CHAN YIK HUNG t/a MING HING TRADE CO. v. SING KWONG JEWELLERY & GOLD CO. LTD.

HCA10353/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.10353 OF 1998

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J U D G M E N T

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1. This is the trial of an action brought by the plaintiff Chan Yik Hung trading as Ming Hing Trade Company against Sing Kwong Jewellery & Gold Company Limited. Mr Chan was at all material times a goldsmith working for himself with the help of his children in manufacturing gold jewellery from gold bullion supplied by various gold jewellery shops. The defendant is a well-known jewellery company with a large number of retail chain shops in Hong Kong. Its main business was at all times in the selling of gold jewellery supplied by goldsmiths like the plaintiff, who, very often, work from small premises in making up jewellery ordered by the big chains such as the defendant.

2. The relationship between the plaintiff and the defendant started in 1994 and it started by the plaintiff, Mr Chan, talking with Mrs Chu who was the big boss in the defendant company, on the business that was going to be given by the defendant to the plaintiff. The oral agreement was the subject of much dispute in the present action. On the one hand, Mrs Chu said that the agreement and the promise made by Mr Chan was that the jewellery to be supplied from the gold bullion furnished by the defendant to the plaintiff was to be of the quality of, in terms of the actual body of the jewellery (that is less the welded joints) of "9999" gold quality whereas the joint was to be of "95" gold quality or less. The plaintiff, Mr Chan says the agreement was simply that the whole chain was to be "Chuk Kam (足金)". "Chuk Kam" is an expression well-known in Hong Kong as denoting a good and high sufficient quality of gold and the statutory provision indicates that "Chuk Kam" means gold content of not less than "99". The dispute in this case and all the time practically spent in this dispute is over the question of whether the jewellery that was supposed to be made by the plaintiff was agreed to be of "9999" quality in terms of the body or only Chuk Kam "99". Anyway, there was the start of a relationship in 1994. The arrangement between the plaintiff and the defendant was that jewellery of a certain quantity ordered would be supplied by the plaintiff to the defendant. The defendant then in turn, almost immediately afterwards, would give to the plaintiff an equivalent weight of gold of "9999" quality in bullion plus a workmanship fee. That was the arrangement between the plaintiff and the defendant in 1994. And this state of affairs went on very happily for a number of years without any problem.

3. In 1997, a document was suddenly sought by the defendant to be signed by the plaintiff. It was done in a rush and the significance of this will be seen later as to the effect it has on the 1994 oral agreement. Everything went very well until early April 1998. On 2 April 1998 it was agreed that something happened. What had happened was this : that the husband of Mrs Chu, I think the senior Mr Chu, had apparently received, a few days or weeks before from a fellow jewellery shop a gold chain that was supposed to have been manufactured or sold by the defendant company bearing the mark of the plaintiff, and it was alleged that that gold chain was not satisfactory because the joint was somewhat too wide. It is pertinent to point out now the way a gold chain was manufactured. A gold chain, whether it is of light weight such as under one tael or heavy weight such as five taels, consists of round links which are looped together by a process whereby the open part of each link had to be joined up which requires a welding or soldering and the soldering process would render the joint incapable of being totally pure gold. The way that two open parts are joined up and the quality of the joint would very often depend on whether the cut was a even straight "fine-cut" or whether it was so-called "open-cut". It was alleged the problem with the gold chain on 2 April (the jewellery piece returned), was that there was too large an "open-cut" and therefore the joint was not satisfactorily joined. At that stage there was no question of the fineness or the sufficiency of gold content in the gold chain body itself as opposed to the joint problem.

4. According to Mrs Chu, the plaintiff was confronted with the problem. There was discussion and, according to the plaintiff, the plaintiff did not accept that he was at fault. There was an important disagreement between the plaintiff and the defendant at the trial as to what really happened in April. I will be coming to deal with that in the latter part of my judgment when I come to analyse the event surrounding that period. But, be that as it may, what is not in dispute was that as of 2 April, in fact earlier, the plaintiff having delivered in February and March substantial jewellery pieces to the defendant, the defendant ought to have given to the plaintiff, probably as early as March, gold bullion of the quantity of 141.256 taels. This is not in dispute. What is, however, in dispute is, as a result of the event of 2 April, what was the entitlement of the defendant vis-a-vis the plaintiff in relation to the obligation to return the 141.256 taels. It was unfortunate that the parties could not reach a peaceful solution neither in April nor in May. In fact in May there was attempt and this is not again in dispute by the defendant side, to ask Mr Chan to sign a document dated 2 May which provides for the plaintiff accepting the liability for breaches of contract in relation to the jewellery supplied. It is not in dispute that the plaintiff refused to sign that document. There was later on, I think it was also in May, an attempt to negotiate a settlement with the help of three colleagues also in the gold trade, if one can call them that. This is what was known as the beer evening at the seafood restaurant. There was no settlement that evening. There was therefore no agreement reached and no gold was delivered by the defendant to the plaintiff. In these circumstances, proceeding was commenced in July 1998 by the plaintiff against the defendant.

5. The plaintiff has three claims in the action against the defendant. The first claim is for the return or delivery of the 141.256 taels of gold. The second claim is in relation to a damage alleged to be suffered as a result of the February 1998 oral agreement by Mrs Chu with Mr Chan whereby Mrs Chu promised to supply costly jewellery of sophisticated kind to the plaintiff to enable him to make extra profit and as a result he had taken on certain obligations, liabilities in relation to premises, so on and so forth. It is a small claim in the amount of about $60,000 odd. The third head of claim is the claim for something like $900,000 alleged to have been suffered as a result of malicious falsehood said to have been uttered by Mr Chung of the defendant on the occasion of the beer evening in May 1998.

6. The real dispute between the parties however was in relation to the counterclaim of the defendant. The counterclaim was mounted by the defendant in two ways. The defendant did not dispute that there was outstanding to the plaintiff by the defendant the 141.256 taels. The defendant however contends that it was entitled to relief in two ways because of the breaches of Mr Chan in terms of what was promised by the 1994 oral agreement. The damages suffered by the defendant were said to arise in two ways. First is in relation to the 601 taels of gold (made up of 389 taels and 212 taels) there should be a price difference or gold purity adjustment in that the gold jewellery delivered was less than the promised "9999" purity. The defendant had quantified that sum in the pleading as being something like $6,000 made up of $4,296 for the price adjustment in relation to 389 taels and a sum slightly less than $2,000 in relation to 212 taels. Secondly it is also said for the breaches of the contract the plaintiff should be responsible for repaying to the defendant for the workmanship price paid by the defendant to the plaintiff in relation to those jewellery which had been melted totaling 601 taels and the sums referred to are $32,811 in relation to 389 taels and $13,360 in relation to 212 taels. So that is the counterclaim of the defendant. It can be seen therefore that a lot of time really had been spent on this counterclaim and the result depends on whether there was a breach by the plaintiff of the 1994 agreement.

7. In order to arrive at the right decision whether there was a breach, one has to look at what was agreed in 1994. The two versions are stark in contrast. Mrs Chu says there was explicit agreement made in 1994 that the body of the gold chain (when I said body that is the gold chain less the welding joints), should be "9999" and there was a second agreement that the welding joints would be "95" or less. The plaintiff's evidence is to the contrary. He said there was an agreement only that the whole chain would be "Chuk Kam" and there was no agreement that the body was to be "9999". The difference between "9999" and "99" is 1%. The manufacturing process of gold chain would inevitably result in gold-dust being created and therefore a loss of gold from the "9999" gold bullion supplied. The gold-dust is so fine that sometimes they are in the air, sometimes they mix with other things and that is why the joint can never be "9999", which is almost pure gold. It is agreed between the parties that a joint can never be "9999". It is also agreed that if you take the whole chain as a whole it can never be "9999", there is bound to be some impurities. This comes out as a necessary process of manufacture of gold chain. It is also to be noted that in 1994 it was possible and often done to test a gold chain for the gold content. But it was not known to be possible in 1994 to test just the body part of the gold chain, that is without the joints.

8. Before I move on to analyse further, one should also bear in mind that in Hong Kong there is the Gold Jewellery Merchants' Association and "Chuk Kam" was the common standard referred to by the Association and they have a little poem about "Chuk Kam". So the "Chung Kam" is the common standard although Mr Eric Chu, the son of Mrs Chu, mentioned in court that the "Chunk Kam" standard had been abandoned some time ago and that every one now uses "9999". I am afraid I do not accept his evidence. Nor do I believe that Mrs Chu is a lady whose evidence I can accept. It seems to me, having heard the two principal witnesses, (Mr Eric Chu as witness is really an afterthought arising during trial) Mrs Chu for the defendant and Mr Chan of the plaintiff, I have no doubt that I prefer the evidence of Mr Chan. He is obviously a simple man from very humble background with very little education. He may be agitated at times but I think he is a man of truth. Time and again he in fact even gave evidence against his own interest without sometimes realising it. But he is also a man of principle. On the other hand Mrs Chu is a business lady of great skill and long experience, she is a shrewd business woman. I have the impression that she pushed a very hard bargain and I think in this case what had gone wrong is she pushed too hard a bargain. I reject both her evidence and that of her son. But coming back to the competing versions of what was agreed in 1994. It is said that the version advanced by Mrs Chu makes more commercial sense and it makes no commercial sense for someone to agree to take less than "9999" for the body. The agreement that the whole chain was to be "Chuk Kam" makes sense and I see nothing wrong in the context of the time in 1994 at a time when the test of a body alone was not possible. One has to think in relation to an agreement made when there was no thought given at that stage of a separate test of the body. I think that was a technological new method of young Mr Chu who is obviously going to be a very good businessman. He had the shrewd idea of testing just the body, and this was in April 1998 according to him. No one had the idea previously of testing just the body alone. It was not possible prior to 1998 to test just the body. How would there be a suggestion in 1994 that there would be a separate agreement in relation to just the body, that it should be "9999". The "Chuk Kam" was in 1994 a generally accepted standard. I do not accept that it was commercially improbable that Mrs Chu in 1994 would not accept "Chuk Kam" as appropriate standard for the whole chain even though she was to supply gold bullion of "9999".

9. The second pointer, it was suggested by counsel for the defendant to Mrs Chu's version being right, is that the parties agreed and, this is not in dispute, to put the stamp "9999" on the gold chain. The "9999" stamp on the gold chains which are sold in Hong Kong was generally so invisible that it could not possibly be seen by naked eyes. That is the clearest impression I have from the evidence. It would require even with a chunky piece of jewellery, like Exhibit D1, to have the considerable help of a specially designed jewellery magnifying glass to be able to even have a glimpse of the "9999". I am not really sure that I did see "9999", it was probably "999" in that gold chain. Generally "9999" would not be visible.

10. Now it was agreed by the parties in evidence that Mr Chan agreed he would put the stamp of "9999" on the gold jewellery. However, that stamp, if it is read literally as meaning applying to the whole chain, would be known to both parties to be totally untrue. That "9999" standard for the whole chain could not possibly be achieved. I think that the stamp of "9999" has very little significance in terms of showing the truth of Mrs Chu's assertion or the falsity of Mr Chan's assertion. The stamp "9999" could properly be said to mean that the gold jewellery was made from a bullion of "9999" subject to reasonable loss of purity in the process of manufacture. Mr Chan is of the kind of person, who would agree, to any request made by a superior dominating person of a boss such as Mrs Chu. I see therefore nothing in the agreement of Mr Chan to stamp "9999" on the gold chain as in any way rendering his evidence to be unreasonable or unbelievable. In fact I am sure that what he says is the truth.

11. The plaintiff points to the fact that the trade customs in 1994 was clearly "Chuk Kam" as standard for gold purity. I have no doubt that "Chuk Kam" was the general gold standard and that it would be highly unusual for an extraordinary standard of "9999" to be applicable only to part of a gold chain, namely the body. It seems to me inconceivable that Mrs Chu referred to and emphasised in the 1994 oral agreement that the body must be in "9999" when there was no means of testing whether that standard was met or not. I think the subsequent events also show convincingly that the defendant throughout regarded the goods supplied by the plaintiff as meeting the standard agreed in 1994, namely that the whole chain is to be "Chuk Kam". In fact the defendant caused the whole chain to be tested in 1996 and 1997 and the three tests in 1996 and 1997 came up to that standard and even subsequently, as Miss Choi counsel for the plaintiff pointed out in her submission, after the April events, the defendant continued to sell all the goods of the plaintiff as adequate goods which could be sold. I have therefore reached the conclusion and I so find as a fact that the agreement made in April 1994 is as alleged and said by the plaintiff and not as said by the defendant. I find that there was no oral agreement in 1994 that the body of the gold chain must be of "9999" content.

12. The defendant relies on a second string to the bow, and it relies on a document in January 1997. The two persons who dealt with that document were Mr Chan and Mr Chung. Mr Chung of the defendant did not give evidence. So we have evidence only from Mr Chan and he said that it was signed in a hurry, there was no mention about a change in the terms of the previous oral agreement, and the document does not in fact, said that the body part of the gold chain is to be "9999". What it does say is that the gold contents must correspond with the mark on the gold jewellery. In the course of the submission of counsel for the defendant, I put it to him, that if it means that the whole chain (because there was a mark of "9999" on one part of the chain) must be all of a "9999" quality then clearly, both sides knew that, it was not possible to achieve it. I therefore take the view that the document in fact adds nothing to and takes nothing away from the 1994 oral agreement. I come to that view firstly because it seems to me that it was not a document that was intended to alter the terms of the 1994 oral agreement between the parties, and that was said by Mrs Chu herself. Nor was it pointed out at the time to the defendant at the time of signing, when he was signing in a hurry, that it was intended to alter any terms. Nor was his attention drawn to any part of the terms specially in relation to, if it thought to be alleged, that the body part must be "9999". If it is considered that it has any effect, then it seems to me clear that its only effect is that, because it bears a "9999" mark, the whole chain must be "9999" and that it is agreed to be impossible and also by the conduct of the parties was repeatedly waived by the defendant. So I do not see how the defendant can possibly rely upon the signed document to help itself from getting out of the terms of what had been agreed in the 1994 oral agreement.

13. It follows therefore that in my view, the February and March jewellery which had been supplied by the plaintiff to the defendant were not in breach of the 1994 oral agreement. It follows therefore that there was no basis for the defendant to make its counterclaim. The defendant chose to melt the gold. It is my finding as a fact that the event in April is that described by Mr Chan and not that described by Mrs Chu. There was no agreement by Mr Chan for the gold to be melted, nor did he in any time agree to be responsible for the 389 taels. The first time he came to know about this was, as he said, after it had already been melted. And then the discussion was what to do about the consequence of the alleged melting. The main case therefore of the defendant fails, and the counterclaim therefore must be dismissed.

14. I now turn to the two subsidiary claims of the plaintiff, namely firstly, the question of the oral promise made in February 1998 by Mrs Chu. Although I accept everything said by Mr Chan in this case and I believe he suffered the loss of some $60,000 described by him as arising from his move to a new office, paid rent, etc. I think the reality is that he could not attribute that loss he had suffered to the promise of Mrs Chu made in February 1998 that she would supply jewellery to the plaintiff so that he can make some profit on the sale of the jewellery. There was no price agreed and there was no order placed. Once their relationship turned sour in April 1998 there was simply no further dealings between the parties. I do not think that the plaintiff can attribute the $60,000 loss alleged under the second heading of claim to what was promised by Mrs Chu in a general way in February 1998.

15. As for the third claim for malicious falsehood, we have not spent much time on it. But the claim seems to me again to be unfortunately misplaced notwithstanding the fact that I accept the truthfulness of everything said by Mr Chan. The malicious falsehood was alleged to be said on the beer night at the seafood restaurant by Mr Chung of the defendant in front of the three colleagues who had been called out to help to negotiate settlement between the plaintiff and the defendant. The alleged publication however was not the sort of publication made by someone who has a vendetta or who has a grudge against defendant but, at the most, it was said in the context of a dispute where the three colleagues were supposed to help out with the settlement discussion between the plaintiff and the defendant. The plaintiff was there. He denied the allegation right away. This allegation could not possibly had any adverse effect on the three colleagues and in any event those three colleagues were not regular customers of the plaintiff. The reality of this case is that the plaintiff derived 70% to 80% of his business from the patronage of the defendant. Once there was hostility between the plaintiff and the defendant and the source of future orders dried up, then of course, the plaintiff went out of business. I think the reality is simply that a poor simple goldsmith like Mr Chan could not afford to pick a fight with Mrs Chu, the powerful executive of the defendant. Mr Chan may win this piece of mitigation but he has lost the war to Mrs Chu and the nature of the publication, in my view, was not malicious. There is even some doubt as to what exactly was said. And I therefore come to the conclusion in relation to the third claim, that notwithstanding everything, I said, about believing Mr Chan's evidence the circumstances of this case, simply does not permit this court to come to a view that the plaintiff has suffered damages as resulted of any malicious falsehood publication of the defendant. So the third head of claim cannot succeed.

16. So far as the relief is concern, the counterclaim must be dismissed. The main claim succeeds. Having heard counsel and the parties having submitted to me the figures, it seems to me that the best way to grant relief is that the plaintiff should enter judgment against the defendant in relation to the return of the 141.256 taels of gold in the sum of $400,000, which is the figure that had been suggested by the defendant. I think the plaintiff is entitled to interest on the $400,000. I would award interest for four years at the rate of 10% per year. So therefore the plaintiff should have judgment entered in his favour in the sum of $560,000, that is $400,000 plus $160,000 ($40,000 times 4).

17. So far as cost is concerned, I would hear the parties on the question of costs as well as on the matter of gross sum assessment.

[After submissions]

18. This is the gross sum assessment of costs of the action. The plaintiff having won before me on the main issue arising out of the dismissal of the counterclaim of the defendant, even though the plaintiff has failed in the second and third claims, that is in relation to the February 1998 agreement and the malicious falsehood, the view I have taken is that that those second and third claims have taken up very little of the court's overall time or of the overall scheme of this piece of litigation. I would myself regard the plaintiff, in this circumstance, as justified in receiving 90% of the costs of the action.

19. The gross sum assessment based on 100% of the plaintiff's skeleton bill of something like $870,000 is said to be too high. I take note of what is said including the fact that the defendant may have won some of the interlocutory fights and a small discount may also need to be made to the overall bill of $870,000 but it would be a very small discount. Having regard, therefore, to the 90% of the costs of the action which the plaintiff ought to recover from the defendant, I assess the total amount that the plaintiff should recover from the defendant (having taken into account the apportionment) at $750,000. So the plaintiff is to receive from the defendant immediately, the sum of $560,000 for the judgment and interest and $750,000 in respect of costs.