FORCE 8 CELLARS LTD. v. LO CHI SING, MARTIN

HCA19684/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.19684 OF 1999

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J U D G M E N T

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1. The plaintiff was the ex-employer of the defendant. It sued the defendant for :

(a) money had and received in respect of proceeds of cheques issued by the plaintiff and misappropriated for the use by the defendant;

(b) damages for breach of employment contract.

2. The defendant was convicted in the District Court on 30 March 2001 of obtaining property by deception on sample charges arising from the misappropriation of the proceeds of the cheques and was sentenced to imprisonment. He was discharged from prison on 23 February 2002.

3. On the first day of trial on 25 February 2002, the defendant failed to appear. He wrote to the Court stating that he received the notice of hearing in prison, but wished to apply for an adjournment of one month, because he was mentally tired and distressed and needed time to prepare his defence. The case was adjourned to 26 February 2002 and the plaintiff attempted to serve a notice of hearing for the adjourned hearing on the defendant personally at the last known address but no one was present. The notice was left at the last known address. The court staff also attempted to contact the defendant by phone but there was no response.

4. Counsel for the plaintiff applied to proceed in the absence of the defendant on the following grounds :

(a) the defendant had had notice of the hearing;

(b) the defendant had failed to comply with the Order of the Master dated 10 May 2000 in making discovery and exchange of witness statement;

(c) the defendant had failed to amend the Defence to the Amended Statement of Claim dated 11 June 2001;

(d) the defendant had refused to accept the service of the bundle of documents in prison.

5. I am satisfied that the defendant intended to delay the trial of the action and I ordered that the matter be tried in the absence of the defendant.

Background

6. The plaintiff is a wine merchant in Hong Kong. The defendant was the manager of the plaintiff responsible for sales and accounting.

7. In the original Statement of Claim, 29 cheques were included (para.3(a) to (cc)) ("Cheque (a) to Cheque (cc)"). On 10 May 2000, interlocutory judgment was entered by the Master in the sum of $397,769.40 under Order 14, rule 3. Counsel for the plaintiff submitted that the interlocutory judgement covered Cheque (a) to Cheque (i) and Cheque (s), and the total amount should be $397,770.74, and there was a discrepancy of $1.34 due to the plaintiff.

8. As to Cheque (j) to Cheque (r) and Cheque (t) to (cc), the total amount is $621,449.95. The defendant had repaid $621,705 to the plaintiff and it was admitted in the Statement of Claim. The plaintiff no longer pursues the claim thereon and further, credit of $255.05 overpaid should be given to the defendant.

9. The Order of the Master dated 10 May 2000 also gave interlocutory judgment for damages to be assessed in respect of the balance of the claim. Counsel for the plaintiff submitted that the Order 14 proceedings did not cover the breach of contract claim and that part of the Order is incorrect.

10. On 11 June 2001, the Statement of Claim was amended as follows :

(a) Cheque (dd) to (qq) were added;

(b) A claim of loss of profit of $500,000 was added to the particulars of damages for breach of employment contract.

11. At the beginning of the trial, counsel for the plaintiff applied for re-amendment of the Statement of Claim :

(a) to plead the specific terms of the contract and the implied term of honesty to the employer;

(b) to plead mistake of facts and/or no consideration under money had or received;

(c) to add the breach of contract as an alternative to money had or received in respect of the cheques;

(d) to plead the conviction of the defendant in respect of the cheques.

12. I allowed the re-amendment notwithstanding that the plaintiff was proceeding in the absence of the defendant on the following grounds ;

(a) breach of employment contract was previously pleaded and the contract was disclosed in the plaintiff's documents and the amendment did not substantially alter the nature or quantum of the claim;

(b) money had or received was also previously pleaded and the particulars did not alter the nature of the claim;

(c) the alternative claim of breach of contract on the cheques did not add much to the claim of money had and received;

(d) the conviction related only to sample charges for cheques which had been included in the interlocutory judgment.

13. The claim before me only relates to Cheque (dd) to Cheque (qq) and the breach of employment contract.

Claim on the cheques

14. Ms Laura Budlong is a director of the plaintiff. She said the defendant suddenly disappeared from the office in August 1998. The replacement accountant found discrepancies in the bank reconciliation done by the defendant. By then, the 1998 accounts have not been drawn up nor audited.

15. All of Cheques (dd) to Cheque (qq) and the stubs were written by the defendant and signed by Ms Budlong. The cheques were dated from January 1998 to July 1999. Sometimes, Ms Budlong needed to travel and would sign cheques leaving the payee and the amount blank so that the defendant could use them to pay for the freight forwarder once the name and amounts were known. She had also signed cheques which were crossed on the face but not as to the bearer. She had not noticed that those cheques remained bearer cheques but believed they could only be deposited into the payee's account.

16. All the relevant cheques had been debited from the plaintiff's bank account. Except for the cash Cheque (oo) and the two cheques for the HKSAR Government (Cheque (ee) and Cheque (ff)), they were either deposited into the defendant's Hongkong Bank account or the Citibank account.

17. In relation to the specific cheques :

(dd) The payee was Kang Wai Na, an employee of the plaintiff. It was a bearer cheque. The accounting entry was stated to be payment for Hong Kong Telecom. The Defendant's signature and Citibank account number appeared at the back of the cheque. Ms Budlong said Kang denied receiving the sum.

(ee) The payee was the HKSAR Government. The plaintiff would pay the HKSAR Government import duties but the amounts were usually between $3,000 to $20,000. This cheque was for $146,650.96 and was usually large. The stub was blank. There was no entry in the accounting system nor any supporting document in the relevant files.

(ff) The payee was also the HKSAR Government. The amount was $89,779.00. Similarly, the stub was blank and there was no accounting entry nor supporting document. Ms Budlong alleged that the defendant had used Cheque (ee) and Cheque (ff) to settle debts due to the HKSAR Government not owed by the plaintiff.

(gg) The payee was the defendant. The amount was $3,750. The accounting entry showed it as a payment to the South China Morning Post.

(hh) The payee was the defendant. The amount was $8,800.00. The stub showed $880. There was no accounting entry nor supporting document. From the cheque, it appeared that the "0" of the unit digit was written on a dot, suggesting that the figure was originally $880.00 and another "0" was inserted therein.

(ii) The payee was the defendant. The amount was $3,614.80. The stub showed "ICL" i.e. the International Connoisseurs Limited, an inactive company also owned by Ms Budlong. There was no accounting entry nor supporting document.

(jj) The payee was Dale H Budlong, Ms Budlong's father. The amount was $16,577.00. It was crossed but not as to bearer. It was deposited into the defendant's Citibank account. Ms Budlong said he father never received the payment.

(kk) The payee was the defendant. The amount was $44,365.50. The stub stated "William", supposedly William Yan, a part-time programmer earning $2,000 a month. There was no accounting entry nor supporting document.

(ll) The payee was Law Tat Cheung, an employee of the plaintiff earning $20,000 a month. The amount was $53,365.90. It was a bearer cheque. The stub was blank, with a yellow sticker stating "For Daily Shop 1 month plastic bag". It was deposited into the defendant's Citibank account. Ms Budlong said Law never received the amount, and Daily Shop was the plaintiff's distributor and had nothing to do with plastic bags.

(mm) The payee was Chung Oi Yan, the plaintiff's delivery contractor. The amount was $33,863.50. It was a crossed but bearer cheque. It was deposited in the defendant's Citibank account after a gap of two months.

(nn) The payee was Chung Oi Yan. The amount was $28,516.00. It was a crossed but bearer cheque. It was deposited in the defendant's Hongkong account after a gap of two months.

(oo) This was a cash cheque for $7,115.54. There was no entry or supporting document. The defendant's signature appeared on the back of the cheque, and presumably he had endorsed it for cash.

(pp) The payee was Eurozip. The amount was $52,636.00. It was a crossed but bearer cheque. It was deposited in the defendant's Citibank account. There was no entry or supporting document. Ms Budlong said she had probably signed this cheque in blank for payment of the freight forwarders.

(qq) The payee was Chung Oi Yan. The amount was $9,708.00. It was a crossed but bearer cheque. It was deposited in the defendant's Citibank account. There was no entry or supporting document.

18. The total amount for Cheque (dd) to Cheque (qq) is $504,198.80.

Breach of contract

19. In February 1998, the plaintiff entered into a contract for the sale of 40,000 bottles of Australian wine at $50 per bottle to the Bank of China Credit Card Service Limited ("BOC") during the year 1998/99. The wine was to be a birthday present by BOC to its credit cardholders. The defendant took part in the negotiation of the contract. Subsequently, the defendant entered into another agreement in Chinese with the BOC superseding the original contract whereby the plaintiff agreed to pay BOC a delivery fee of $10,000 per month, totalling $120,000. The plaintiff had no record of this agreement in Chinese and Ms Budlong did not know about it until she was informed by BOC in August 1999. The plaintiff had to give rebate of $120,000 to BOC. The plaintiff claims $120,000 as damages for breach of employment contract by the defendant.

20. In March 1999, the plaintiff entered into a contract for the sale of 40,000 bottles of Italian wine at $50 per bottle to BOC during the year 1999/2000. Subsequently, the defendant entered into another agreement in Chinese with the BOC superseding the original contract whereby the plaintiff agreed to reduce the unit price to $47 per bottle and to pay BOC a delivery fee of $10,000 per month, totalling $120,000. The plaintiff had no record of this agreement in Chinese and Ms Budlong did not know about it until she was informed by BOC in August 1999. The plaintiff had to give rebate of $120,000 to BOC and suffered a loss of $3 for every bottle sold. The plaintiff eventually supplied 56,314 bottles to BOC under the 1999/2000 contract. The plaintiff claims $120,000 and also the damages of $156,000 based on the loss of $3 for 52,000 bottles.

21. The defendant has signed a note dated 10 November 1999 stating, inter alia, the following :

"I will also repay HK$350,044 regarding the loss to Force 8 Cellars from the original English Bank of China agreement."

22. Ms Budlong said the 1998/99 contract was highly successful and more wine was sold than contracted and as a result BOC continued with the 1999/2000 contract. It was intended that the contract would be renewed in 2001/02. However, when BOC knew that the defendant had committed fraud against the plaintiff, they were apprehensive of any adverse publicity and decided not to contract with the plaintiff. The plaintiff claims the loss of profit of $500,000 in respect of the prospective 2000/01 contract.

23. Ms Budlong has produced detailed costing analysis for the 2000/01 contract exhibiting the unit price, exchange rate, duty payable and the costs of warehousing and transportation. The target sales of 55,000 bottle were based on the actual 1999/2000 figures. The gross margin was 45% and the estimated profit was about $1.2 million. Ms Budlong said the average gross margin for the plaintiff was 40%, and it was higher for Italian wine because of the devaluation of the Lira. The particular of damages in the Amended Statement of Claim was $500,000 because she had only roughly estimated the profit based on higher unit costs. She said it was a matter of estimate and she would accept an assessment of $500,000 by the court.

24. The plaintiff also claims the costs of an air ticket of $24,044 paid by the plaintiff to an employee of BOC. For the 1998/99 contract, employees of BOC visited the vineyards in Australia and they paid for their own expenses. Ms Budlong specifically instructed the defendant that not to pay for the air ticket for the trip to Italy for the 1999/2000 contract. Contrary to the instruction of Ms Budlong and in breach of the employment contract, the defendant caused the plaintiff to pay for the air ticket for the Italy trip. The plaintiff claims the costs of the air ticket.

Assessment of evidence

25. Having heard Ms Budlong go through Cheque (dd) to Cheque (qq), I am satisfied that the plaintiff's claim thereon has been made out. I shall also allow the claim on the air ticket.

26. As to the loss of profit claim, the plaintiff has not called any evidence from BOC as to the true reason of why the plaintiff was not awarded the 2000/01 contract. The only evidence is the hearsay evidence of Ms Budlong. There is also no explanation as to why BOC obtained a discount after signing the two contracts. Even without the fraud by the defendant, BOC may or may not award the contract to the plaintiff. Hence, I am not satisfied that the claim is made out.

Conclusion

27. The plaintiff shall recover the following :

(a)	Money had and received on
	Cheque (dd) to Cheque (qq)		$504,198.80
(b)	Breach of employment contract
	(i)	BOC 1998/99 contract
		Delivery charges	$120,000.00
	(ii)	BOC 1999/2000 contract
		Delivery charges	$120,000.00
		Difference in price	$156,000.00
	(iii)	Unauthorised air ticket	$24,044.00
(c)	Balance due to the plaintiff under the interlocutory judgment		$1.34
(d)	Credit due to the defendant in payment re :
	Cheque (j) to Cheque (r) and
	Cheque (t) to (cc)		($255.05)
	Total		$923,989.09

Interest

28. The plaintiff is entitled to interest at the judgement rate from the date of the writ to judgment, thereafter at judgment rate until payment.

Costs

29. The defendant shall pay the costs of the action to the plaintiff.