Hung Ming Ho Company Ltd. v. V-Tex Garments Ltd. & another

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Civil Action No. 15058 of 2000

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Judgment

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Claim and Counterclaim

1. The plaintiff company is a manufacturer of zippers. By the present proceedings the plaintiff is suing the defendants for the balance of purchase price of zippers sold and delivered to the defendants. It is not in dispute that the zippers were delivered to either the 1st or the 2nd defendant, or that the balance of the price claimed by the plaintiff remains unsettled.

2. The plaintiff alleged that the defendants were liable for each other's debt to the plaintiff. The defendants contended that each had its own account with the plaintiff and each was only liable for its own debt and not the other's. The 1st defendant alleged that it overpaid the plaintiff and therefore counterclaims for the amount overpaid. The 2nd defendant counterclaims for damages for late delivery of the zippers on various occasions.

Agreement

3. The basis of the plaintiff's claim is solely on an oral agreement reached between Mrs. Leung on its half and Mr. Chen of the 1st and 2nd defendant on their half. The agreement was allegedly reached when the 2nd defendant started to purchase zippers from the plaintiff. The defendants denied that there had been such an agreement.

Credibility of Witnesses

4. The defendants were closely related companies. In all practical terms they were run by the same management. They shared the same office and had the same production lines. The defence witnesses had not been frank about other details, in particular the equity or interest of Mr. Chen and Ms Leung had in the 2nd defendant. Mr. Chen and Ms Leung are husband and wife and both are shareholder and director of the 1st defendant. At one time Ms Leung was shareholder of the 2nd defendant and she transferred all her holdings to another person who took no part in the management of the 2nd defendant. This must have been an important decision if Ms Leung was really relinquishing all her interest in the company. She must have remembered the rough amount of cash she obtained if cash was the only consideration for the transfer. Yet at first she did not seem to have any recollection of it. When she was hard pressed in cross-examination she gave a figure, and which figure she had to correct before long to a much bigger one. One might think that the benefit of the management contract between the defendants made about the time of the transfer of shares was part of the consideration for the transfer. She was however reluctant in admitting it. In fact she did not give a definite answer at what stage the management contract was made in relation to the timing of the transfer.

5. On one occasion Mr. Chen identified his own interest with the 2nd defendant. This was not a slip of tongue but rather a reflection of his mind. He or his wife or both must have an interest in the 2nd defendant and which interest cannot be explained simply by the management contract.

6. The lack of candidness on the part of the defence witnesses had a purpose to serve. They wanted to make the point that as the husband and wife did not have any interest or equity in the 2nd defendant, there was no reason for the 1st defendant, the company the two owned, to agree to be liable for the debt of the 2nd defendant.

7. I prefer the evidence of the plaintiff's witnesses. Not only that they were not shaken in cross-examination and, were sincere and honest, their evidence was supported by the particular circumstances of the case.

8. The 1st defendant and the 2nd defendant had a very close relationship. The 1st defendant had had an account with the plaintiff for some time before purchase orders were placed in the name of the 2nd defendant. The plaintiff's witnesses gave evidence of the circumstances under which the 2nd defendant came to begin placing orders with the plaintiff. They were unshaken and I prefer their evidence to that of the defence witnesses.

9. The 1st defendant had an account and was given credit term by Mrs. Leung of the plaintiff. Mr. Lam, the manager of both defendants was the one who placed purchase orders for the defendants. Mr. Lam placed the purchase orders on their behalf. When Mr. Lam placed the order in the name of 2nd defendant for the first time, the matter was brought to the attention of Mrs. Leung for her decision. This is only natural and reasonable. It is equally reasonable for her to look into the creditworthiness of a new client before granting it credit term. For that purpose she had a conversation with Mr. Chen. In the conversation Mr. Chen gave her the assurance that each defendant would be liable for the debt of the other to the plaintiff arsing from the purchase orders. Mrs. Leung said it was on this assurance that she granted the same credit term to the 2nd defendant as she did to the 1st defendant and began accepting purchase orders from the 2nd defendant. I believe that she was speaking the truth about the assurance and that it was for this reason that she granted the credit term to the 2nd defendant and began supplying zippers to it.

10. The defence suggested that the plaintiff was satisfied with the creditworthiness of the 2nd defendant after Ms Chiu of the plaintiff visited the office premises of the 2nd defendant and learned that the 2nd defendant had European customers. The defendants shared the same office where Ms Chiu had paid numerous visit before. Another visit there could not give any assistance in assessing the creditworthiness of the 2nd defendant. Nor would the fact that 2nd defendant had European clients render any like assistance. I do not believe what the defence suggested.

11. Since the 2nd defendant began to purchase zippers from the plaintiff, there had numerous purchase orders from the defendants. At times, they settled each other's invoices. Conflicting explanations were given by the defence. Whether or not any of these explanations is true, the fact that they had been settling each other's invoices supports the evidence called by the plaintiff. Further when the defendants were behind payments, a demand letter written along the line that each defendant was liable for the other's debt. Yet no point was taken that the plaintiff was wrong in so asserting.

12. For all these reasons I find for the plaintiff and give judgment in its favour against both defendants in the amount claimed and with interest as claimed. The counterclaim by the 1st defendant is also dismissed.

Counterclaim by 2nd defendant

13. It is not in dispute that the plaintiff had been late in its delivery on many occasions. The issue is whether or not the 2nd defendant has proved that it has suffered damages. The amount of damages claimed is about $0.9 million airfreight incurred by the 2nd defendant on a number of occasions over a period of months. It was argued by the defence that as the delivery of zippers was delayed the production of the final products of garments would inevitably be delayed. The plaintiff requested the defendants to produce the production schedules of the garments to be produced but none has been produced. I only had the mere assertion by the witnesses that delay of zippers must delay the production. The credibility of these witnesses I have grave doubt. Not only that no written complain about the delay was made. Nor had there been any suggestion that damages had in fact been caused by the delay as and when they were caused. The first time that such allegation of huge damages was raised was in these proceedings. Furthermore payment was made to settle various invoices in response to a demand letter. This happened after the airfreight was incurred and paid for. Counsel for the plaintiff in his characteristic thoroughness also demonstrated that the documents did not support the 2nd defendant's claim for damages.

14. For all these reasons I find the 2nd defendant has not proved that it has suffered any damages and I dismiss its counterclaim.

15. I now make order nisi for costs in favour of the plaintiff both for main claim and counterclaim with certificate for counsel and for such costs to be taxed if not agreed.