MILL-PRO (HONG KONG) LTD (formerly known as DASH SOLUTIONS LTD) v. POLLARD-CNCEC JOINT VENTURE

DCCJ2240/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2240 OF 2015

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DECISION

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1.  This is the hearing of the plaintiff’s summons issued on 7 September 2015 for summary judgment against the defendant under Order 14 of the Rules of the District Court. The defendant opposes this application.

The Plaintiff’s Claim

2.  The plaintiff claims against the defendant, a joint venture, for outstanding payment of goods sold and delivered to the defendant.

3.  Between 9 September 2013 and 22 July 2014, the defendant issued to the plaintiff 14 purchase orders (“the Purchase Orders”) to buy materials and supplies of water system (“the Goods”) for a total price of HK$2,962,703.98 (“the Total Price”).

4.  The plaintiff delivered the Goods to the defendant pursuant to the Purchase Orders.

5.  The plaintiff issued to the defendant 36 invoices (“the Invoices”) for the Total Price for the Goods delivered.

6.  The defendant made payments totaling HK$2,494,927.30, leaving an outstanding amount of HK$467,776.68 unpaid despite repeated demands and requests from the plaintiff.

7.  The plaintiff claims against the defendant herein the outstanding amount of HK$467,776.68.

8.  The plaintiff has adduced documentary evidence and affirmation evidence from its Sales Manager Hui Lok Leung Avery (“Hui”) as follow:-

(1) Hui was responsible for handling the plaintiff’s business with the defendant and mainly dealt with Eric Tai (“Tai”) of the defendant;

(2) A name card of Tai is adduced in evidence showing his position to be the Assistant Project Manager of the defendant;

(3) The Purchase Orders were all issued by the defendant to the plaintiff under the defendant’s letterhead with details of its site office address, telephone and fax numbers, etc.  They were signed and impressed with the defendant’s company chop;

(4) The Goods were all delivered during the period from 30 October 2013 to 30 September 2014 pursuant to the Purchase Orders;

(5) Upon delivery of the Goods to the defendant’s sites or collection by the defendant’s staff, the defendant’s staff taking or accepting delivery would stamp the defendant’s chop and sign on the delivery notes;

(6) The plaintiff issued the Invoices to the defendant between 10 October 2013 and 30 September 2014;

(7) The plaintiff received 10 payments totaling HK$2,494,927.30 between 7 October 2013 and 18 July 2014;

(8) After receipt of the Goods, the defendant would make claims from the consultant Black & Veatch Hong Kong Limited (“the Consultant”) for these materials on site (MOS claims), ie the defendant has received payment for the Goods supplied by the plaintiff; and

(9) The Goods have to satisfy the IIB Test.  The plaintiff has obtained all required IIB Test Reports, many of which have been provided to the defendant.  Some of the IIB Test Reports are retained by the plaintiff pending full payment by the defendant.

The Defence

9.  The defendant’s pleaded defence is that it had never entered into any contract for purchase of the Goods with the plaintiff nor had it authorized anyone to do so.  It denies that it ever settled any payment of the Invoices.

10.  In opposing this application for summary judgment, the defendant has adduced an Affirmation filed on 18 November 2015 from Tso Hung Chuen (“Tso”) who states the following:-

(1) Tso is a director of Pollard Construction Co Ltd (“Pollard”), a partner of the defendant joint venture;

(2) Tai was employed by the defendant as the Assistant Project Manager to assist in execution of the site works.  He was a technical man who had no authority to enter into any contract on behalf of the defendant or Pollard;

(3) Tai’s authority as the Assistant Project Manager is limited, as shown in the example of an authority letter dated 13 June 2014 from the defendant to the Consultant (“the Authority Letter”), to a financial commitment of HK$300,000 in respect of each item of issues for the omitted items and variation orders;

(4) The Purchase Orders bear the signatures of Tai and Gary Cheung (“Cheung”), a director and shareholder of another company Kintech Engineering Limited (“Kintech”), a sub-contractor of the defendant;

(5) Hui knew well from his previous experience when working for another company Tyco Water Hong Kong (“Tyco”) in dealing with Pollard that any purchase of supplies had to be processed and approved by Tso on behalf of Pollard.  Hui therefore should know that Tai had no authority to enter into any agreement to purchase, sign and issue the Purchase Orders on behalf of the defendant;

(6) Tai and Gary Cheung had stolen the defendant’s letterhead and chop for making the Purchase Orders.  It was in fact Kintech but not the defendant who had entered into the agreement to purchase the Goods from the plaintiff;

(7) The partial payment totaling HK$2,494,927.30 of the Invoices was made by Kintech but not the defendant, as evidenced by a cheque dated 30 May 2014 drawn by Kintech for payment of HK$361,252;

(8) Tai has disappeared and could not be located since September 2014.  Subsequent investigation revealed that he was a major shareholder of Kintech.  He had forged the agreement on behalf of the defendant of the sale and purchase of the Goods.  A Third Party Notice was issued against Tai herein on 29 June 2015.  Kintech had disposed of all real properties and was ordered to be wound up on 16 September 2015; and

(9) Some of the Goods delivered were not in compliance with the required specifications as no IIB Test reports were rendered by the plaintiff.

11.  Defence counsel submitted in court that the provision of the IIB Test Reports is a condition precedent of the sale and purchase agreement as evidenced in the Purchase Order.  In the event that the Purchase Orders are held to be binding on the defendant, the defendant is still entitled to withhold payment of the outstanding sums, ie the subject matter of the claim herein, due to non-provision of the IIB Test Reports.  This is the defendant’s fall-back position.

12.  This alternative position or defence is not pleaded in the Defence.

13.  It is noted that some, but not all, of the Purchase Orders contain the term of payment of “30 Days after materials and IIB report delivered”.

The Law: Order 14 summary judgment

14.  The legal principle on Order 14 summary judgment is trite.  The underlying policy of the summary procedure is to prevent a defendant from delaying the plaintiff from obtaining judgment in case in which the defendant clearly has no defence to the plaintiff's claim: Man Earn Ltd v Wing Ting Fong [1996] 1 HKC 225.  It enables plaintiffs in those cases to obtain expeditious summary judgment to avoid unnecessary delay.

15.  Once the plaintiff has established a prima facie case against the defendant, both procedurally and substantively, the burden will be on the defendant to satisfy the court that there is a triable issue and summary judgment should not be granted against him.  See §14/4/1 of the Hong Kong Civil Procedure 2016.

16.  In Ng Shou Chun v Hung Chun San [1994] 1 HKC 155, Godfrey J noted it was not appropriate to embark on a mini-trial of the action on affidavit evidence.  The court should ask itself the question whether what the defendant says is credible or believable.  If so, he must have leave to defend; if not, the plaintiff is entitled to summary judgment.

Discussion

17.  There is no evidence in support of the defendant’s allegation of lack of authority of Tai in dealing with the plaintiff and procuring the contract as evidenced by the Purchase Orders.  There is no documentary evidence of eg any internal memo or mandate to demonstrate that Tai, in his capacity as the Assistant Project Manager of the defendant, had no authority or otherwise exceeded his authority in procuring or issuing the Purchase Orders.

18.  The Authority Letter, issued by the defendant to the Consultant, relates to omitted items and variation orders in construction works.  It does not have the effect of restricting the authority of the Assistant Project Manager in procuring or entering into the sale and purchase agreement with the plaintiff. It post-dates almost all of the Purchase Orders (issued between September 2013 and July 2014).  

19.  In any event, the plaintiff is entitled to rely on Turquand’s rule, also known as the indoor management rule, referred to and formulated by the Court of Appeal in Grand Trade Development Ltd v Bonance International Ltd [2001] 2 HKLRD 759 (per Le Pichon JA) as follows:-

“Persons contracting with a company and dealing in good faith have always been entitled to assume that acts within its constitution and powers have been properly and duly performed, and were never bound to enquire whether acts of internal management have been regular.”

20.  The Purchase Orders are all under the defendant’s letterhead, bear its address, impressed with the company chop and signed.

21.  In 11 out of the 14 Purchase Orders, Louis Chui, the defendant’s Site Engineer, is stated to be one of the two contact persons for delivery.

22.  The Goods were delivered by the plaintiff to the defendant’s sites (of which it was the main contractor) or collected by the defendant’s staff during the period from 30 October 2013 to 30 September 2014 per the dates of the delivery notes.

23.  The delivery notes, evidencing receipt of delivery of the goods purchased, are impressed with the defendant’s company chop and signed.

24.  10 payments were received by the plaintiff, amounting to a main bulk or about 84% of the Total Price, pursuant to receipt of delivery of the Goods.

25.  The course of dealings between the plaintiff and the defendant was not a one-off transaction but lasted many months.

26.  There is no dispute that the defendant had used the Goods delivered to it by the plaintiff to make MOS claims and had received payments from the Consultant.

27.  The fact that a few of the Purchase Orders and delivery notes were not signed and/or stamped with the defendant’s company chop should not vitiate the apparent authority that Tai had in procuring the sale and purchase, or put the plaintiff on enquiry as to the validity of or the identity of the person issuing the Purchase Orders against the background of a continuous course of dealings of delivery of the goods contracted for, receipt of delivery by the defendant, and payments received on the Purchase Orders over many months.  The evidence shows that goods were delivered to the defendant and payments were received by the plaintiff in respect of some of the Purchase Orders even though they are not signed and/or stamped with the defendant’s company chop.

28.  The one cheque drawn by Kintech in payment of some of the Invoices, against the evidence of the Purchase Orders and delivery and acceptance of the Goods at the defendant’s sites or by collection of its staff, should not in my view raise the suspicion or put the plaintiff on enquiry that it was Kintech but not the defendant who contracted with the plaintiff and placed the Purchase Orders.  A businessman would normally be concerned whether due payment is received but not who makes the payment.

29.  It makes no difference that Kintech had the same registered office as the defendant as subsequently revealed in these proceedings.

30.  The argument that the defendant did not make any contract with the plaintiff was first raised in a letter dated 4 February 2015 from the defendant’s legal representatives after the plaintiff had chased the defendant for payment for many months, not even when Hui upon the invitation of the defendant attended the defendant’s site to discuss the outstanding payment matters in October 2014.

31.  The defendant relies on the previous dealings between Pollard and Hui (when he was previously working for another company Tyco in his capacity as the Senior Sales Engineer) to argue that Hui should know that (i) Tai did not have the authority of the defendant to procure or issue the Purchase Orders; and (ii) the Purchase Orders were not made in accordance with the defendant’s usual practice.

32.  There is no substance in this argument when the alleged previous dealings did not involve the plaintiff nor the defendant, but another company Tyco and Pollard the joint venture partner of the defendant.

33.  The defendant’s argument that it is entitled to withhold payments on the ground of non-provision of the IIB Test Reports is dubious.  The requirement of delivery of IIB Test Report is only stated in some, but not all of the Purchase Orders.  There is no evidence that the defendant has ever made a request for the IIB Test Reports, or raised the argument of non-provision of the IIB Test Reports as a ground for non-payment when the plaintiff chased for payment for many months.  This argument relating to the IIB Test Reports was first raised in the defendant’s affirmation evidence adduced in this action.  The plaintiff’s position as set out in Hui’s affirmation evidence is that all the IIB Test Reports have been obtained and would be ready to be released to the defendant upon payment of the outstanding sums.

34.  There is no evidence to demonstrate that Tai did in fact lack the authority to enter into the sale and purchase contract with the plaintiff evidenced by the Purchase Orders.

35.  The defendant’s conduct of putting Tai in his position as the Assistant Project Manager and permitting him to act the way he did, together with receiving the Goods delivered, making partial payments and taking advantage of payments for the MOS claims for the Goods from the Consultant over a long period of more than 10 months, constitutes a representation that Tai was authorised to do the acts that he purported to do in the ordinary course of business. (See Thanakhran Kasikorn Thai Camkat (Manhachon) v Akai Holdings Ltd (No 2) (2010) 13 HKCFAR 497, p 504 (per Lord Neuberger NPG))

36.  Further, relying on the doctrine of apparent or ostensible authority, the defendant would be bound by the contract procured by Tai as evidenced by the Purchase Orders and become liable to perform the contract including making payments as provided. (See Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd & Anor [1964] 2 QB 480, p 503 (per Lord Diplock)).

37.  The doctrine still applies if the agent effects a forgery (as alleged by the defendant of Tai in the present case), if he does so in the course of an act within his apparent authority: Chitty on Contracts (Hong Kong Specific Contracts) (Fourth Ed) para 1-52.

38.  Considering the entirety of the pleadings and affirmation evidence, I cannot accept the defendant’s proposition that it did not enter into the agreement with the plaintiff as evidenced by the Purchase Orders, or that the plaintiff was contracting with another company Kintech.  What the defendant says is not credible or believable. I am not satisfied that the defendant has raised any triable issue or arguable defence.

Conclusion

39.  I therefore grant summary judgment in favour of the plaintiff against the defendant for the sum of HK$467,776.68 together with interest thereon at the rate of 8% pa from the date of the writ to the date of judgment and thereafter at judgment rate until payment.

40.  There is no reason why costs should not follow the event.  I make a costs order nisi that the defendant do pay the plaintiff costs of the summary judgment application, with certificate for counsel, and of the action (including all costs reserved, if any) to be taxed if not agreed.

41.  I thank counsel for their assistance.