L.V.W. GROUP CO., LTD v. POCOTEX (HOLDINGS) LTD

HCA 1232/2024

[2025] HKCFI 2662

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1232 OF 2024

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REASONS FOR JUDGMENT

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Introduction

1.  The defendant (“D”) appealed from the judgment of Master KW Wong dated 24 February 2025, by which the learned Master granted to the plaintiff (“P”) summary judgment in the sum of US$394,305.11 plus interest and costs.

2.  The appeal was pursuant to Order 58 rule 1 of the Rules of the High Court (Cap.4A), and operated as a re-hearing de novo.

3.  At the conclusion of the hearing I dismissed D’s appeal with costs to P. I now provide my reasons.

Background

4.  P is a company registered in Thailand carrying on business as an apparel and fabric manufacturer.

5.  D is a Hong Kong company carrying on business under the business name Wing Luen Knitting Factory[1].

6.  P claimed against D for unpaid amounts on certain contracts for the sale of fabric said to have been sold by P to D under 8 commercial invoices (the “8 Invoices”) with dates ranging from 25 August to 4 December 2023.

7.  It was P’s pleaded case that by agreement entered into between P and D since around September 2013, P agreed to sell fabric to D. The specifications were provided by D and/or its agents Wing Luen Knitting Factory Limited (“WLL”) and/or Y&W Garment Co., Ltd (“YW”).

8.  WLL is a Hong Kong company, and YW is a Cambodian company. It is notable that the name of WLL is similar to the business name of D (ie Wing Luen Knitting Factory).

9.  D’s pleaded defence was short. D denied that P contracted with D, denied that either WLL or YW was the agent of D, and alleged that D only provided certain loans to WLL and YW.

10.  As canvassed further below, the sole line of defence run by D in opposition to summary judgment was that entity which purchased the fabrics from P under the 8 Invoices was not D, but rather YW.

Evidence

11.  P’s evidence comprised: (i) two affirmations from Vitaya Likittanawong (“VT 1^st Aff” and “VT 2^nd Aff”), a director of P; and (ii) an affirmation of Ng Hon Yuen Frankie (“FN Aff”), Marketing Manager of P.

12.  D’s evidence comprised an affirmation of Yuen Yiu Pong Anthony (“AY Aff”), who identified himself as the Manager of both D and WLL.

Directors and shareholders

13.  There is a degree of overlap between the directors and shareholders of D, WLL and YW (summarised at VT 1^st §10):

(1)  Directors. The directors of D are Yuen Po Fai (“Alex Yuen”), Yuen Po Ning (“Stephen Yuen”), and Yuen Po Hung (“Francis Yuen”). The directors of WLL are the same three individuals plus Yuen Po Chiu. The directors of YW are two of these individuals: Alex Yuen and Stephen Yuen.

(2)  Shareholders. The shareholders of D are Lau Yuen Chun, Lau Yuen Chong, Alex Yuen, Stephen Yuen, Francis Yuen, and Yuen Po Chiu. The shareholders of WL are the same six individuals plus Wong Ka Chung. The shareholders of YW were not in evidence[2].

Commencement and continuation of the trading relationship

14.  According to P’s evidence given by Vitaya Likittanawong (“VT”) and Frankie Ng (“FN”):

(1)  The parties’ relationship began around September 2013 when D’s fabric team (the “Fabric Team”) emailed FN, introducing themselves as being from “Wing Luen Knitting Factory”.

(2)  On 19 December 2013, FN attended D’s factory in the Mainland. FN met Ricky Lau and Ekin Lam, who provided their business cards referring to “Wing Luen Knitting Factory Limited”, a “Member of Pocotex (Holdings) Limited” (ie a Member of D).

(3)  After various exchanges of emails and phone calls, the Fabric Team placed the first order with P by email from Ricky Lau dated 21 March 2014. The Fabric Team had asked for the order to be shipped to YW’s address in Cambodia and for the invoice to be addressed to WLL. Accordingly, P manufactured the fabric in accordance with the specifications provided by Ricky Lau, shipped the order to YW’s address in Cambodia, and issued the invoice to the name of WLL. The invoice was settled by D by telegraphic transfer (“T/T”).

(4)  Following the first order, trade continued in the same manner: D provided specifications and orders for fabric through the Fabric Team, P manufactured and delivered the fabric to Cambodia and sent invoices, and D settled the invoices. In April 2014 production orders were introduced using the name of WLL, but from April 2021 they used the name of YW. P addressed invoices to either WLL or YW depending on the production order provided by the Fabric Team. Nevertheless, the invoices were always settled by D by T/T (indeed this was common ground).

(5)  VT gave evidence of a meeting with Alex Yuen on 23 September 2014, attended also by FN, at which Alex Yuen provided two business cards: (i) one referring to “Wing Luen Knitting Factory (Operated by Pocotex (Holdings) Limited)”, and identifying Alex Yuen as Director; and (ii) one referring to YW and identifying Alex Yuen as Director. VT said Alex Yuen explained that Wing Luen’s head office was in Hong Kong for commercial purposes, and handled finance and the placing of production orders; Wing Luen also had a branch office and factory in the Mainland, and a factory in Cambodia. VT 2^nd stated that Alex Yuen also said that YW was involved on behalf of D, and that P would be trading and dealing with D.

(6)  VT also gave evidence of a meeting with Alex Yuen in August 2022 in Cambodia, at which Alex Yuen said Wing Yuen Knitting Factory was a family business managed by three siblings. As the eldest sibling, Alex Yuen had run the business for more than 40 years. His siblings and he were the second generation whilst his son Anthony Yuen was the third generation.

The 8 Invoices

15.  According to P, from 21 June 2023 to 27 October 2023 the Fabric Team communicated with P and sent production orders for various fabric issued under the name of YW. P manufactured the fabric, shipped it to YW’s address in Cambodia, and issued the 8 Invoices in the total amount US$543,238.71.

16.  The 8 Invoices, which were in evidence, refer to YW under the headings “CONSIGNED TO” and “BILL TO”.

Default in payment

17.  According to P, whilst D had previously settled all of P’s invoices within the period specified for payment, starting from the first of the 8 Invoices dated 25 August 2023 onwards, D failed to do so. P’s team began to chase by emails and received certain reassurance by email response from the Fabric Team that payment would be forthcoming.

18.  On 12 December 2023, D remitted US$32,573.82 to P in part payment of the 8 Invoices.

19.  From 19 December 2023 to 4 February 2024, VT exchanged WeChat messages with Anthony Yuen (“AY”) in relation to the outstanding amounts: discussed further below.

20.  Around 22 December 2023, D remitted a further US$86,359.78 to P in part payment of the 8 Invoices.

21.  P continued to send emails to the Fabrics Team chasing for payment. P’s evidence was that on 11 January 2024, VT and FN met AY, who apologised for the delayed payment and orally promised that D would pay half the outstanding amount by 10 February 2024. AY sent a follow up email dated 13 January 2024 in similar terms.

22.  On 23 January 2024, D made one further payment of US$30,000, leaving a final outstanding amount of US$394,305.11.

23.  P later issued a demand letter addressed to WLL. VT explained that at the time, P did not know that there were two companies using the name “Wing Luen Knitting Factory”; and P was only later alerted to this by its solicitors. Following further inquiries, P realised that the claim should properly be brought against D as the contracting party (which amongst other things, was the entity which paid P’s invoices and on-sold the goods to end customers).

24.  Subsequent demand letters were issued to D, but the amount claimed remains unpaid.

D’s defence and evidence

25.  The sole defence raised in opposing summary judgment, was that D was not the party which contracted with P in the transactions underlying the 8 Invoices. Rather the contracting party was YW as specified on the Invoices (which was not D’s agent as alleged by P).

26.  Ds evidence in opposition comprised the YA Aff, which is around 7 pages long and does not exhibit any documents. YA’s key evidence was as follows:

(1)  D, WLL and YW (the “3 Companies”) were separate legal entities with independent management and operations. They were not a company group since there was no cross-shareholding between them; but they did form an alliance/group to achieve business objectives in a more efficient and cost-effective manner (the “Alliance”). WLL and YW assisted P’s business as partners in the Alliance, but were not D’s agents.

(2)  Alex Yuen was a director of both D and YW. He had never in his meeting with VT represented that YW was D’s agent, nor had D signed any agency agreement with either WLL or YW[3].

(3)  Within the Alliance the 3 Companies played different roles:

(a)  D marketed and sold garments to its customers. It directly received purchase orders (“POs”) with specifications on design, colour, size, and fabric type.

(b)  WLL was a garment manufacturer with a factory in Dongguan.

(c)  YW was a garment manufacturer with a factory in Cambodia.

(4)  In order the save costs, the 3 Companies shared resources such as personnel, registered address and IT systems where possible.

(5)  D had no manufacturing function of its own and outsourced this to WLL and YW. When D received a PO, it would pass the customer’s specifications to either WL or YW; which would then order from their suppliers the necessary materials and fabrics and manufacture the garments for D.

(6)  P never contracted with D, but only with WLL and YW.

(7)  The reason why P’s invoices were settled by D rather than WLL or YW, was as follows. D outsourced the garment manufacturing to WL and YW, but they had their own profit and loss to account for. The settling of invoices of WLL and YW by D was a financial arrangement between D and the two other companies, given that D was more resourceful financially (the “Arrangement”). Using YW as an example, YW would agree with D a manufacturing price with built-in profit margin. D would then provide funding in the form of a loan to YW to buy materials such as fabrics to manufacture the garments. Once products were finished and delivered to the end customer, YW would receive from D the manufacturing price less the material costs D had paid on behalf of YW. The Arrangement was an internal one within the Alliance which was never previously disclosed to P.

(8)  In the early stages of the relationship with P, WLL bought fabric from P as sample, including the first order mentioned in P’s evidence. The invoices for these purchases were issued to WLL and paid by D under the Arrangement. WLL was the entity responsible for buying fabric samples. This explained why when FN first met Ricky Lau and Ekin Lam, they gave FN business cards referring to WLL.

(9)  The transaction volume later increased around 2021, when YW started to buy fabric in bulk from P, with sourcing by the team of WLL. Invoices from then, including the 8 Invoices, were issued to YW as it was the party which ordered the fabric. D only settled the invoices pursuant to the Arrangement.

(10)  D ran into financial difficulties when some of D’s customers fell behind in their payments to D. There was a chain reaction as D was unable to provide more funding to YW, and YW had difficulty financing its own operations, including purchase of fabrics to manufacture garments for D’s customers’ orders.

Principles

27.  The principles applicable on an application for summary judgment are very well-known. They are summarised in Hong Kong Civil Procedure 2025 at §§14/4/4, 14/4/8 and 14/4/9 – 9B, and include the following:

(1)  If the application is properly constituted, the defendant must show that there are triable issues. He or she must satisfy the court by credible evidence that there is a fair probability or reasonable grounds that a bona fide defence exists. If the defendant raises credible, triable issues, the matter should go to trial.

(2)  Order 14 is for plain and obviously cases only where the defendant clearly has no defence. The court will not conduct a mini-trial on affidavit, and where there are substantial disputes of fact which ought to be tried, leave to defend should be given.

(3)  However, mere assertion in the defendant’s affidavit does not, ipso facto, justify leave to defend. The court will not take the defendant’s evidence at face value, but will test it against the affidavit evidence and contemporaneous documents, and any inherent improbability.

(4)  The defendant’s evidence must condescend to particulars, deal specifically with the plaintiff’s claim and affidavit, and state clearly and concisely what is the defence and what facts are relied on to support it. Sufficient facts and particulars must be given to show that there is a triable issue.

Analysis

28.  As noted above, D’s only defence was that it was YW rather than D that contracted with P. The question for me to decide was whether there is a triable issue on this point.

29.  I focus on the key points that informed my decision to dismiss the appeal.

30.  I consider that there are two pertinent features that indicate that the contracting party under the contracts of sale with P was D, rather than YW, despite references to YW on the 8 Invoices.

31.  The first is that it is common ground that throughout the entire course of the trading relationship, D always settled P’s invoices. Indeed that remained the case when partial payments were made of the 8 Invoices during the period when P was chasing for payment and discussing with AY by WeChat: see above.

32.  This is in my view a strong indicator that D was the true contracting party, unless there is some other plausible explanation why D would pay; for which see below.

33.  The second is that it is common ground (and accepted by Mr Ho for D at the hearing), that it was D who on-sold the good to end customers. Accordingly, it must have been D that purchased the fabric from P, unless there is some other explanation such as a sale contract interposed between P and D (most obviously, that P sold fabric to YW which then manufactured the goods and sold them to D, which then sold them on to the end customers).

34.  D’s answer to the first point is summarised at §26(7) above. However, D did not produce a single document in support of its case as to the alleged “Arrangement” between the 3 Companies, or any indeed any other aspect of its case. If payment by D was in fact pursuant to the alleged Arrangement, there ought to be available to D supporting documents to make this good such as: agreements or correspondence reflecting that loans were made or repaid between D and YW; documents reflecting the payments made from D to YW referred to at §26(7) above; or accounting entries evidencing the alleged loan and arrangements. But nothing has been produced.

35.  As to the second point, when I put this to Mr Ho during argument he accepted that if YW had bought the fabric from P, YW must have sold the manufactured goods to D (since it was D that on-sold to end customers). However, there was no document produced to make good such a case; and indeed it is far from clear that that scenario is consistent with D’s evidence that D “outsourced” manufacturing to YW (as summarised above).

36.  In these circumstances, I do not consider that D has discharged its burden of showing a credible defence, including by answering the two points referred to above. Rather, the explanations provided in the AY Aff are bare assertion. They are unsupported by any document, in circumstances where D could be expected to have in its possession and exhibit supporting documents if the defence relied on were credible.

37.  I mention three other points for completeness:

(1)  The WeChat exchanges between VT and AY from December 2023, and AY’s email dated 13 January 2024 (referred to at §§19 and 21 above) show AY apologising for non-payment; explaining that the reason was that payment had not been received from end-customers (such as “TCT” and “Glorify”); and stating that when payment was received from those customers, P would be paid. This is significant since D accepted that D was the entity which on-sold garments to such customers. The exchanges accordingly suggest that AY was speaking on behalf of D, and that his promises to pay were on behalf of D; and it was indeed D that made part payment of the 8 Invoices. Further, Mr Ho accepted during the hearing that AY had no role in YW, which begs the question why he was engaging in these exchanges with P if YW was the contracting party.

(2)  I do not consider that the name cards of Alex Yuen, Ricky Lau and Ekin Lam are conclusive one way or another, on the question of which entity contracted with P The name cards contain references to all 3 entities in question[4].

(3)  As to P’s initial demand letter being addressed to WLL (see §23 above), I view this is a neutral factor rather than one which supports D’s case. That is because it is D’s case that the party contracting with P in respect of the 8 Invoices was YW, rather than WLL. In other words, on either of the parties’ cases, P’s initial demand letter was addressed to the wrong company.

Conclusion

38.  For the above reasons, I dismissed D’s appeal with costs to P.