TELFORD ENVIRONMENT DEVELOPMENT LTD v. CHINA LUCK (HK) INDUSTRIAL LTD

HCA 2294/2014

[2018] HKCFI 226

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2294 OF 2014

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JUDGMENT

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Introduction

1.  In this action, Telford Environment Development Ltd (“TED”) makes a contractual claim against China Luck (HK) Industrial Ltd (“China Luck”) for the outstanding storage charges and cleaning fees in respect of about 600 tons used oil filters of China Luck (“the Goods”) kept by TED from January 2013 to December 2014. TED says that from the inception there was an oral agreement that China Luck should pay storage charges for the Goods whereas China Luck alleges that the agreement was that the storage services provided by TED were purely gratuitous and TED in fact rendered no cleaning service for China Luck.

2.  China Luck had a counterclaim for damages and loss of profit arising from the alleged unlawful conversion of the Goods but Mr Wong, for China Luck, indicated to this court that China Luck abandoned its counterclaim at the outset of the trial.

Parties’ respective pleaded cases

TED’s case

3.  TED’s pleaded case is as follows. One of its businesses is to provide storage spaces at its sites and the site in issue is RP of Lot 134, DD133, Lung Kwu Tan, Tuen Mun (“the Site”). In or about December 2012, Mr Chan who is one of the directors of China Luck and Ms Lee of TED orally agreed that China Luck could store 23 cargoes of the Goods for two weeks free of charge. Thereafter, TED should charge China Luck at a daily rate of HK$70 per cargo (“the Daily Rate”) commencing January 2013.

4.  Despite the agreement, China Luck has not paid TED any of the storage charge for the Goods stored at the Site from January 2013. TED thus now claims a total sum of HK$1,042,225 up to 13 November 2014 in the Statement of Claim. It claims any further storage charges until the Goods were removed from the Site. It turned out that they were removed at the end of December 2014.

5.  On the other hand, TED alleges that there were four incidents of oil leakage because of the Goods and it had to engage third party to clean up the Site incurring expenses in the total sum of HK$15,045.

6.  TED’s former solicitors issued a letter before action dated 2 July 2014 to China Luck and China Luck refused to pay any of the storage charges and the cleaning fees.

China Luck’s case

7.  I shall only set out in brief the pleaded defence. In the first place, the relationship between TED and China Luck is close. TED was the supplier of China Luck in respect of its trade in scrap metals. Mr Lee of TED and Mr Chan were close friends.

8.  In or about December 2012, Mr Chan told Mr Lee that China Luck required storage space to store its Goods. Mr Lee offered him the Site for such a purpose until they were resold. There was no discussion about any storage charges whatsoever. Nor was there any express or implied agreement about the same. The offer contained no express or implied term that China Luck would be required to pay any consideration for the storage of the Goods for any period. Hence, China Luck pleads that the oral agreement reached between the parties on the basis that China Luck would not be required to pay any storage charges (“the Oral Agreement”). It should be noted that no consideration is pleaded to support the Oral Agreement.

9.  There is an alternative case that TED made a clear representation that no storage charges would be payable and so TED is thereby estopped from claiming any storage charges or lien over the Goods now. I do not think that this alternative case is sound in law.

10.  Lastly, China Luck points out that it was not until 11 November 2013 that TED made the first demand for storage charges in respect of the Goods.

11.  In regard to the cleaning charges, China Luck avers that there was only one occasion where oil leakage problem was detected in May 2013 during a rainstorm. TED told China Luck to clean up the Site and China Luck did so without incurring any cleaning expenses to TED.

12.  China Luck was simply unaware of the alleged three other occasions on which oil leakage allegedly took place at the Site. TED did not inform China Luck of any such occurrence let alone asking for any cleaning charges.

Evidence and Analysis

13.  Madam Ho who is in her mid-sixties and is the wife of Mr Lee represented TED for the purpose of the trial. She is one of the directors of TED. The daughter of Madam Ho and Mr Lee, Ms Lee, testified for TED. Curiously enough, TED was able to secure the attendance of Mr Chan to give testimony in support of its claim.

14.  On the other hand, China Luck called Mr Lam Fai Hing who is one of its directors as its sole defence witness.

15.  The disputes are clearly factual in nature and credibility is determinative of the key issues.

16.  By way of general observations, Ms Lee struck me as an honest and truthful witness. She spoke with confidence and gave her answers spontaneously. Her evidence sounded reasonable and made perfect sense.

17.  As regards Mr Chan, I am alive to the fact that he has fallen out with China Luck due to its accusation of embezzlement against him. I am also aware of the development of Mr Chan’s evidence contained in his two witness statements both made in December 2015 during his incarceration. In his first statement, Mr Chan said until November 2013, the parties had never discussed about any storage charge. He only changed to say that it was agreed by the parties that TED would waive the charges for the first two weeks and thereafter China Luck should pay the Daily Rate for each cargo.

18.  Mr Chan sounded non-committal in court. He did not appear to me that he took his testimony seriously. He conveniently forgot the details of his dealings with TED on behalf of China Luck when being cross-examined. I am unable to have any confidence in his evidence given his uneasy relationship with China Luck.

19.  Mr Lam was not a bad witness but his evidence had its limitations. He mostly relied on what Mr Chan reported to him in relation to his dealings with TED including the basis upon which TED allowed the Goods to be placed at the Site.

20.  Then I turn to the two key issues.

Storage Charges

21.  I accept the following evidence of Ms Lee and find that:

(1) Mr Lee and Mr Lam Wai Wah (“Lam Senior”) are close friend. Lam Senior is one of the shareholders of a company which is a corporate shareholder of the parent company of TED. Mr Lee was instrumental in the incorporation of China Luck in that he introduced Lam Senior and Mr Lam to Mr Chan for the purpose of setting up China Luck.

(2) In December 2012, Mr Chan called Ms Lee and asked if she could allow the Goods to be stored at the Site for two weeks so as to facilitate the stock-taking process to be undertaken in the business place of China Luck. Ms Lee then sought the view of Mr Lee and Mr Lee only allowed not to charge China Luck for the first two weeks. Thereafter the Daily Rate applied. Ms Lee duly reverted to Mr Chan and reported to him the terms including the Daily Rate under which the Goods could be placed at the Site.

(3) Mr Chan agreed to those terms and the Daily Rate and delivered the Goods to the Site in mid December 2012. After the expiry of two weeks, Ms Lee called Mr Chan and asked him when China Luck would retrieve the Goods. Mr Chan told her that China Luck had just purchased some machine. Such machine took up a lot of its business place. Thus, China Luck needed storage space for the Goods at the Site for a longer period. Ms Lee reminded him of the Daily Rate.

(4) TED rented the Site from its registered owner at the monthly rent of about HK$50,000 for its storage business. The Goods occupied about 50% of total area of the Site. Applying the Daily Rate, TED should make HK$48,300 per month. However close the personal relationship between Mr Lee and Senior Lam was, I do not believe that TED could have agreed to shoulder such a financial burden to suit the business purpose of China Luck, particularly given the allegation that China Luck could freely place the Goods at the Site as long as it required. This does not make sense to me at all.

(5) It is noteworthy that Mr Lam agreed that in fact at the same time China Luck secured another place to store the remainder of its oil filters at a daily rate of more than HK$100. It shows that the Daily Rate was already on the low side.  

(6) Mr Wong places a lot of emphasis on the discrepancies between the evidence of Ms Lee and that of Mr Chan and points out those evidence given by Mr Chan seemingly in favour of China Luck was not challenged by Madam Ho at trial.

(7) To begin with, I am unable to place any weight on the evidence of Mr Chan at all and I do not think any of his evidence could assist China Luck. The case of TED is made out on the evidence of Ms Lee alone.

(8) On the other hand, it was not feasible for Madam Ho to challenge Mr Chan’s evidence by way of cross-examination since he was called as the witness of TED. In any event, it is clear that Madam Ho is neither legally trained nor well-educated. I do not think she has any professional knowledge of how to conduct a trial. I am unable to make any inference from the fact that she omitted to challenge the evidence of Mr Chan in any material aspect at trial.    

(9) Mr Wong further places heavy reliance on the allegation that Mr Chan believed that China Luck could reciprocate the generosity of TED with its payment of higher prices to TED or its associates for the scrap metals supplied by them to China Luck.

(10) It should firstly be noted that I refuse to accept the evidence of Mr Chan altogether. Moreover, his alleged belief as stated in his first witness statement has to be understood in its context. Mr Chan merely explained why at the outset he did not find it necessary to ask Ms Lee how much TED would charge because of the good relationship of the parties. He thought the storage charge should not be too high. When he made a mention of the preferential price to be given for the scrap metals of TED or its associates, he clearly referred to an oral representation made by China Luck to TED when it was newly incorporated to reciprocate TED’s contribution to its formation. In other words, the preferential price was to repay the past assistance of TED and not as an incentive for TED to permit the Goods to be stored at the Site free of charge for an indefinite period of time.

(11) It cannot be lost sight of the fact that the pleaded case of the defence is not that the Oral Agreement was supported by such alleged preferential price.  

(12) For the allegation that China Luck actually paid any higher prices for the scrap metals supplied by TED or its associates, Mr Wong relies on a lengthy record of China Luck showing that TED or its associates had supplied scrap metals to China Luck for 32 times between April and October 2013. It contained the sales information including the unit price paid in each transaction.

(13) Assuming that the information contained in the list is accurate, it can be seen that, on such occasions, China Luck paid the same or a little bit higher prices for the Grade B scrap metals supplied by TED than those Grade A scrap metals supplied by other suppliers. I am unable to arrive at the conclusion that preferential prices applied to the scrap metals of TED or its associated company merely on that basis however. There could be some other reasons why China Luck found it necessary to pay such prices for the Grade B scrap metals and the market conditions could have a bearing.  

(14) In any event, as pointed out above, such transactions can no way provide a reason for TED to allow the Goods to be stored at the Site free of charge. It should further be noted that the first transaction came on 3 April 2013 only and the alleged higher prices involved at most a few hundred dollars per ton. I do not think that TED would be tempted to give China Luck such a generous offer at its substantial expenses in anticipation of some slightly more profitable sales transactions commencing only a few months later.

(15) Mr Wong next complains about the lack of contemporaneous documents evidencing the Daily Rate. I accept the explanation of Ms Lee and do not find anything untoward.  It was not a complicated transaction and the parties had a close business relationship.  There is no document such as a receipt issued by LED to acknowledge the quantity of the Goods stored at the Site, either.

(16) The fact that LED merely issued the first invoice in November 2013 requires an explanation. I accept the reason given by Ms Lee. TED saw no urgency to demand China Luck for payment before the Goods left the Site. TED was not aware of any risk of being unable to recover the agreed storage charges given its actual possession of the Goods and the good business relationship between the parties.

(17) Lastly, Mr Wong complains that TED should have called Mr Lee, being in good health, to testify and its failure to do so should justify an adverse inference to be drawn against it. I cannot agree. I accept Ms Lee’s explanation that she was the one who directly handled the transactions with Mr Chan and her evidence should be sufficient. Moreover, I can well understand why Mr Lee was reluctant to attend the trial to speak against his old friend’s company.

22.  Mr Wong reminds this court that the defence case is not the parties had expressly agreed not to charge any storage fees but is that there was no mention that TED would charge such fees. Having accepted the primary case of TED, this court finds that such a distinction is irrelevant and the defence case, whatever it is, naturally collapses. On the other hand, I believe the pleaded case is abundantly clear. Though it is true that it is not alleged that TED expressly agreed not to charge any storage fees, the core allegation remains that China Luck agreed to store the Goods at the Site on the basis that it would be free of charge: see §§4.5 and 4.7 of the Defence.

23.  To conclude, on the issue of storage charges, the parties did agree to the Daily Rate to be applicable after the first two weeks. China Luck should hence pay the outstanding amount in the total sum of HK$1,042,225 and HK$ (48,300 x 1/2 + 49,910), the latter part being the storages charges for the remainder of November 2014 and December 2014.

Cleaning Fees     

24.  This issue can be disposed of briefly. On the impressive evidence of Ms Lee, I find that the Goods did cause leakage problems and the Site badly needed cleaning up on 4 occasions in May, September, November 2013 and March 2014. In particular, I accept her evidence that on the first occasion, Mr Chan expressly asked her to arrange cleaning services and China Luck would pay the storage charges and cleaning fees in one go when China Luck retrieved the Goods from the Site. I thus reject the evidence of Mr Lam to the effect that China Luck itself cleaned up the Site in May 2013.

25.  However, Ms Lee only disclosed at trial that such cleaning services were actually provided by some staff members of the associated company of TED. Though Ms Lee said that TED had already paid the associated company such cleaning services, there is no documentary evidence to support such payment. In the circumstances, I am not inclined to allow TED’s unsupported claim for the amount of HK$15,045.

26.  For completeness, I should mention that Ms Lee made an allegation based on certain documents previously disclosed that a cleaning expense in the sum of HK$13,000 was incurred upon the return of the Goods to China Luck in December 2014. The photographs produced show that the Site was seriously soiled by the Goods and a receipt issued by Laws Cleaning Services Limited dated 23 January 2015 evidences its provision of cleaning service at the Site to handle the oil leakage problem.

27.  Nevertheless, I cannot allow this claim apparently supported by cogent evidence. It is unpleaded. This took place after the filing of the Statement of Claim and no amendment has been made to include this claim. I cannot relax the rule for TED though it is not represented.

28.  In the premises, I do not accept any of the claims for cleaning fees.

Conclusion and order

29.  For the reasons given, I allow TED’s claim for storage charges and reject its claim for cleaning fees. I enter judgement against China Luck for the sum of HK$1,116,285.00. I also order China Luck do pay TED interest on the said sum at 1% over prime from January 2015 until the date of this Judgment and thereafter the judgment rate applies.

30.  There is no reason why I should depart from the general rule of costs following the event. I make an order nisi that China Luck do pay TED its costs of this action, to be taxed if not agreed.

31.  As indicated to Madam Ho at the end of the trial, this court could arrange an interpreter to explain the contents of this Judgment to her should TED so require.