LEE WING SZE RITZ AND ANOTHER v. LAU WING PONG

DCCJ 5116/2017 &
DCCJ 5178/2017
(Heard Together)

[2020] HKDC 775

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5116 OF 2017

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IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5178 OF 2017

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JUDGMENT

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A. BACKGROUND

1.  These two actions share the same defendant and the same set of background facts.

2.  The respective plaintiffs in the two actions alleged that they had entered into arrangements with the defendant whereby the plaintiffs would earn lucrative remuneration by supplying Rolex watches to the defendant for onward distribution, or by lending a sum of money to the defendant for purchase of Rolex watches for onward distribution.  The arrangements under the two actions are as follows:

DCCJ 5116/2017

(a)     Between 25 March to 27 April 2016, the plaintiffs purchased and supplied 7 Rolex watches to the defendant.

(b)     In respect of each watch, the defendant would pay an upfront interest within 60 days of receiving the watch and pay a sum equivalent to the purchase price of each watch by monthly instalments together with an additional agreed interest. The amount of interests agreed were as follows:

Watch No.	Date delivered	Purchase price	Upfront interest	Interest	No. of monthly instalments
1	25/03/2016	HK$103,000	7%	3%	6
2	25/03/2016	HK$103,000	7%	3%	6
3	29/03/2016	HK$98,500	7%	5%	4
4	29/03/2016	HK$98,500	7%	4%	3
5	18/04/2016	HK$99,000	7%	5%	6
6	22/04/2016	HK$98,500	0%	3%	1
7	27/04/2016	HK$98,500	7%	5%	4

(c)     The repayment schedule and the outstanding amount are as follows:

Month	Agreed Repayment Amount	Actual Payments Made
April 2016	HK$196,822	HK$111,220
May 2016	HK$166,758	HK$85,602
June 2016	HK$152,372	HK$30,000
July 2016	HK$104,402	HK$10,000
August 2016	HK$78,546	HK$41,000
September 2016	HK$52,685	HK$16,000
October 2016	HK$17,325	HK$21,000
November 2016		HK$42,000
December 2016		HK$40,000
January 2017		HK$45,000
February 2017		HK$38,000
March 2017		HK$35,000
April 2017		HK$4,000
Total	HK$768,910	HK$518,822
	Total Outstanding Amount	HK$250,088

DCCJ 5178/2017

(a)     On or about 18 September 2015, the plaintiff agreed to lend HK$200,000 to the defendant for the purchase of Rolex Watches for onward distribution and reselling.  The defendant would pay an upfront interest of 7% within 2 weeks of receiving the sum.  The defendant would also repay the HK$200,000 together with 5% interest by 12 monthly instalments starting from October 2015 in accordance with the following schedule (the “Original Agreement”):

Month	Agreed Repayment Amount	Actual Payments Made
October 2015	HK$31,500	HK$22,026
November 2015	HK$17,500	HK$27,644
December 2015	HK$17,500	HK$17,835
January 2016	HK$17,500	HK$17,835
February 2016	HK$17,500	HK$17,835
March 2016	HK$17,500	HK$25,144
April 2016	HK$17,500	HK$0
May 2016	HK$17,500	HK$0
June 2016	HK$17,500	HK$0
July 2016	HK$17,500	HK$0
August 2016	HK$17,500	HK$0
September 2016	HK$17,500	HK$0
		HK$0
Total	HK$224,000	HK$128,319
	Total Outstanding Amount	HK$95,681

(b)     On or about 14 April 2016, the plaintiff agreed to lend a further sum of HK$100,000 to the defendant for the same purpose.  The defendant would pay an upfront interest of 7% within 2 weeks of receiving the HK$100,000.  The defendant would also repay the HK$100,000 together with 5% interest by 6 monthly instalments starting from May 2016 (the “Extended Agreement”).

(c)     Pursuant to the Extended Agreement, the repayment schedule were revised as below to take into account the outstanding amount due to the plaintiff under the Original Agreement:

Month	Repayment Amount	Actual Payments Made
October 2015	HK$31,500	HK$22,026
November 2015	HK$17,500	HK$27,644
December 2015	HK$17,500	HK$17,835
January 2016	HK$17,500	HK$17,835
February 2016	HK$17,500	HK$17,835
March 2016	HK$17,500	HK$25,144
April 2016	HK$17,500	HK$0
May 2016	HK$42,000	HK$8,000
June 2016	HK$35,000	HK$4,000
July 2016	HK$35,000	HK$0
August 2016	HK$35,000	HK$7,000
September 2016	HK$35,000	HK$5,000
October 2016	HK$17,500	HK$0
November 2016		HK$14,000
December 2016		HK$15,000
January 2017		HK$22,000
February 2017		HK$29,000
March 2017		HK$37,000
Total	HK$336,000	HK$269,319
	Total Outstanding Amount	HK$66,681

3.  The plaintiffs in both actions sue the defendant for the respective outstanding amounts due and costs. 

4.  When DCCJ 5178/2019 was commenced in late 2017, the upper limit of the jurisdiction of the Small Claims Tribunal was still HK$50,000.  The case was not transferred to the Small Claims Tribunal when the upper limit of the jurisdiction of the Small Claims Tribunal was increased to HK$75,000 in December 2018, as it was to be heard together with DCCJ 5116 of 2017.

B.      THE DEFENCE

5.  The defendant denies liability.  Essentially, the defendant says:

(a)     From 2013 to 2017, the defendant had been supplying luxury watches, mainly Rolex watches, to his secondary classmate, one Gary Li (“Gary”) under an agreed arrangement.

(b)     Upon the defendant purchasing luxury watches at shops designated by Gary, and thereafter handing over such watches to Gary, Gary would repay the defendant (by monthly instalments) a sum of money equivalent to the purchase price of the watches together with interest.

(c)     Gary would pay the defendant a commission no less than 10% of the purchase price of the watches within 10 – 30 days after purchase.

(d)     The defendant was only an agent for Gary.

(e)     Upon Gary’s requests, the defendant approached the plaintiffs and invited the plaintiffs to enter into similar arrangements with Gary.

DCCJ 5116/2017

a)     The defendant said that the plaintiffs expressed their interest and via the defendant, the plaintiffs agreed to enter into similar arrangements to supply with Gary with Rolex watches with the defendant as a middleman.

b)     The defendant averred that he had made clear to the plaintiffs that he was exempted from personal liability and he was only arranging for watches to be made available to Gary and for repayment to be made to the plaintiff after he received funds from Gary.

DCCJ 5178/2017

a)     The defendant said the plaintiff expressed interest and via the defendant, the plaintiff agreed to provide Gary with HK$300,000 cash for purchasing the watches with a commission of not less than 6%.

b)     The defendant averred that he had made clear to the plaintiff that he was exempted from personal liability and hew was only arranging for payment to be made to Gary and for repayment to be made to the plaintiff.

6.  There is no dispute as to the terms of the respective agreements and the fact that all the watches had been delivered with outstanding sums due to the respective plaintiffs.  The defence put forward is two-fold:

(a)     The respective agreements were entered into between the respective plaintiffs and Gary, and the defendant acted on behalf of Gary as an agent.  It is alleged that the plaintiffs were well aware that all the watches were supplied to Gary, who was solely responsible for the purchase prices, interest payments and commission.

(b)     Alternatively, the various agreements between the respective plaintiffs and the defendant were made on a ‘back-to-back’ and/or ‘pay-when-paid basis’.  The repayment by the defendant to the plaintiffs were contingent upon payment by Gary to the defendant.

C.      Legal Principles – Agency

7.  In general, when an agent makes a contract, purporting to act solely on behalf of a disclosed principal, whether identified or unidentified, he is not liable to the third party on it.  The only person who may sue or be sued is the principal[1].

8.  An agent can conclude a contract on behalf of his principal in the following ways[2]:

(a)     By creating privity of contract between the third party and his principal without himself becoming a party to the contract.  In this scenario, the third party can only sue, and be sued by the principal.

(b)     By creating privity of contract between the third party and his principal, whilst also himself becoming a party to the contract.  In this scenario, the third party has an option whether to sue the agent or the principal.

(c)     By creating privity of contract between himself and the third party, but no such privity between the third party and his principal.  In this scenario, the third party can only sue the agent.

9.  The question whether an agent who has made a contract on behalf of his principal is to be deemed to have contracted personally, and, if so the extent of his liability, depends on the intention of the parties, to be deduced from the nature and terms of the particular contract and the surrounding circumstances...the test is an objective one[3].

10.  Where an agent makes a contract, which is not deduced into writing, the question whether he contracted personally, together with his principal or solely in his capacity as an agent is a question of fact[4].

11.  Where the principal is undisclosed at the time of contracting, the contract is made with the agent, and he is personally liable and entitled to it[5].

D.      Legal Principles – back-to-back contract, pay-when-paid contract.

12.  Where a plaintiff’s right to be under a contract is said to be contingent, the condition precedent has to be spelt out in clear and precise terms, which are then agreed by both parties, otherwise the court is ready to construe the terms merely governing the time for payment[6].

“In this respect I have been referred to a number of authorities from Australia, New Zealand and the United States of America. The underlying principle from all these cases seems clear enough — that when having to construe a clause in a sub-contract that the sub-contractor will only be paid when the main contractor is paid, commonly called a “pay-when-paid” clause, sufficiently clear words will have to be used before a court will be prepared to construe that such a clause imposes as a condition payment to the main contractor which had to be fulfilled before the sub-contractor had the right to be paid as opposed to a clause limiting the time for payment. This principle is readily illustrated in the words of Master Towle in the New Zealand case of Smith & Smith v Winstone [1992] 2 NZLR 473 where he said at page 481:-

“While I accept that in certain cases it may be possible for persons contracting with each other in relation to a major building contract to include in their agreement clear and unambiguous conditions which have to be fulfilled before a subcontractor has the right to be paid, any such agreement would have to make it clear beyond doubt that the arrangement was to be conditional and not to be merely governing the time for payment. I believe that the contra proferentem principle would apply to such clauses and that he who seeks to rely upon such a clause to show that there was a condition precedent before liability to pay arose at all should show that the clauses relied upon contain no ambiguity.”

E.      Credibility of witnesses

13.  The crux of the matter in dispute is, at the respective times when the agreement was entered into, who were the contracting parties.  As set out above, the test is an objective one.  Parties agree that essentially it is a matter of which version of events is preferred by the court after considering the credibility of all witnesses. 

14.  In determining the credibility of a witness, I bear in mind the words of DHCJ Thomas Au (as he then was) in Lee Fu Wing v Yan Po Ting Paul [2009] 5 HKLRD 513 where at paragraph 53 he stated:-

“(1) Whether the party’s case is inherently plausible or implausible.

(2) Whether the party’s case is, in a material way, contradicted by other evidence (documentary or otherwise) which is undisputed or indisputable.

(3) Where it is shown that a witness has been discredited over one or more matters to which he has given evidence using the above tests. This is relevant to the assessment of his overall credibility.

(4) The demeanour of the witness.” 

F.      Analysis of Evidence: DCCJ 5116/2017

15.  After hearing the oral evidence, on the balance of probabilities, I prefer the version of events put forward by the plaintiffs.  I reject the defendant’s case that he had from the beginning informed the plaintiffs about the existence of Gary, and that the plaintiffs would only get paid when Gary paid him for the following reasons:

(a)     Parties agreed that the agreement was reached on or about 22 March 2016.  Contrary to the defendant’s pleaded case of the express terms in relation to his agency relationship with Gary, from the contemporaneous whatsapp exchanges between the plaintiffs and the defendant shortly before 22 March 2016, there was no mention of the defendant entering into the agreement with the plaintiffs on behalf of Gary, nor that the plaintiffs would only get paid when Gary paid him. Throughout these conversations, there was no mention of Gary’s personal or financial background.

(b)     Contrary to the suggestion of the defendant, the whatsapp conversation on 4 October 2017 clearly showed that the plaintiffs had never met Gary: “… 有好多苦主受害者都同你一樣… 冇見過Gary”.

(c)     The whatsapp conversation between the defendant and the plaintiffs after being told there was a middleman involved was consistent with the plaintiffs’ case that they did not know anything about Gary.

(d)     The requests for the purchase/supply of the watches were made directly by the defendant to the plaintiffs. 

(e)     There were no instructions from Gary regarding the purchase of the 7 watches by the plaintiffs found in the transcripts of the audio messages between Gary and the defendant.

(f)     Although the defendant constantly referred to there being a “大佬”or“老細”, the name of Gary did not emerge in the whatsapp conversations between the defendant and the plaintiffs until late in the day in July 2016, after the default in repayment started.  Although I find that the plaintiffs might have known early on that there was someone behind the defendant, there was no evidence suggesting that the agreement was entered into between the plaintiffs and Gary, or some other person.

(g)     From the whatsapp messages, when the plaintiffs demanded repayment, the defendant never denied liability by saying that the plaintiffs knew all along that the responsibility of repayment lied with Gary, and not with him.  It is inconceivable that if the defendant had truly made clear the arrangement to them from the very beginning, he would not have immediately defended himself and denied liability when the demands for repayment came.  Instead, he promised he would try his best to chase for repayment.  This is inconsistent with the defendant’s case that he was not liable.

(h)     The defendant claimed that although the whatsapp messages did not show that the plaintiffs knew about Gary from the beginning, in reality he did inform the plaintiffs in their oral conversations and that he did defend himself and told the plaintiffs that the liability lied with Gary.  I reject this claim.  It defies common sense to suggest that the defendant would say one thing to the plaintiffs in whatsapp messages and another in oral conversations.

(i)     From the whatsapp messages between the defendant and Gary, it is clear that Gary did not know who the plaintiffs were and only referred to them as the defendant’s “friends”.  If the agreement was indeed entered into between Gary and the plaintiffs, Gary would have referred to them at least by name.  I reject the defendant’s explanation that Gary would address them by name in their unrecorded oral conversations.  There is no reason why Gary would have refrained from mentioning their names in the contemporaneous recorded whatsapp messages if indeed he knew who the plaintiffs were.

(j)     The arrangement between the defendant and Gary was that if he could find people who would help purchase watches or provide funds for the purchase of watches, the defendant would receive a commission of about 10% from Gary.  This was not made known to any of the plaintiffs.  There was no explanation on why Gary would pay the defendant commission, if the agreement was entered into between the plaintiffs and Gary.  The defendant also gave a misleading answer to the police when he was asked if he received any benefits from introducing people to Gary.

(k)     In the agreement, there was no security provided to the plaintiffs for the repayment of the moneys they had paid out for the purchase of the watches.  I accept that the plaintiffs would not have agreed to purchase the watches and supplied them to the defendant, but for the fact that they had had a long-term friendship with and had trusted the defendant.

(l)     The defendant’s witnesses Mr Yao and Mr Wan admitted in their oral evidence that they did not know the plaintiffs and were not privy to the discussions leading up to the agreement between the plaintiffs and the defendant.  Their evidence thus have little weight and are not relevant.  In any event, both of them agreed that they had never met Gary.  The fact that they for some reason did not deem the defendant responsible for any damages that they might or had suffered is neither here nor there.

G.      Analysis of Evidence: DCCJ 5178/2017

16.  After hearing the oral evidence, on the balance of probabilities, I find prefer the version of events put forward by the plaintiff.  I reject the defendant’s case that he had from the beginning informed the plaintiff about the existence of Gary, and that the plaintiff would only get paid when Gary paid him to be unbelievable for the following reasons:

(a)     Parties agreed that the agreement was reached on or about September 2015.  Similarly, from the contemporaneous whatsapp exchanges between the plaintiff and the defendant shortly before September 2015, there was no mention of the defendant entering into the agreement with the plaintiff on behalf of Gary, nor that the plaintiff would only get repaid when Gary paid him.  There was no mention of Gary’s personal or financial background.

(b)     Contrary to the suggestion of the defendant, the whatsapp conversation on 4 October 2017 clearly showed that the plaintiff had never met Gary: “… 有好多苦主受害者都同你一樣… 冇見過Gary”.

(c)     The whatsapp conversation between the defendant and the plaintiff after being told there was a middleman involved was consistent with the plaintiff’s case that she did not know anything about Gary.

(d)     The requests for the 2 loans were made by the defendant to the plaintiffs.

(e)     There were no instructions from Gary regarding the 2 loans found in the transcripts of the audio messages between Gary and the defendant.

(f)     Although I find that the plaintiff might have known early on that there was someone behind the defendant, there was no evidence suggesting that the agreement was entered into between the plaintiff and Gary, or some other person.

(g)     From the whatsapp messages, when the plaintiff demanded repayment, the defendant never denied liability by saying that the plaintiff knew all along that the responsibility of repayment lied with Gary, and not with him.  It is inconceivable that if the defendant had truly made clear the arrangement to the plaintiff from the very beginning, he would not have immediately defended himself and denied liability when the demands for repayment came.  Instead, he promised he would try his best to chase for repayment.

(h)     The defendant claimed that although the whatsapp messages did not show that the plaintiff knew about Gary from the beginning, in reality he did inform the plaintiff in their oral conversations and that he did defend himself and told the plaintiff that the liability lied with Gary.  I reject this claim.  It defies common sense to suggest that the defendant would say one thing to the plaintiff in whatsapp messages and another in oral conversations.

(i)     From the whatsapp messages between the defendant and Gary, it is clear that Gary did not know who the plaintiff was and only referred to her as the defendant’s “friends”.  If the agreement was indeed entered into between Gary and the plaintiff, Gary would have referred to her at least by name.  I reject the defendant’s explanation that Gary would address the plaintiff by name in their unrecorded oral conversations.  There is no reason why Gary would have refrained from mentioning the plaintiff’s name in the contemporaneous recorded whatsapp messages if indeed he knew who the plaintiff was.

(j)     In the whatsapp messages on 14 April 2016, the defendant had guaranteed to the plaintiff that he would repay the loan in 6 months.  This goes directly against the defendant’s case that all repayments were subject to payment received from Gary.

(k)     The arrangement between the defendant and Gary was that if he could find people who would help purchase watches or provide funds for the purchase of watches, the defendant would receive a commission of about 10% from Gary.  This was not made known to the plaintiff.  There was no explanation on why Gary would pay the defendant commission, if the agreement was entered into between the plaintiff and Gary.  The defendant also gave a misleading answer to the police when he was asked if he received any benefits from introducing people to Gary. 

(l)     In the agreement between the plaintiff and the defendant, there was no security provided to the plaintiff for the repayment of the moneys they had paid out for the purchase of the watches.  I accept that the plaintiff would not have agreed to lend the HK$300,000 to the defendant, but for the fact that they had had a long-term friendship with and had trusted the defendant.

(m)     The defendant’s witnesses Mr Yao and Mr Wan admitted in their oral evidence that they did not know the plaintiffs and were not privy to the discussions leading up to the agreement between the plaintiff and the defendant.  Their evidence thus have little weight and are not relevant.  In any event, both of them agreed that they had never met Gary.  The fact that they for some reason did not deem the defendant responsible for any damages that they might or had suffered is neither here nor there.

H.      Disposition

DCCJ 5116/2017

17.  On a balance of probabilities, I find that the principal as alleged by the defendant was not disclosed at the time when parties contracted.  Applying the relevant legal principles, the defendant is personally liable for the contract.  The plaintiffs have successfully proved their claims against the defendant.  I reject the defence put forward by the defendant as unbelievable based on the evidence.

DCCJ 5178/2017

18.  On a balance of probabilities, I find that the principal as alleged by the defendant was not disclosed at the time when parties contracted. Applying the relevant legal principles, the defendant is personally liable for the contract.  The plaintiff has successfully proved her claims against the defendant.  I reject the defence put forward by the defendant as unbelievable based on the evidence.

I.      Orders

19.  DCCJ 5116/2017

(1)     The defendant do pay to the plaintiffs HK$250,088.

(2)     The defendant do pay to the plaintiffs interest on HK$250,088 at prime +1% from the date of the Writ to the date of the judgment, and thereafter at judgment rate until full payment.

(3)     Costs follow the event, I make an order nisi that the defendant is to pay the plaintiffs’ costs of and incurred in the action, including all costs previously reserved, to be taxed if not agreed.

DCCJ 5178/2017

(1)     The defendant do pay to the plaintiff HK$66,681.

(2)     The defendant do pay to the plaintiff interest on HK$66,681 at prime +1% from the date of the Writ to the date of the judgment, and thereafter at judgment rate until full payment.

(3)     Costs follow the event, I make an order nisi that the defendant is to pay the plaintiff’s costs of and incurred in the action, including all costs previously reserved, to be taxed if not agreed.