 1993 to November 1995.

11.  The defence contended that there were documents which were inconsistent with the above documents.  I also agreed with the plaintiff that the contention was based on speculations, or was otherwise unfounded.

12.  There was no dispute whether the Apr 96 accounts amounted in law to a real account stated was also a matter of construction of the document: Chitty on Contracts (2004) 29^th Ed., para. 29-191 (pp. 1748-9), text to nn. 1042-1053.  Having examined the contents, I am satisfied that the Apr 96 accounts amounted to a real account stated.

Witnesses’ Testimony

13.  Four witnesses testified at trial:-

(1)     Kong Bun for the plaintiff (“Kong”);

(2)     Deng Dong-guang for the plaintiff (“Deng”);

(3)     Wu Wei-zu for the defendant (“Wu”);

(4)     Liang Hui-tao for the defendant (“Liang”).

14.  For the reasons set out below, I rejected the testimony of the defence witnesses as incredible.

15.  Their testimony regarding the Apr 96 accounts was in short as follows.  Wu has since the defendant’s incorporation been involved in its operation (at least the business side of its operation).  He was at the time a director and the plaintiff’s deputy general manager.  He was a seasoned businessman; he has about 20 to 30 years’ business experience.

16.  Liang has also been involved in the defendant’s operation (at least the administrative side of it) since its incorporation.  He was at the time a director and the plaintiff’s assistant general manager.

17.  The defence witnesses’ version of events at trial was very different from the way in which the defence case was pleaded.  In essence, it was not that the accounts between the plaintiff and the defendant needed to be verified, but was simply that:-

(a)     the defendant “hardly carried on any business” at all;

(b)    hence, the defendant simply could not have incurred any liability;

(c)     the defendant signed the Apr 96 accounts because, at the time, Wu and Liang were wrongly accused of having improperly appropriated huge amount of funds for their personal use and Wu was willing to sign any document to avoid the accusation.

Further, when Wu testified, he said that, even by the time of the May 01 letter, he still had not checked the defendant’s books and accounts and he still regarded the Apr 96 accounts were accurate.

18.  I pause to note that Wu admitted in his testimony he probably had seen the defendant’s account ledger (see para. 10(2) above) before he signed the Apr 96 accounts on the defendant’s behalf.

19.  The defence case regarding alleged misrepresentation was changed in a material way.  Originally, it was pleaded that Kong fraudulently misrepresented that the trial balance was accurate in order to induce the defendant to sign the Apr 96 accounts.  That was amended after February 2006 to allege that the misrepresentation was made by either Kong or a Mr. Su.

20.  I considered the defence testimony to be inherently incredible.  First, it is unbelievable that an experienced businessman would sign documents (that is, the Apr 96 accounts and the May 01 letter) which in effect were an acknowledgement of indebtedness when such debts never existed in fact.  Further, the version of events testified to was inconsistent with the defendant’s pleaded case.

21.  The case relating to the alleged misrepresentation was also rejected.  I noted that the change in this part of the pleading followed the filing of Kong’s witness statement dated 10 February 2006 in which he basically refuted any improper conduct on his part.  Such a change was more consistent with the making up of a case to tally with how events developed. 

22.  On the other hand, the testimony of the plaintiff’s witnesses should be given no weight.  Although Kong signed the Apr 96 accounts on behalf of the plaintiff, he could not recall clearly what happened at the time.  Moreover, he only joined the plaintiff in late 1995 and so, by the time of the Apr 96 accounts, he was not familiar with the details relating to the account between the plaintiff and the defendant.

23.  Deng only joined the plaintiff in 1999.  He only became involved with this matter (including this action) in 2002.

24.  Having so concluded in relation to credibility, I should state that, if it had been necessary to do so, I would have preferred the testimony of the plaintiff’s witnesses to that of the defence witnesses.

Other Matters

25.  For completeness, I should also mention that the defence has raised additional arguments regarding:-

(1)     the charge for 2 sums of interest;

(2)     the sum claimed on behalf of a company called Most Nice Ltd. (滿力有限公司).

There is no need to go into the details suffice it to say I agreed with the plaintiff’s submissions and disagreed with those of the defence regarding these matters.

Costs Order

26.  There was no apparent reason to depart from the usual rule that costs should follow the event.  The defendant has not suggested I should depart from that rule.  Accordingly, I made the costs order that the costs were to be paid by the defendant to the plaintiff to be taxed if not agreed.