LO CHI MAN v. WONG SUI MING AND OTHERS

HCA 11675/95

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 11675 OF 1995

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J U D G M E N T

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1. This is a claim, by the plaintiff, for the purchase price of goods sold and delivered to the 1st defendant, or in the alternative to the 2nd defendant, or in the alternative to the 3rd defendant, or in the alternative to any two or all three of the defendants. In the further alternative it is a claim against the 2nd defendant for the face value of a cheque drawn by him in favour of the plaintiff to meet the purchase price and dishonoured on presentment.

2. All three defendants deny liability.

3. The 2nd defendant counterclaims for loss of profit arising from the goods in question not being of merchantable quality.

4. The plaintiff denies liability in the counterclaim.

Background

5. The plaintiff, called Lo Chi-man, is a sole trader whose business is registered in Hong Kong under the name of Koon Wah Trading Company (Koon Wah). His principal activity is to purchase for re-export Heineken beer from the manufacturer's representative in Holland called Maxifood B.V. The 1st defendant (D1), called Wong Sui Ming, is a sole trader whose business is registered in Hong Kong under the name of Leader's Manufacturing Company (Leader's). His principal activity is to manufacture and export headgear, specifically caps. Until events giving rise to this dispute neither of the plaintiff or D1 knew of the other or directly had negotiated any business transaction with the other. The 3rd defendant (D3) was at all material times a Senior Customs Officer called Hon Sai Yu. On 22nd June 1995 he was deployed to carry out a random check on a consignment of Heineken beer shipped to Hong Kong for the plaintiff for re-export. The 2nd defendant (D2) is a trader called Hon Yan Keung whose business activity is the buying and selling of goods between Hong Kong and China. He is D3's brother.

6. In circumstances the history of which is disputed the plaintiff on 28th September 1995 came to receive in Hong Kong from his suppliers in Holland, for re-export, a consignment in two containers of 4400 cartons of Heineken lager beer. Though the identity of the buyer or buyers legally committed to the purchase is disputed, what is not is that there was a contract for sale of the consignment and a price per carton of $101. On 4th October 1995 D2, either as sole purchaser as he claims or representing the purchaser or purchasers, took delivery of the consignment by receiving the shipping documents, necessary for the purpose of authorising and directing the re-export. The plaintiff also gave him an invoice for $443,772, being the purchase price of $444,400 less a credit for storage costs of $628, made out to Leader's. D2 gave him in return an undated cheque drawn on his account for $443,772.

7. The plaintiff in due course dated the cheque and banked it, but it was dishonoured on presentment. He sent a notice of dishonour to D2. He has not since been paid for the goods nor has the cheque been made good nor has he otherwise been compensated.

8. Uncertain as to who is liable he has sued D1, D2 and D3 jointly and severally for the unpaid purchase price and D2 on the dishonoured cheque.

9. D2, claiming to be the sole purchaser of the goods, having taken delivery of them, supervised their re-export to a China based company to which he claimed the consignment had been resold. D2 claims: -

(a) the cheque he had given the plaintiff of $443,772 was undated because it was an express condition of the purchase that it be presented only upon payment received from the sub-purchaser, and that the sub-purchaser has not paid, thereby extinguishing his liability to the plaintiff;

(b) that the sub-purchasers refused to pay because the goods were defective and had been confiscated by authorities in China.

10. D2 claims to have suffered loss of a profit on the aborted sub-sale of $23,880.50 and counterclaims for that amount.

11. I now turn to consider the respective cases of the parties.

The plaintiff's case

12. The plaintiff gave evidence. He first came to know of the existence of D3 when, in June 1995, he carried out the random check of the plaintiff's cargo to which I have already made reference. D3 approached him expressing interest in purchasing Heineken for on-sale on his own account. On 27th June he introduced D2 to the plaintiff, as his brother and business partner. He explained that he had an interest in a company called Leader's through which company any transaction would be entered. He handed over his card which was a partly altered card of Leader's with his name typed on. He said it was a temporary card. The plaintiff had not done business with either D2, D3 or Leader's before. He made no checks, accepting D3's account at face value. At that same meeting they negotiated the first deal, namely, the purchase from the plaintiff of 3 container loads of Heineken already on its way to Hong Kong. D2 paid by personal cheque the deposit of $60,000. He also paid the balance when the shipment arrived on 7th July. D3 handed over the cheque, taking delivery by receiving the shipping documents. The plaintiff as directed made out the invoice and receipt to Leader's. For ease of reference I shall refer to this completed transaction as "the first deal".

13. Meanwhile, on or about 3rd July, the plaintiff and D2 and D3 met again and the upshot was that they agreed to sell and buy 20 containers of Heineken pilsener cans and 2 containers of Heineken lager bottles. Because this was an order initiated by the purchaser it was reduced to writing by the plaintiff's staff on his instruction in the form of two contracts numbered SC 100/95 and SC 101/95 respectively. As requested the plaintiff had the purchaser named as Leader's. He signed for the vendor and D3 witnessed the chop of Leader's that he affixed for the purchaser. D3 drew a personal cheque for $300,000 to meet the deposit. At the same meeting the parties negotiated and agreed the terms of the sale and purchase of 6 containers of Heineken lager part of which consignment was later to give rise to these proceedings.

14. Subsequently, at D3's request and with the plaintiff agreeing, the contract SC 100/95 for the sale and purchase of the 20 containers of Heineken pilsener was cancelled. Shortly after that, at D2's request and with the plaintiff agreeing, the contract SC 101/95 for the sale and purchase of the 2 containers of Heineken lager bottles was reduced to one container. When that shipment arrived D2 took delivery by receiving the shipping documents. Once again the invoice was made out in the name of Leader's. D2 handed over a cheque for the purchase price which was post dated, accepted by the plaintiff notwithstanding. It was honoured on presentment. Meanwhile the $300,000 D3 had paid as a deposit for the now cancelled SC 100/95 was used as to part to purchase one further container of Heineken pilsener bought and sold in July. As before the invoice was made out to Leader's. I shall call this the "pilsener deal". After completion the plaintiff held and holds to this day a credit of $60,258.

15. There was to be one further sale and purchase; this for one container of Heineken negotiated between the plaintiff and D3. He took delivery by receiving the shipping documents. The plaintiff handed him an invoice for the purchase price directed to Leader's. D3 handed over a personal cheque of D2 in payment.

16. Subsequent to the parties having agreed the sale and purchase of 6 containers of Heineken lager already referred to D3 asked to cancel the order entirely. The plaintiff said he would do his best, subject to whether he could stop the shipment in Amsterdam or otherwise resell to another customer. In the event he was able to stop one container from being shipped. He agreed to resell the contents of three more which had already left. But he held his purchaser to contract in respect of the remaining two. It is this consignment which is the subject of these proceedings. It duly arrived in Hong Kong on 28th September 1995. Again D3 asked to cancel, complaining that dropping prices in China made the deal no longer viable. The plaintiff declined but agreed to reduce the price per carton from $106 to $101. On 4th October it was D2 who arrived to take delivery in the usual way by taking possession of the shipping documents. The invoice was made out to Leader's as usual. D2 tendered a personal cheque for the full purchase price, less storage costs, of $443,772. It was undated. D2 asked for a few days' grace. The plaintiff agreed to that. Two days later D2 telephoned to say he had inspected the consignment and it was in good condition. Two days after that the plaintiff asked him if he could bank the cheque. D2 asked for a bit more time. The plaintiff agreed.

17. Then it was that on 16th October both D2 and D3 arrived at the plaintiff's office with the news that the goods had been seized by the Chinese based purchaser as compensation for a sub-standard shipment previously sourced from the plaintiff. As demonstration of this D2 showed him a can of Heineken pilsener which had a partially rusted base and whose "used by date" was that month, namely October 1995. D2 offered to renegotiate the amount to pay but the plaintiff denied any fault and did not agree. He gave a few more days' grace in which to pay the full amount. He waited until 20th October. But having heard nothing more he dated and banked the cheque. It was dishonoured. Only then did he make enquiry about Leader's, to find that it was, in fact, a sole trader being D1, a total stranger. There was no sign in the registration of D3 or D2. He had no truck with the allegation that he had supplied defective pilsener which was old stock as claimed by D2. He produced a letter from his supplier that Heineken comes in aluminum cans, incapable of rusting, with a shelf life of at least 9 months after arrival in Hong Kong. As re-export was undertaken without delay there was no substance to the allegation he supplied old or defective stock.

18. The plaintiff lodged a complaint with Customs and Excise as to the conduct of D3. The upshot of this was that there was a disciplinary enquiry. The plaintiff called to give evidence a Senior Inspector of Customs and Excise who was assigned to prosecute at the enquiry. He said D3 was charged with and pleaded guilty to three charges, namely, undertaking outside work without permission, undertaking work for his brother which was in actual or potential conflict of interest with his official duties and failing to decline involvement in a situation of actual or potential conflict of interest. D3 pleaded guilty to all three charges and agreed a summary of facts. In these he admitted entering into two contracts to purchase consignments of beer from Koon Wah using the name of Leader's and, working for his brother but for no reward, faxing messages on his behalf using Leader's letterhead.

D1's case

19. D1 gave evidence. He said he has been in the business of making and exporting headgear, specifically caps, for about 10 years. He has all along been a sole trader under the registered name of Leader's. He has never operated in partnership. He has never ventured out of his stated business activity. Specifically he has never bought and sold liquor. He came to know D3 as a regular customer, who bought caps from him in oft repeated modest orders to resell on the local market as a hawker. He knew he was a Customs and Excise Officer. Then one day in 1995 D3 asked if he could borrow the use of the Leader's name to enable him to conduct the business of importing caps with trading interests in China. He needed the name to validate his situation with those traders and to protect his position as a civil servant. D1 agreed, but on the strict understanding that there was to be no link with Leader's the company or any connection with him in any way. Once he had D3's assurance of that he let him use a Leader's name card and to insert his own name and lent him the Leader's chop to be used only for transactions he had referred to and only for the purpose of acknowledging receipt of goods.

20. At no stage were D3 or his brother D2 ever his partners in Leader's. At no stage has he employed them or either of them. At no stage did he authorize them or either of them to commit Leader's to the sale and re-export of Heineken beer. At no stage has he had or authorized any dealings with Koon Wah or the plaintiff personally. At no stage did he commit Leader's or authorize the commitment which has given rise to the plaintiff's claim.

D2's case

21. D2 gave evidence. He said he met the plaintiff through a friend, not his brother D3. A week later he introduced his brother. It was he alone as purchaser who negotiated and then struck the first deal as I have described it. Payment was by two cheques drawn on his personal account. D3 played no part. And he, D2, played no part in the transactions reduced to writing as contracts SC 100/95 and SC 101/95. It was his brother who negotiated and entered into these, for and on behalf of Leader's. His brother's cheque for $300,000 was as he understood the deposit paid for and on behalf of Leader's.

22. Just as SC 100/95 was cancelled in entirety so was SC 101/95. His purchase of part of that consignment was a separate transaction; one of several that he concluded with the plaintiff on his own account. It was by agreement and for convenience that he paid his brother $300,000 and thereby acquired Leader's credit with the plaintiff because there were further orders in the pipeline for which payment would be due by him. In fact the pilsener deal was an example of that and the credit was utilised. The balance remaining of $60,258 is thus due to him.

23. It was he alone who negotiated the purchase of the two containers of Heineken lager that are the subject of these proceedings. It was he alone who had negotiated their sub-sale to a company in China called Sun Cheerful Industry Development Company Limited. He received from Sun Cheerful a deposit of RMB100,000. When it came for him to take delivery he handed the plaintiff an undated cheque because payment was to be dependent upon his being paid by Sun Cheerful.

24. In the event Sun Cheerful did not complete. He was told that after the goods had arrived in China and were being unloaded the cans were found to be rusty and outdated. He was given a can as evidence of that which he showed to the plaintiff. The can was indeed rusty and its expiry date was October 1995. It is of Heineken pilsener. He reiterated it came from the consignment in these proceedings and not an earlier transaction. Sun Cheerful's refusal to complete gave him the contractual right not to authorize the dating and presentment of his cheque or otherwise pay the plaintiff. And he could not return the consignment because he was told it was seized by authorities in China. Furthermore the failure to perform required him to reimburse Sun Cheerful's deposit and denied him a profit of $23,880.50 that he has counterclaimed for.

25. He acknowledged that the invoices and receipts relating to those contracts with the plaintiff he claims were with him as purchaser alone were not in his name but in Leader's. He said that did not reflect the true position. But he did not bother to insist on a correction of those documents, as the important thing was that the amounts tallied correctly.

D3's case

26. D3 gave evidence. His account of how he came to meet the plaintiff was the same as D2's, namely, D2 introduced them. When D2 negotiated what I have called the first deal, he was present but played no part in the transaction which concerned only D2. But he was interested in dealing and this led to the contracts SC 100/95 and SC 101/95. He used the vehicle Leader's as the nominated purchaser because the plaintiff insisted on dealing with a company. He had his friend Mr. Wong's permission to use the name Leader's upon condition that he, Mr. Wong, was not involved or committed. He paid the $300,000 from his own account. When by agreement, SC 100/95 and SC 101/95 were cancelled, D2 paid him $300,000 and thereby settled his claim for a refund. He took no part in the subsequent transactions with the plaintiff which were entirely the province of D2 as purchaser. He did not again use his own money. He did not sign any more contracts. Specifically he did not negotiate or agree to buy a consignment of 6 containers of Heineken lager from the plaintiff. He did not negotiate the cancellation of four of those containers. He was not a purchaser of the remaining two that were to become the subject of these proceedings. He was not in business with D2. But he was with D2 when he told the plaintiff that the sub-purchaser had refused to pay for the consignment. He said it was his belief that the faulty can of beer came from an earlier transaction to the same sub-purchaser and that the goods the subject of these proceedings were seized and held as compensation.

The issues

(1) Who was or were the purchasers committed in the agreement with the plaintiff to purchase the 2 containers of Heineken lager?

(2) Was there performance by the plaintiff as vendor, rendering the purchaser or purchasers liable to pay?

(3) In the alternative, is D2 liable on his dishonoured cheque for the amount of the cheque?

(4) Does D2 have a claim in damages resulting from the plaintiff's default?

Findings of Fact

27. There are materially conflicting accounts of events before me and the outcome of these proceedings depends very much on whom I believe. My conclusions derive from my having heard what each witness has said, how he or she said it and how it stacks up against such documentary or other corroborative evidence that was produced.

28. I am satisfied that the plaintiff gave a truthful and accurate account of events as they unfolded. That which could be supported by written or other evidence was supported. That which could not dovetailed with other material. The overall picture was a coherent, reasonable and believable account of what happened during the period in question. Where what he said conflicted with what others recounted I have no difficulty in accepting his version and rejecting those others.

29. D1 similarly came across as an honest witness.

30. I have a substantially different reaction towards both D3 and his brother D2. I am satisfied that where the account of them or either of them was at odds with the plaintiff's or D1's that account was not sustainable.

31. D1 did permit D3 the use of his chop as a means of receiving imported headgear into Hong Kong from China. He also did not discourage the use of a Leader's name card for the same purpose. But that was as far as his authority went. He did not give D3 or anyone else permission to commit Leader's to any transaction giving rise to an obligation to perform. Nor did he by words or conduct allow himself or Leader's to be held out as such. D3 did not tell him about SC 100/95 and SC 101/95 and deliberately kept him in the dark of the proposed and then actual use of Leader's name and its chop. Had he been told he would not have agreed. In his re-amended defence para 8 he did plead to having entered into SC 100/95 and SC 101/95 (pleadings bundle p. 27). But this did not accord with his evidence. I accept that the first he had wind of these two contracts was not until service of the writ on him some months later. It follows that the pleadings are wrong, not reflecting D1's position and knowledge.

32. I accept that at no time was D3 or D2 an actual or ostensible partner, agent or servant of Leader's or D1. As my findings of fact will reveal their's was an agenda deliberately hidden from D1 and Customs and Excise to participate jointly, under the sobriquet of Leader's, in a potentially profit making enterprise. But a volatile market caused prospective gains to turn to certain loss and they resorted to subterfuge to avoid the cost of that; subterfuge which was not to stand up under the spotlight of the truth.

33. My findings of fact now follow.

(1) D3 was the Customs Officer assigned to spot check the plaintiff's consignment in June 1995. This gave rise to his making himself known to the plaintiff as a potential customer, and introducing his brother D2 as his business partner who could look after the China side.

(2) D3 held himself out as a member of Leader's and authorized to commit the company to enter into such transactions as were negotiated. In fact he was not a member of Leader's and had no such authority or anything akin to that.

(3) There was no conduct express or implied by D1 whereby such authority might be inferred.

(4) All transactions that were negotiated with the plaintiff as vendor including those cancelled or varied with the named purchaser Leader's were in fact made with D3 and D2 as purchasers jointly and severally. Both were committed as joint venture partners. Leader's the company was not. Leader's the name was the notional identity the joint venture partners adopted, without authority express or implied of Leader's or D1.

(5) I make no findings on how the partners D2 and D3 structured their own relationship because it is not material. What is material was the way they conducted themselves with third parties.

(6) D2 and D3 were jointly committed as purchasers to the contract for sale and purchase of the 6 containers of Heineken lager and, when the consignment was reduced to 2 and the price discounted, to pay for it.

(7) The plaintiff as vendor completed delivery by supplying the shipping forms and in all respects performed.

(8) The obligation to pay was not conditional upon the purchasers being paid by their sub-purchaser. The plaintiff gave them a few days' credit and was entitled thereafter to demand payment and to date and bank the cheque they tendered.

(9) I can make no findings of fact on D2's allegation that the consignment comprised faulty and outdated stock because he submitted no evidence. His own account that he was told that by his sub-purchaser is inadmissible as hearsay. And his version of what was the cause of the sub-purchaser's complaint differed from that of his brother D3 when one would have expected a matching story. The can he gave the plaintiff who at trial produced it to me could have come from anywhere. What it did not come from was the consignment the subject of these proceedings, for it is a can of pilsener whilst the goods bought were wholly lager.

Conclusions in Law

34. D2 and D3 are jointly and severally liable to the plaintiff as purchasers of the Heineken lager to meet the purchase price of $443,772 and interest on that from when it fell due.

35. D1 was not a purchaser and has no liability.

36. I need make no finding or ruling on the liability of D2 to meet the amount of the dishonoured cheque as he is already caught under the primary cause of action.

37. The burden being on D2 and D3 to establish a right of set-off and counterclaim in damages, they have not succeeded. Indeed they have not begun to do so.

38. It follows that the counterclaim is without merit and fails.

39. Costs shall follow the event. But as I have not had the benefit of argument, they shall be nisi at first instance with liberty for any party to apply to restore for argument on notice given without 14 days of the date this judgment is handed down.

Judgment

40. Judgment is entered for the plaintiff against both the 2nd and 3rd defendants in the sum of $443,772 together with interest at 11% per annum from 20th October 1995 to the date of this judgment.

41. The claim against the 1st defendant is dismissed.

42. The counterclaim of the 2nd defendant is dismissed.

43. The costs of the 1st defendant shall be borne by the plaintiff taxed if not agreed. The costs of the plaintiff including those due to the 1st defendant shall be borne by the 2nd and 3rd defendants, taxed if not agreed.