JETWAY ADVERTISING AND INTERIOR DECORATION CO (a firm) v. CHRISTINE MAILLEFERT AND ANOTHER

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JUDGMENT

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1. The Plaintiff firm, according to the Amended Statement of Claim, is a decoration company (sic), and according to its sole proprietor, it is engaged in advertising and interior decoration. The 1st Defendant was at all material times an interior designer, and the 2nd Defendant, which, in reality, is the 1st Defendant in the guise of a limited company, is and was at all material times an interior designer. This action concerns work done at the home of Mr. Roderick Woo at Flat 12B, 56 Macdonnell Road, Victoria.

2. When the action was called on, I was told by Mr. Walters that the 2nd Defendant admitted liability and consented to judgment in the agreed sum of $100,000.00, in addition to a sum of money previously paid into Court by it, but which had subsequently been paid out.

3. The Plaintiff firm applied to amend its Statement of Claim, and, by consent. I have judgment for the Plaintiff against the 2nd Defendant in the agreed sum of $100,000.00 with costs and gave leave to amend the Statement of Claim without re-service.

4. I was also informed that quantum, as between the Plaintiff firm and the 1st Defendant, had been agreed in the sum of $100,000.00. I was left, therefore, with what appeared to be a simple claim between the Plaintiff firm and the 1st Defendant as to her liability: Alas that was not the way it was to be.

5. But two witnesses were called before me, Mr. Yeung Shuk tong, the sole proprietor of the Plaintiff firm, and Mrs. C.J. Walton, the 1st Defendant and the Managing Director of 2nd Defendant.

6. The issue which I had to resolve was by no means academic: It was obvious from the consent judgment which I was asked to make, and I was later informed by Counsel for the 1st Defendant, that the 2nd Defendant was, to put it euphemistically, short of money.

7. The evidence of the two witnesses, so far as factual content is concerned, was remarkably similar.

8. The parties met in the Summer of 1981 in regard to the decoration of a shop in Worldwide Centre for S.P. de Silva, and eventually, the 1st Defendant asked the Plaintiff firm for a quotation or work to be done on Mr. Woo's flat, to which I shall refer hereafter as the premises. As the result of a telephone call, they met on a construction site in International Building in Central, and then went to the premises and according to Mr. Yeung, the 1st Defendant shewed him her quotation that she had previously presented to some other people. According to the 1st Defendant, she gave Mr. Yeung some papers belonging to a quotation made previously by another contractor, and it does appear as if Exhibit 2 is the papers mentioned by the 1st Defendant in chief and referred to in her cross examination, and the quotation to some other people referred to by Mr. Yeung in his evidence in chief.

9. The Plaintiff firm did quote, and its quotation, (No. 8181), Exhibit 1, is dated 21st October 1981. At the foot of p. 4 of Exhibit 1, appears the singular contradiction "M/S Christine Maillefert Ltd.". Such a company did not then exist, although the 1st Defendant told me that she then knew that the name had been approved, and that registration was merely a matter of time.

10. It is common case that Mr. Yeung and the 1st Defendant met in her car which was parked in Wellington Street, and that, in a hurry, they went through Exhibit 1 adding, altering or deleting items: They both appeared to believe that that meeting was on the day following the date of the quotation, namely 22nd October, but of that I have some doubt because, at p.4 of the Exhibit 1, there is a provision for a deposit of one-third, and there is before me a cheque drawn by the 1st Defendant on her personal account with Banque de 1 Indochine et de Suez on 21st October for $40,000.00 (Exhibit 3), so, unless that cheque were ante-dated, the calculation of $40,000.00 could not have been made on 22nd, but must have been on 21st. The 1st Defendant initialled Exhibit 1 once on p.1, thrice on p. 2 and thrice on p. 3, and there are pencil markings on p. 4, the important ones of which are "less cancelled item $10,000.00 = $125,750.00" - of which $40,000.00 would be very nearly one-third - but there is an entry underneath the $120,750.00 which reads A/C oct 22, - 81". Be that as it may, the quotation was signed at the foot of p. 4 by Mr. Yeung, and was undoubtedly accepted by the 1st Defendant but in what capacity is in issue.

11. According to the 1st Defendant when she was on holiday with her then fianc in August 1983 she accepted his advice that she ought to incorporate herself for, inter alia, tax reasons. So on her return at the beginning of September, she contacted Julis Hayes & Co. by which, I apprehend, she means Haves & Co. Ltd., to apply for her to register a company. She told me that, about the end of September, she was informed that the name was acceptable.

12. Her case is that, from the outset, she told the Plaintiff firm, and consequently, the Plaintiff firm at all material times knew, that, not merely was she going to incorporate herself into a limited liability company, but that the limited liability company would be the sole person responsible for paying the Plaintiff firm for work done at the premises. The Plaintiff firm's pleaded case, even after the amendment, was that, once the 2nd Defendant was incorporated, it "will accept liability for the work done at the premises. The Plaintiff firm's case as presented, is that nothing of the sort occurred. That at first, may appear to be a direct conflict of evidence - but it was not so.

13. I have frequently had to remind myself, and those appearing before me, that I am not sitting in The Strand. Never was it more apparent than in this case. Mr. Yeung made it quite clear to me that he still does not know the difference between a company' and a "company limited". Since this action commenced, and he has spoken to his Solicitors, he realises that they are two different things.

14. In his evidence in chief he commenced by using the word we, and I asked him who we were. His answer was I mean our company. I am one of the partners. There were two partners. When I repeated the question, he made it clear to me that he was referring to him, himself. His cross examination commenced as follows:-

And then he went on to say that the figure that Shun would get would, in fact, have been arrived at by negotiation between the two. At the close of his evidence there followed this passage:-

15. I asked the 1st Defendant about this subject, at the conclusion of her evidence:-

There are two points about those answers which struck me forcibly, namely that she was referring to the prospective formation of the 2nd Defendant as a registered company meaning thereby a company registered with the Business Registry presumably in the name which she had been told in advance was acceptable. The second is that she seemed convinced that she was doing the same as Mr. Yeung, and that Mr. Yeung had a limited registered company, namely the Plaintiff firm.

16. So much for the oral evidence: I now pass to the documentary evidence. Exhibit 1, as I have said, was addressed to M/S Christine Maillefert Limited which, among other things, shewed that Mr. Yeung did not understand the difference between Messrs. (a firm) and Ltd. (a limited liability company). He says that those words appear there because his secretary copied them from the head of Exhibit 2, where the word Ltd.". had been typed in after "Christine Maillefert". The address of Christine Maillefert printed on Exhibit 2 was in Causeway Bay, but it is common case that at all material times the parties met at the premises, and it was at that address that the Plaintiff firm looked for the 1st Defendant. The 2nd Defendant's address was in Wan Chai, and is now in Stanley. At the material time, the 1st Defendant lived in what Mr. Yeung described as a luxury flat in Tregunter Path but she has since risen geographically (even if she has fallen financially), in that she has moved from the Mid-Levels to the Peak, and she now lives in Guildford Road. On 13th November the Plaintiff firm submitted a further quotation, No. 8182, which is Exhibit 4A. That was sent to M/S Christine Maillefert Ltd." at the Tregunter Path address, which was neither the address of the 1st Defendant qua sole proprietor, nor the address to be of the company to be. The 1st Defendant says that she received that on or about 20th November, namely after the incorporation of the 2nd Defendant, and she was not cross examined on that point. Exhibit 4A provided for a 50% deposit, and, on Exhibit 4A, which is initialled by the 1st Defendant, there are additions, alterations and deletions. She sent back the carbon copy of the quotation, namely Exhibit 4B, apparently with a cheque (Exhibit 5). The cheque is for $22.675.00, which is half the corrected figure at the foot of Exhibit 4b. Also at the foot of Exhibit 4B there is an entry Rec. NOV. 25. 81, and neither party challenged that that was the date (8 days after the incorporation of the company) when the Plaintiff firm received Exhibit 4B. That is supported by the clearing endorsement on the back of the cheque, Exhibit 5, which bears the date 25 NOV 1981. That cheque, it is to be noted, was drawn by the 1st Defendant upon her own personal account with the Hongkong & Shanghai Banking Corporation.

17. A covering letter was sent with Exhibit 5 (and presumably, Exhibit 4B) and that appears at pp. 16-18 of Bundle B. It is to be noted that it was on the writing paper of the 1st Defendant with her initials and her name in English with the description "interior designer, and the Chinese characters "Mak Fei" (an unfortunate name for a single lady), and was signed and initialled by her, qua herself See B18. The next document to appear was Exhibit 10, where there was no reference to the limited company either in the heading or in the signature. The first change of which I have any record occurred in the following December, in the letter at p. C6, where, on the same writing paper, there appears a rubber stamp.

"For and on behalf of
CHRISTINE MAILLEFERT LIMITED

 

 

...........................................

Authorized Signature

Christine Maillefert Ltd.

On the same date, and on the same writing paper another letter was sent to the Plaintiff firm, where there was no stamp, but where the name of the 2nd Defendant appeared, and the same occurred on 9th December. The form of the next letter, 11th December, B19, was the same as that of C6. Those varying types of signeture appeared on the same paper until 17th December. On that date, a letter was sent with LTD." typed after the name on the paper - see B23. Yet on 23rd, 24th and 28th December (C21, C22 and C24), the 1st Defendant wrote on her unaltered paper and signed as herself, and not as the company. On 5th January, she signed as herself on paper with the typewritten word LTD.'; (p. C25) but, on 7th January (B27), she sent a note of instruction on her own unaltered paper without any reference to the company. See B27 and C26. On 7th January she sent two letters to the Plaintiff. B28 and C27. In one, she wrote on paper with "LTD. typed at the heading and with the company's rubber stamp above her signature; in the other, she wrote on similar headed paper, but signed qua herself. On 14th January 1982, B29, writing paper headed with the name of the 2nd Defendant first appeared on this scene: It gave the private address of the 1st Defendant, and it was not until 19th July, B54, that 2nd Defendant's letterhead shewed an address different from the home, or possibly the ex-home, of the 1st Defendant. On 11th November 1982 there appeared the first letterhead of the 2nd Defendant with its Wan Chai address printed on it p. B56 It said "Ltd." in English but only "company" in Chinese. I should have said that all the correspondence emanating from the 1st/2nd Defendant commenced Dear Sirs.

18. So much for the Defendants' documentation. I now pass to that of the Plaintiff firm.

19. On 21st May 1982, an invoice was sent to 'M/S Christine Maillefert Limited at the Tregunter Path address, being No. 8181-2 (Exhibit 6A): It was for $208,542.00. On 22nd July, a letter was sent on the Plaintiff firm's paper, which appears at C60: It is addressed to "M/S Christine Maillefert Limited, is marked for the attention of the 1st Defendant, commences Dear Sirs" and is signed by "Grace Lam, Managing Co-ordinators". On 25th August, a further invoice was sent by the Plaintiff firm addressed to "M/S Christine Maillefert Limited', but that was sent to the address of the 2nd Defendant in Wan Chai - it is Exhibit 7A. It was for the sum of $350.00. On the same date, a letter was sent from the Plaintiff firm to the 2nd Defendant at its address in Wan Chai, but commencing 'Dear Christine'. C62. A similar letter appears at p. C63.

20. On 11th November, a letter was sent on the old personal letterhead of the 1st Defendant, but signed with the typed and rubber-stamp name of the 2nd Defendant by the 1st Defendant qua Managing Director, enclosing a cheque, which is Exhibit 8. That is a company cheque and it was signed over the rubber stamp of the company. It was presented for clearing on the following day.

21. Such documentation would be confusing even to the trained reader - and it has been to Mr. Yeung. I can not shut my eyes to the prevailing situation in Hong Kong, and it is clear to me that when Mr. Yeung talks, in English, about a company, he means what I would call a firm (Kung See). One only has to walk through the streets and observe sign boards and look at goods vehicles, to see how many limited companies in fact use only two Chinese characters (Kung See) for company, and not the four characters meaning limited company (Yau Haan Kung See), but I must put to one side my knowledge of that deplorable state of affairs.

22. From the passages in the evidence of these two persons that I have set out above, it is quite clear in those early conversations that they were never ad idem. When the 1st Defendant spoke of setting up a registered company, (resembling the Plaintiff firm), Mr. Yeung, thought that she was talking about the same type of company as he had; where as the 1st Defendant was thinking in terms of her fiancés advice and the formation of a Société Anonyme - that is to say a Limited Liability Company.

23. I observed the two closely, and paid much attention to their demeanour and their manner of giving evidence, and, considering those against the totality of the evidence, oral and written, I have come to the conclusion that they were talking and thinking so differently, that there never was a "meeting of minds" between them that could give rise to a binding oral contract.

24. That being my finding, it follows that, in my judgment, there never was an agreement in September 1981 that, when the Company was incorporated, it would take over all the liability for work already done, which 1st Defendant bad authorised, and for which she had signed. I will come to the consequences of that finding later in this judgment.

25. I now return to the correspondence. Solicitors appeared on scene in the following year, when Messrs. Alexander Tsang & Co. wrote the first letter of demand on behalf of the Plaintiff firm. It was addressed to the 2nd Defendant at its business premises and commenced 'Dear Sirs'-B59. The answer came on 9th April (B60) on the new paper of the 2nd Defendant which, significantly, in Chinese, merely said company" (Kung See) and not limited company (Yau Haan Kung See). In the 2nd paragraph the 2nd Defendant said,

"As I think you know there has been a long standing dispute between your clients and my company over the amount which is owing to them in respect of this particular job. ........................................".

And it is signed by the 1st Defendant qua Managing Director of the 2nd Defendant. On the same date, the Plaintiff firm's Solicitors wrote again to the 2nd Defendant, and on 25th July these proceedings were commenced against both Defendants.

26. On 12th August, Messrs. Johnson, Stokes & Master wrote on behalf of the Defendants and said:-

"        We are instruced that the 1st Defendant denies she accepted personal liability for any payments due to your clients. It was agreed between Mr. S.T. Young of your clients and the 1st Defendant that the 2nd Defendant would be the contracting party in respect of the interior design project at Flat 12B, 56 Macdonnell Road."

see pp. 62/3. To that letter they received an equivocal answer at B64 which speaks for itself.

27. If my assessment of the evidence be correct, I must ask myself what is the pre-incorporation situation, and to ascertain that I must look at the actions of the parties and particularly so in the absence of a Reply.

28. In Kelner v. Baxter & Ors. (1866) L.R. 2 C.P. 174 Erle, C.J. said, at pp. 182/3:-

"A difficulty has arisen because the Plaintiff has at the head of the paper addressed .................. on behalf of the proposed ............ company, limited", and the Defendants have repeated those words after their signatures to the document; and the question is, whether this constitutes any ambiguity on the face of the agreement, or prevents the Defendants from being bound by it. I agree that if the ......... company had been an existing company at this time, the person who signed the agreement would have signed as agents of the company. But, as there was no company in existence at the time, the agreement would be wholly inoperative unless it was held to be binding on the Defendants personally. The cases referred to in the course of the argument fully bear out the proposition that, where a contract is signed by one who professes to be signing as agent", but who has no principal existing at the time, and the contract would be altogether inoperative unless binding upon the person who signed it, he is bound thereby, and a stranger cannot by a subsequent ratification relieve him from that responsibility. When the company came afterwards into existence it was a totally new creature, having rights and obligations from that time, but no rights or obligations by reason of anything which might have been done before. It was once, indeed, thought that an inchoate liability might be incurred on behalf of a proposed company, which would become binding on it when subsequently formed but that notion was manifestly contrary to the principles upon which the law of contract is founded. There must be two parties to a contract, and the rights and obligations which it creates cannot be transferred by one of them to a third person who was not in a condition to be bound by it at the time it was made.".

Willes, J. said, at p. 184,

"That brings one to consider whether the company could be legally liable. I apprehend the company could only become liable upon a new contract. It would require the assent of the plaintiff to discharge the defendants. Could the company become liable by a mere ratification? Clearly not. Ratification can only be by a person ascertained at the time of the act done, - by a person in existence either actually or in contemplation of law.".

and, at p. 135, he continued,

Byles, J., said, at the same page,

"The true rule, however, is ......... that persons who contract as agents are generally personally responsible where there is no other person who is responsible as principal. Suppose this company never came into existence at all, could it be doubted that these defendants must be held to have bound themselves personally? Then, was it contemplated that the liability was conditional only until the company should be formed? It is said that the contract was ratified by the company after it came into existence. There could, however, be no ratification. Omis ratihabitio retrotrahitur, et mandate priori aequiparatur: but the ratification must be by an existing person, on whose behalf the contract might have been made at the time. That could not be so here; a subsequent ratification by the company could only be with the assent of the plaintiff and then it would be a new contract.".

In Natal Land Co. Ltd. v. Pauline Colliery and Development Syndicate Ltd. [1904] A.C. 120, Lord Davey, giving the Reasons of the Board, said, at p. 126.

"The contract was made with Mrs. ..........., and even if she can be treated as having made it on behalf either of the unincorporated syndicate, who were the promoters of the respondent company, or on behalf of the company itself when incorporated, it is clear that a company cannot by adoption or ratification obtain the benefit of a contract purporting to have been made on its behalf before the company came into existence .............................. But the facts may shew that a new contract was made with the company after its incorporation on the terms of the old contract.".

29. One Court of Appeal in England, the High Court of Australia and the Supreme Court of Newfoundland have taken a contrary approach. In Newborne v. Sensolid (Great Britain) Ltd. [1954] 1 Q.B. 45, Lord Goddard, C.J., at p. 50, referring to Kelner's Case (supra), said,

"That decision seems to me to stop far short of holding that every time an alleged company purports to contract - when there is no company in existence everybody who is signing for the company is making himself personally liable".

and, at p. 51, he said,

"The company makes the contract. No doubt the company must do its physical acts, and so forth through the directors, but it is not the ordinary case of principal and agent. It is a case in which the company is contracting and the company's contract is authenticated by the signature of one of the directors. This contract purports to be a contract by the company it does not purport to be a contract by Mr. .......................... In my opinion, unfortunate though it may be as the company was not in existence when the contract was signed there never was a contract, and Mr. ........................ cannot come forward and say: "Well, it was my contract. The fact is, he made a contract for a company which did not exist.".

In Black & Anor. v. Smallwood & Anor. (1966) 39 A.L.J.P. 405 both parties thought that the company was in existence when it was not, and the signatories on behalf of the non-existent company were held not to be liable. In Delta Construction Co. Ltd. v. Lidstone et al. (1979) 96 D.L.R.(3d) 457 Noel, J., applying both Newborne's Case (supra) and Black's Case (supra), held that, where an individual purports to contract with another on behalf of a corporation not yet formed, there is contract neither with that individual nor with the corporation. However, he held, the individual so signing is liable to that other party for breach of warranty of authority.

30. I must now apply those principles to the facts of this case and to see how, if at all, they help me to decide either the whole or part of the issues between the parties.

31. Although, as I have said, I have found as a fact that there was no oral agreement between the 1st Defendant and the Plaintiff firm in September that a limited liability company would take over the responsibility for the contract and, consequently, release the 1st Defendant from any liability to the Plaintiff firm, I am equally satisfied with the evidence of the 1st Defendant that she did discuss the formation of a "registered company", or a company like that of the Plaintiff firm, with Mr. Yeung before the submission of the first quotation (Exhibit 1). It follows, therefore, that she was holding herself out as 'agent' for a disclosed, albeit non-existent, principal. In my judgment, the Kelner (supra) and Natal Land (supra) principles apply here and, accordingly, so far as the contract that was made on 21st, or 22nd, October is concerned, I hold that the 1st Defendant is personally liable to the Plaintiff.

32. I now pass to the second contract, namely Exhibit 4A, where slightly different considerations apply. It is a consequence of what I have held, that the contract was submitted to the 1st Defendant. It was signed by her and returned qua 1st Defendant, with not the slightest indication on it that the 2nd Defendant had anything to do with it. And there is not a shred of evidence that the Plaintiff firm then knew, or was informed by anyone, that the limited liability company the 2nd Defendant, had come into existence. The 1st Defendant returned the copy quotation with a signature that made no reference to the 2nd Defendant - Exhibit 4B - and sent with it, her personal cheque, Exhibit 5. Having regard to my earlier findings, and taking all those latter matters into consideration, I hold that the 1st Defendant is personally liable on that contract also.

33. With regard to the events subsequent to 25th November 1981, wholly different considerations apply. Taking paragraph 4 of the Amended Statement of Claim together with the correspondence and documentation to which I have referred, the Plaintiff firm can by then have been in no doubt that it was dealing with a limited company. Whatever confusion there may have been before, a "chop" such appears on B19 followed by the typewritten words "Christine Maillefert Limited could have left no doubt in the mind of Mr. Yeung that he was dealing with a "company" which was "limited", and, therefore, unlike his own. He appears to have raised no objection. In the absence of a Reply alleging an estoppel, and relying, for example not merely on the matters I have referred to, but also perhaps on the Invoice of 17/12/81 relating to another flat in Hennessy Road, (B22), I can not hold that the 1st Defendant is estopped from averring that the contracting party thereafter was the 2nd Defendant.

34. On the other hand, the 1st Defendant does raise an estoppel against the Plaintiff firm which, having regard to what I have already decided, can apply only to 8181-2. (Exhibit 6A) and 8181-3, (Exhibit 7B). To establish that estoppel, the 1st Defendant relies upon documents to which I have already referred. As against that, the Plaintiff firm avers that there is no evidence that the 1st Defendant acted to her detriment, and relies on the passages in Estoppel by Representation: Spencer Bower and Turner: 3rd Ed., at pp. 101, 104/5 and 109/110 the onus of proof of detriment, therefore, being on the 1st Defendant - pp. 111/2, and the Plaintiff firm prays in aid the dicta of the Privy Council in Fung Kai-sun v. Chan Fui-hing & Ors. [1951] A.C. 489, where Lord Reid, giving reasons of the Board, said, at p. 506,

"........................... This is the true test: The chance of recovery must have been materially prejudiced by the delay. In the present case .......... the appellant has not shown that he was materially prejudiced by the delay. The appellant took no action when he was told of the forgery, and he did not give evidence in this case. In the absence of any explanation from him, and the whole trend of the evidence being to shew that he would not have taken any action even if he had been told of forgery earlier, their Lordships are not prepared to assume that he might have done so, and it is only on that assumption that he can have suffered any possible prejudice by the delay. Their Lordships therefore hold that no estoppel arises from the respondent having delayed to inform the appellant .......'.

In my judgment, there is sufficient evidence of detriment to enable the 1st Defendant to establish her estoppel for contractual events following 25th November. Thin it may be, but it is there, and, in my judgment, it is sufficient. The whole purpose of the establishment of the limited company was to gain "advantages and, in particular, tax advantages. The 1st Defendant has been held as a matter not merely of fact but of law also, that she was personally liable on and before 25th November, but none of the arguments relating to that period can apply thereafter. If the 1st Defendant had not been led to believe that the Plaintiff firm was content thereafter to deal with the limited company qua limited company, she would have taken some steps to preserve those very advantages, to secure which she had incorporated the 2nd Defendant. I hold that she was lulled into a false sense of security by the documentation I have recited, and, far from being disabused of her belief that the Plaintiff firm was content to deal with the 2nd Defendant, she was confirmed in it by actions of those apparently lawfully authorised to write on behalf of the Plaintiff firm. The Plaintiff firm, therefore, is estopped from claiming anything from the 1st Defendant after 25th November.

35. What then follows? There is no evidence before me at all of what work was done up to and including 25th November 1981, or its cost - either contractually or on a quantum meruit basis. Counsel have informed me that they will use their best endeavours to agree on a figure subject to liability. I have not yet been informed if they have so agreed. If they have not, I shall shall order a Scott Schedule and refer the matter to a Master for assessment.

36. I will now hear Counsel on the question of costs.