FORCHANCE COTTON CO. (a firm) v. WONG MAN YU AND ANOTHER

1996, No. A10012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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Introduction

1. The Plaintiff's claim is for $220,017.27 for the price of corduroy cloth sold and delivered to the Defendants. By their original defence the Defendants admitted that the goods had been delivered to them, but as part of an overall arrangement involving a third party and not by way of sale and purchase. When the action came on for trial earlier this year, however, the Defendants were given leave to amend their defence. They now assert that they or their company were not party to the transaction.

2. There are, therefore, two questions for determination

1) To whom the goods were delivered and

2) Why?

3. Six entities were involved or have been mentioned in this action. They are

1) The Plaintiff. This is a sole proprietorship. The proprietor is the wife of Chan Mau Chuen (PW1). PW1 and his daughter Chan Yuen Ming (PW2) actually handled the business.

2) Forchance Textile Company Limited. PW1, his wife and PW2 are the shareholders. PW1 is a director.

3) The Defendant. It is alleged that this company ceased business on 31st December 1993.

4) Nam Wah (Holdings) Limited of which Wong Man Yu (DW1) and Wong Kit, his son, are shareholders and directors.

5) Lee Fat Trading Company.

6) Po Sing Cloth Company.

4. All these firms or companies are or were in the business of manufacturing or trading in textiles.

The Plaintiff's case

5. PW1 was most involved on behalf of the Plaintiff. It is upon his evidence that the Plaintiff's case turns. Because of the nature of the case it is necessary to set out PW1's evidence in some detail.

6. According to PW1, in August 1994 he orally agreed with a Mr. Cheung of Po Sing for the Plaintiff to sell Po Sing 200,000 yards of corduroy cloth for which Po Sing had a customer in Taiwan. This agreement was not entirely straightforward. As I understood it, there was a firm order for 12,000 yards 21 wales of corduroy for Po Sing to supply urgently to its customer. If the garments made from this material proved satisfactory, there would be a contract for the balance. The balance was to be supplied in batches by the end of October at a price of $0.30 per yard more than the Plaintiff had to pay. Because there was some difficulty in obtaining this material in the market at the time, PW1 was apparently not to be responsible if he could not obtain the necessary material.

7. On the strength of the firm order for 12,000 yards, PW1 ordered this quantity of material from Lee Fat with whom he had done business before. There was an invoice from Lee Fat dated 19th August 1994 for $152,730.20. PW1 made payment on 24th August in advance of delivery so that Lee Fat could in turn obtain the cloth. Lee Fat, however, did not deliver the cloth.

8. On 16th September 1994, Forchance Textiles agreed to buy another 15,000 yards 8 wales of corduroy cloth from Lee Fat at $205,500.00 cash on delivery. PW1 believed the entirety of this cloth was for delivery in Hong Kong but discovered that some 5,000 yards were in China. Lee Fat was unable to get permission for this cloth to be exported. PW1 therefore declined to pay anything under this contract.

9. In about October, there was an attempt to settle differences between Forchance Textiles and Lee Fat by treating the advance payment which had been made for the 21 wales corduroy as part payment for the 8 wales corduroy. Nothing came of this.

10. By faxes of 7th and 9th November, PW1 asked Lee Fat for delivery of the 21 wales corduroy. Then on 11th November, he demanded the return of the amount paid and in addition $80,000.00 compensation, an amount which he had agreed with Po Sing as the Plaintiff's share of compensation demanded from Po Sing by its customer.

11. There was no response from Lee Fat save that, according to PW1, on three occasions his office was visited by triads seeking payment on behalf of Lee Fat for the 8 wales corduroy.

12. On or about 28th December, DW1 phoned PW1 seeking 80,000 yards of corduroy. PW1 was able to offer 15,000 yards, i.e. the 8 wales corduroy purchased from Lee Fat. PW1, on behalf of the Plaintiff, agreed to supply this corduroy at $14.90 per yard for cash, although the market price was $15.20, in view of DW1's eminence and reputation in the trade.

13. As far as PW1 was concerned, DW1 was all along representing the Defendant.

14. The Plaintiff issued two invoices dated 31st December for 5,100 yards and 9,620 yards respectively. These invoices were sent by express to the Defendant for acknowledgement and were returned chopped by Nam Wah Holdings rather than the Defendant although no one seems to have noticed this at the time.

15. There upon, PW1 prepared a "bill of lading" for the Defendant. This was effectively a release for the godown where the larger quantity of cloth was stored in Hong Kong. The bill of lading was signed by Forchance Textiles which had of course acquired the cloth from Lee Fat. It was endorsed by the Defendant.

16. On about 30th December, DW1 gave instructions for the delivery of the smaller amount of cloth still in China. With this instruction, the Plaintiff complied.

17. PW1 said that at the time when he concluded the agreement with DW1 he did not realise that this corduroy originated from the Defendant. He said PW2 telephoned him and told him that she thought that the corduroy had been acquired by Lee Fat from the Defendant. PW1 himself thought that this would pose no problem.

18. One or two days later on about 2nd January 1995, PW1 went to the Defendant's office for payment. DW1 said he would not pay the Plaintiff because Lee Fat had not paid him. PW1 pointed out that that was a matter between DW1 and Lee Fat. DW1 told PW1 that in turn he had been told that the Plaintiff owed Lee Fat a large sum. PW1 explained that on balance Lee Fat owed the Plaintiff money. At this point, DW1 made enquiries of a Miss Chan of Lee Fat and learned the true position. He told Lee Fat to deliver the 21 wales corduroy to the Plaintiff within 3 days. Lee Fat, however, could not promise to do so. After some debate, DW1's son interrupted and said that they had the goods and would not be so stupid as to return them. They would not pay.

19. On 26th January, PW2 telephoned PW1 from the Plaintiff's office. She said that a Mr. Chan of Lee Fat was at the office with a draft document dated 2nd January by which the Plaintiff consented to Lee Fat authorising the Defendant to take back the 8 wales corduroy and by which the Plaintiff cancelled its two invoices. PW1 told his daughter not to sign.

20. On the same day the Plaintiff faxed the Defendant asking for immediate payment of the two invoices. PW1 himself sent a further fax on 25th February. There was no response to either of these communications. Finally, the matter was placed in the hands of the Plaintiff's solicitors in June 1995.

21. PW2, in her evidence, confirmed the failed attempt in October 1994 to settle with Lee Fat. She said Mr. Chan of Lee Fat had come to the office and discussed the matter with her. Mr. Chan appeared to agree that the payment already made should be set off against the later contract. PW2 drafted a document to this effect for transmission to Lee Fat's office at the request of Mr. Chan. The document was never signed by Lee Fat.

22. PW2 also confirmed that from the vouchers received from Lee Fat in respect of the 8 wales corduroy, she could see that the cloth had apparently come from the Defendant. She advised PW1 of this.

23. In the amended defence, it is pleaded that PW2 informed DW1's son that the two invoices which had been issued by the Plaintiff were for internal accounting only and that the Plaintiff would not treat the transaction as a sale. PW2 denied this. She said she would not issue an invoice and then say that it was just for accounting.

24. PW2 also confirmed that on 26th January 1995 Mr. Chan of Lee Fat brought to her office the draft authorisation by which the Plaintiff would have returned the 8 wales corduroy to the Defendant and cancelled its invoices. She did not let Mr. Chan into the office because she feared harm after the previous visit from triads. She refused to sign that document.

The Defendant's case

25. According to DW1, the Defendant ceased trading on 1st January 1994 when Nam Wah Holdings began business. There after the Defendant's letterheads were used sometimes to avoid waste and sometimes the old name was not struck out and substituted by that of Nam Wah Holdings.

26. DW1 said that he had no conversation with PW1 on 28th December 1994. He said he had been in China from 26th to 28th December and returned after dark on 28th December. He produced his Re-entry Permit with the relevant stamps.

27. In the following days, DW1 was busy preparing to go to Malaysia. He went there between 31st December and 2nd January. He produced his Certificate of Identity with appropriate stamps.

28. Because he was busy, DW1 did not telephone PW1 on 30th December with instructions for delivery of the goods in China. Further he had no meeting with PW1 in his office on 2nd January.

29. DW1 was not aware of the details of the arrangements for the 8 wales corduroy because he left matters to his son or his staff. As there had been no loss on the transaction, he did not bother about it further. He did not know about any demands received from the Plaintiff for payment although his son might have received them.

30. DW1 had said that his company owns a factory in China which makes corduroy cloth. At the material time there would be no difficulty in obtaining corduroy.

Assessment

31. Plainly there are difficulties with the Plaintiff's case

1) There is the incontrovertible evidence of DW1 that he was out of Hong Kong at crucial times.

2) The two invoices for the 8 wales corduroy were acknowledged by Nam Wah Holdings and not the Defendant.

3) Other documents, particularly those in relation to dealings between DW1's business and Lee Fat, were in the name of Nam Wah Holdings with the Defendant's name struck out.

4) The unusual nature of the Po Sing agreement, the lack of any documentation concerning that agreement and the wholly unsupported assertion that compensation of $80,000.00 had been agreed with Po Sing.

5) The corduroy itself originated from Nam Wah Holdings; was in any event readily available to Nam Wah Holdings as a manufacturer; and was apparently being purchased back for a price well in excess of that for which Nam Wah Holdings had sold it to Lee Fat, i.e. $14.90 as opposed to $13.50.

6) The 8 wales corduroy was acquired from Lee Fat by Forchance Textiles. There is a lack of evidence as to how the Plaintiff had title to sell it to the Defendant.

32. There are, of course, matters which assist the Plaintiff

1) Although DW1 was out of Hong Kong at material times, the dates given by PW1 are understandably not exact and in any event it is possible to make international telephone calls.

2) PW1 gave a detailed account of the various transactions and occurrences. He was carefully cross-examined. In my view, he was not shaken.

3) Although there may have been no documents in relation to Po Sing, PW1 did put certain matters in writing and pursued both Lee Fat and the Defendant for payment. In contrast, there was no response from either Lee Fat and more particularly the Defendant. The latter might have been expected both to correct the misapprehension as to the existence of the Defendant and to remind the Plaintiff that no payment was due because of the arrangement which had been concluded.

4) It is surprising that, according to DW1, there was no communication with the Plaintiff about the arrangement with Lee Fat. If so, it is difficult to explain the "bill of lading" and the arrangements for delivery of part of the corduroy in China.

5) DW1's son did not give evidence about the explanation allegedly received from PW2 about the two invoices. I have only PW2's evidence about this. I see no reason to disbelieve her evidence.

6) No evidence was adduced on behalf of the Defendant to explain why, until very late in the day, the true identity of the proper party should have been overlooked. It is difficult to understand this given that, according to DW1, the Defendant had not done business since 1st January 1994.

7) Although the Nam Wah Holdings chop appears on the two invoices, other documents are indicative of the Defendant being a party to any contract.

8) DW1 said that he had had no business with PW1 since before 1994. Previously he had dealt with PW1 on behalf of the Defendant. It was therefore reasonable for PW1 to assume that he was still dealing with the Defendant and nothing, apart from the chops on the invoices which might easily have been overlooked, was done to disabuse him. On the contrary, the "bill of lading" was expressly endorsed by the Defendant.

33. It is, of course, surprising that the Defendant/Nam Wah Holdings should buy back corduroy cloth at a price higher than that for which it had been sold when it had its own source of supply of such cloth. It is not necessary for me to speculate. Suffice it to say that there are rational explanations. For example, DW1 may have wished to take advantage of a rising market. According to PW1, the market was rising at the end of 1994.

34. I particularly take into account the detailed evidence of PW1, PW2's evidence about the invoices which was not controverted and the Defendant's failure to call evidence from those who were said to be more familiar with the transaction.

35. On the balance of probabilities, therefore, I find that there was a concluded contract for the sale of the 8 wales corduroy. That, therefore, is the reason why the corduroy was delivered.

36. I have no difficulty in accepting PW1's evidence that, although Forchance Textiles purchased the 8 wales corduroy from Lee Fat, there was a transfer of the property to the Plaintiff. That was the way generally in which Forchance Textiles and the Plaintiff conducted their joint business affairs.

37. I also have no difficulty in accepting that PW1 thought he was dealing with the Defendant, it being DW1 on behalf of the Defendant with whom he had had previous business. The documentation largely supports this. Nothing was done to disabuse PW1 of his understanding. It is of no great surprise to me therefore that the defence was drawn as it was in its original form.

38. Accordingly, there will be judgment for the Plaintiff for $220,017.27.

39. I make an order nisi that there should be interest on that sum at the rate of 10% from 2nd January 1995 until the date of this judgment, and hereafter at the rate prescribed by the Chief Justice.

40. The Plaintiff is to have the costs of the action.