XCHRX H & E TSURUMI PUMP CO. LTD. v. WING SHING METAL CO. AND OTHERS

HCA 5536/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. A5536 OF 1999

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J U D G M E N T

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1. The Plaintiff's claim against the 1st Defendant is for $3,350,461.00 being the price of goods allegedly sold and delivered, as evidenced by invoices bearing various dates between 5 November 1996 and 31 March 1998. Its claim against the 2nd and 3rd Defendants is on dishonoured cheques bearing dates from 31 May 1998 until 28 February 1999, the Plaintiff says these were issued to it in consideration of its forbearing to sue the 1st Defendant for the outstanding price which I have mentioned.

2. The evidence filed by the 1st Defendant suggests that "Wing Shing Metal Company" was initially the trading name or style of a sole proprietorship set up by Ivy Leung Chui Wah and that as from 1992, her brother, Denis Leung Yiu Chung ("Denis Leung") took it over. In these proceedings, the Plaintiff and Denis Leung have both treated the Action against the 1st Defendant as one against Denis Leung personally although he has not been named as a Defendant. In this judgment, I will do the same.

3. The 2nd Defendant is a company whose directors consist of Denis Leung and other members of his family, including Leung Yiu Kwong and Leung Pak Chung. They are also among the 2nd Defendant's shareholders. The 3rd Defendant is 98% owned by Leung Yiu Kwong, who is also one of its directors.

4. On 17 May 1999, the Plaintiff took out a summons for summary judgment against all three Defendants. Summary judgment has now been entered against the 2nd and 3rd Defendants.

5. Denis Leung, trading as the 1st Defendant, contended by way of defence that he had neither ordered nor received delivery of any of the goods in question on his own behalf, but only on behalf of the other two Defendants.

6. On 21 October 1999, after hearing argument, Master Cheung ordered that leave to defend be granted to the 1st Defendant conditional on his payment into court of the full claim amount. The 1st Defendant now appeals against that decision, contending that he should have been given unconditional leave to defend.

The evidence

7. Denis Leung has filed evidence with a view to showing that, at times material to the proceedings, the 2nd Defendant has consistently stated in its trade advertisements, on its business cards, on its letter head and on other stationery, that "Wing Shing Metal Company" was "wholly owned by" the 2nd Defendant or that the 2nd Defendant was trading as "Wing Shing Metal Company". Denis Leung also points to the fact that on various delivery orders covering the goods in question, stamps placed by way of receipt contain the words "Sourcehill Investment Ltd T/A Wing Shing Metal Company" or "Wing Shing Metal Company O/B Honwall Investment Ltd".

8. He alleges that, as from the time that the 2nd Defendant was incorporated, namely, in 1987, he had himself ceased trading on his own behalf and that the trading name or style "Wing Shing Metal Company" had been adopted by the 2nd Defendant. He claimed that subsequently, as from October 1996, that trading style was assumed by the 3rd Defendant. I assume that when he says that he ceased trading on his own behalf, he means that he or his sister had so ceased trading since it is his evidence that he did not take over the business until 1992.

9. However, the Business Registration certificates and communications with the Inland Revenue Department which have been exhibited, suggest that the 1st Defendant may have ceased trading much later. They include a notification to the Commissioner from the 1st Defendant stating that it had ceased trading on 31 May 1998. Denis Leung explains that the 1st Defendant did not "cancel" its business registration because a property on the mainland was held in its name. He nevertheless asserts that as from 1987, the 1st Defendant as a firm did not engage in any transactions on its own behalf.

10. In response, the Plaintiff argues that the goods were delivered to the 1st Defendant at its Canton Road address and that, whatever the stamps applied to the delivery orders may say, the goods were received by the 1st Defendant.

11. It is however the case that the 1st Defendant has exhibited documents showing that in making payment to the Plaintiff by letter of credit, the applicant for the L/Cs was named as "Sourcehill Investment Ltd T/A Wing Shing Metal Company". The L/Cs' documentary requirements apparently included cargo receipts addressed to the Plaintiff, issued by the 2nd Defendant "T/A Wing Shing Metal Company". Also exhibited is an example of an order placed by the 2nd Defendant "T/A Wing Shing Metal Company" with the Plaintiff although the Sales Note issued by the Plaintiff in response names "Wing Shing Metal Company" as the buyer without referring to the 2nd Defendant.

12. Similar documents are exhibited in support of the 1st Defendant's case that after October 1996, it was the 3rd Defendant who was doing business with the Plaintiff using the trading name or through the agency of "Wing Shing Metal Company". Thus, orders appear to have been placed with the Plaintiff by "Wing Shing Metal Company O/B Honwall Investment Ltd", payments were apparently made and faxes sent, addressed in the same manner. Several letters and faxes passing between the Plaintiff and the Defendants also involve the Plaintiff itself using a similar mode of address.

13. I understand the abbreviations "T/A" and "O/B" to mean "trading as" and "on behalf of" respectively.

14. Mr Hectar Pun, appearing on the 1st Defendant's behalf, also pointed to the fact that when confronting the evidence filed on behalf of the 3rd Defendant, the Plaintiff proceeded on the basis that the goods in question had been ordered by the 3rd Defendant, contrary to its present case in which the ordering and receipt of goods is attributed solely to the 1st Defendant.

15. Mr Patrick Szeto, appearing for the Plaintiff, sought to uphold the Master's decision. He argued that in effect, the 1st Defendant had used the 2nd and 3rd Defendants to evade the 1st Defendant's liabilities in respect of goods which the 1st Defendant had purchased. He stressed the closeness of the relationship between the 1st Defendant, members of his family and the 2nd and 3rd Defendants. As I understand it, his argument was that it was objectionable for the 1st Defendant to slough off his liabilities to companies with limited liability.

Unconditional leave to defend

16. In my judgment, the appeal must be allowed and the 1st Defendant given unconditional leave to defend. Whatever the result of the trial may be, it is my view that the contemporaneous documents exhibited raise a triable issue as to whether Denis Leung incurred personal liability for the price of the goods sold and delivered.

17. It is in the first place arguable, on the basis of such documents, that the Plaintiff was as a matter of fact and law contracting with the 2nd and/or 3rd Defendants who were using the "Wing Shing Metal Company" trading name but contracting on their own behalf.

18. Alternatively, it seems to me to be arguable whether Denis Leung, acting either personally or using the trading name of "Wing Shing Metal Company", was acting as agent on behalf of the 2nd and/or 3rd Defendants and whether, in so doing, he succeeded in expressly or impliedly negativing his personal liability.

19. In my view, Mr Szeto's attack on the 1st Defendant's case begs the question. To accuse the 1st Defendant of evading his liabilities by use of companies with limited liability pre-supposes that the 1st Defendant has incurred liabilities in the first place. Whether he did so is very much the question in issue.

20. To try to meet this point, Mr Szeto sought to rely upon a letter written by Denis Leung and one Tammy Wong to the Plaintiff dated 25 March 1998 as establishing the 1st Defendant's liability. It is undesirable that I say too much about the substantive merits in the light of my decision. Suffice it to say that I consider that such letter is at least arguably ambiguous both as to its meaning and as to the capacity in which it was written by its authors and sent to the Plaintiff. It appears arguably capable of supporting either side's case.

21. The fact that the companies are family companies which were set up to take over and conduct the business previously run by Ivy Leung or Denis Leung so that the benefits of limited liability could be enjoyed is not in itself a ground for suspicion. Ever since Saloman v Saloman & Co [1897] AC 22, it has been recognized that an individual is entitled to take such a course provided that this is not done with a view to defrauding existing creditors. Although Mr Szeto complained that the companies were being used as a "smokescreen" and as a means of evading the 1st Defendant's liabilities, fraud is not alleged as against Denis Leung or either of the other Defendants. Indeed, such an allegation would exclude the case from the ambit of Order 14.

The 1st Defendant's appeal

22. The 1st Defendant sought an Order under O 15 r 6 that he ceased to be a party to the Action, contending that he had been improperly or unnecessarily joined since the relevant liabilities had been incurred by the other Defendants and not by him.

23. It will be obvious from the foregoing that no such order can be made summarily. The central question in issue is whether the 1st Defendant personally assumed liability to the Plaintiff for the price of the relevant goods. That is a matter which must go to trial. Master Cheung dismissed the 1st Defendant's application and the appeal from his decision on this point must be dismissed with costs.

Conclusion

24. I accordingly allow the appeal and substitute an order that the 1st Defendant have unconditional leave to defend but directions given by Master Cheung in his Order dated 13 October 1999 in paragraphs 3, 4, 5, 6, 7 and 8 should stand.

25. I dismiss the 1st Defendant's appeal against Master Cheung's rejection of his application under O 15 r 6 with the costs of such appeal to the Plaintiff in any event. The costs of the present appeal should otherwise be paid by the Plaintiff to the 1st Defendant in any event. The Order of Master Cheung for the costs below to be costs in cause will remain undisturbed.