HING KWOK INDUSTRIAL CO. LTD. v. CHAN YUK MUI t/a CHEUNG SHING HONG FASHION TRADING CO.

HCA12429/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.12429 OF 1999

--------------------

--------------------

----------------------

J U D G M E N T

----------------------

1. The plaintiff's claim is for the balance of price of goods sold and delivered, amounting to $1,941,733.20. It is alleged that the goods, which were zippers, were delivered in five consignments between January and May 1999.

2. The defendant denies that there was ever any contract between the plaintiff and herself. She says that her business ceased trading in March 1998. She had in 1995 allowed her brother-in-law, a Mr Chow, to use her address for receiving zippers for his business and subsequently goods were delivered to and collected from her shop; but they had nothing to do with her.

3. The plaintiff by way of reply avers that notwithstanding any purported or registered cessation of trading, the defendant maintained her shop premises, with its original signboard. The plaintiff was never notified or any cessation of trading and continued to supply goods of which receipt was acknowledged by the stamping of the defendant's chop on delivery order sheets. It is also averred that the contract was concluded between the parties, their agents or servants, and that the goods were delivered and accepted by the defendant or her agents or servants and the defendant never disputed this until the commencement of the action.

4. In answers to interrogatories the defendant says that she used to trade at the shop premises at Maple Street; her husband Mr Wong Man Yiu used to help out in the shop; she surrendered the lease in October 1998 and Mr Wong then carried on his own business there; and he continued the arrangement with Mr Chow for the latter's zippers to be received at the shop. As far as she is concerned, the one payment which appears to have been made by Mr Wong to the plaintiff was made on behalf of Mr Chow for the zippers bought by him. All other payments were made directly to the plaintiff by Mr Chow.

5. Evidence for the plaintiff came from Mr Li Kam Hung, the manager of its zipper sales division; Mr Yoshinaga, formerly the plaintiff's general manager and now in charge of a related company in Shenzhen; and Mr Chan Pak Yuen, the sole proprietor of a transportation company, who delivered goods for the plaintiff to the defendant's premises. It is not in dispute that such deliveries were made.

6. From the evidence it appears that the plaintiff belongs to the YKK Group which is a well-known Japanese zipper manufacturer. The Group has other subsidiaries in Hong Kong and in 1995 it set up a company in Shenzhen called YKK Zipper (Shenzhen) Co. Ltd for the production of zippers in China for the domestic market there. This company started production in 1998. Mr Yoshinaga took over the supervision of it in about 1996.

7. The YKK Group's policy is to demarcate the production of zippers domestically to support each local market. So, it has plants in Japan, China, Hong Kong, Thailand and the Philippines, to supply zippers in each of those countries. It also has a plant near Shanghai. The effect of this policy, so far as Hong Kong is concerned, is that the Group and its subsidiaries and in particular the plaintiff will only sell zippers made in Hong Kong to purchasers in Hong Kong. The plaintiff will only open a trading account with a company, on being satisfied that it is a local company and has a local business registration certificate. However, once the goods are sold to the local company it can export them or otherwise deal with them as it pleases.

8. In 1995 a Mr Chow Kam Yin, or Zhou Jinqian, who has a company or companies in Dongguan known variously as Tai Chun Fashion Accessories Company and Kam Cheong Distribution Company approached the plaintiff to buy zippers. He dealt primarily with Mr Li though Mr Yoshinaga knew him also. He was told that he would have to establish a Hong Kong company with a valid local business registration certificate, in order to buy from the plaintiff. Some time later he came back with the name of the defendant's company, Cheung Shing Hong Fashion Trading Company. He is, apparently, the brother-in-law of the defendant Madam Chan Yuk Mui. According to Mr Li, he said that he represented this company and wished to open a trading account with the plaintiff.

9. Mr Li says that Mr Chow gave him the name, address and telephone number of the defendant company, and the name of the contact person there, Mr Wong Yiu Man. This gentleman is in fact the husband of Madam Chan. Mr Li says that he telephoned Mr Wong who confirmed that he knew Mr Chow, and that deliveries could be made in the name of Cheung Shing Hong. Accordingly, Mr Li, with the approval of Mr Yoshinaga, opened a trading account in the name of Cheung Shing Hong. At that stage the payment required by the plaintiff was full advance payment.

10. Deliveries of zippers to the defendant's premises began in December 1995 with an order for 71,000 pieces of zippers. Mr Li says that Mr Chow placed the order by telephone. The price was agreed and Mr Chow was given the name and account number of the plaintiff's bank. Later he told Mr Li that he had made payment to the bank and sent a pay-in slip by way of confirmation.

11. Mr Li says that the procedure was for the plaintiff's accounting department to prepare an invoice for the goods. In fact the plaintiff's computer would generate an invoice, which would be sent by mail to the customer, a delivery order sheet, a sales note which would also go to the customer as confirmation of the order, and a production instruction. The delivery order sheet would go to the defendant, either with the plaintiff's own deliverymen or with Mr Chan Pak Yuen's delivery company, the Goldwin Transportation Company. This sheet would be taken with the goods and a copy chopped by the customer to acknowledge receipt.

12. The first order was delivered by Mr Chan's company to the defendant's premises and chopped with an oval chop bearing the defendant company's name. Further transactions followed, according to the same pattern, though in early 1996 the payment terms were changed to 50% in advance and 50% within 45 days. Trading continued up to June 1999 when there was an outstanding balance of $1,941,733.20 which is the sum sued for.

13. It is the evidence of Mr Li that throughout the period of trading, he dealt entirely with Mr Chow, who would place orders with him by telephone or fax or both. Mr Chow would tell him of payments made directly to the plaintiff's bank account and would follow up by sending a fax of the relevant pay-in slip. Payment would sometimes be made by cheque; copies of such cheques have been produced. Only one of these, dated 21 October 1998, was drawn in the name of Wong Man Yiu. The rest appear to have been drawn by Zhou Jinxian. Mr Li does not appear to have had any further dealings with Mr Wong, or anyone else belonging to the defendant company, after his first telephone conversation. Nor did he ever have any contact with Madam Chan herself.

14. Mr Li agreed that the goods were intended for Mr Chow, and primarily if not exclusively for his Dongguan operation, with which Mr Li was familiar. He got the orders from Mr Chow, and expected Mr Chow to pay for them. Though Mr Yoshinaga said that he expected the Hong Kong company to which the goods were delivered to pay for them, he said that the actual dealings with the payments were left to his subordinates; but Mr Li said that it would be impossible for Mr Yoshinaga not to know that payments were being made by Mr Chow rather than by the defendant company. Mr Li said that he sent the sales notes to the defendant's address but they were intended to go to Mr Chow. He admitted that he knew that Mr Chow was using the defendant company as a device to buy the zippers for his Dongguan operation.

15. Various delivery notes have been produced. The original oval chop, bearing the full name of the defendant company in English and Chinese appears on them until February 1996 and thereafter a small chop appears which bears the full name in English but only the three characters "Cheung Shing Hong". However from 28 May 1998 a chop appears bearing only the characters "Kam Cheong". Mr Li says that since his deliverymen told him that there was no change of shop staff, set-up or signboard and there was no announcement from the defendant of any change, he approved the acceptance of this.

16. Mr Chan the delivery contractor confirmed the various deliveries made by him. He said that sometimes he would be asked to deliver the goods, not to the defendant's shop, but to a container lorry parked nearby. When this was done the chop of the container operator would be put on the delivery order sheet. He knew, because he could see the licence plate, that the container lorries concerned were cross-border vehicles.

17. It appears from Mr Yoshinaga that Mr Chow later started buying zippers from the YKK Zipper (Shenzhen) Co. Ltd. There were disputes between Mr Chow and this company which led to litigation and an order for payment against Mr Chow in Shenzhen. I do not think it is necessary to go into this matter; it is not in my view particularly relevant to the case before me.

18. Madam Chan was the only witness for the defence. Unfortunately we have seen nothing of her husband Mr Wong, or her brother-in-law Mr Chow.

19. Madam Chan's evidence, in brief, is that in 1995 Mr Chow asked her for assistance in receiving goods in Hong Kong. She agreed to this and gave him the name and address of her company. Thereafter she understood that deliveries were made there, and the goods then shipped to the Mainland by Mr Chow. Nobody in her company was ever involved in these arrangements.

20. She says that she ceased trading in about March 1998 and notified the business licensing authority. After that her husband continued to trade from the same shop, but under a different name, though it appears that her original sign, which reads in Chinese "Cheung Shing Hong Male Fashion Distribution" rather than "Cheung Shing Hong Fashion Trading Co." was never taken down. She says in effect that she never bothered about taking the sign down, as other nearby businesses also did not. She also says that the difference in the name was intended merely for identification of her business as a male clothing wholesaler.

21. Madam Chan says that she has been living in Mainland China since about 1986. She runs a factory for someone there. In the relevant period she only visited her shop premises about once a week. She never saw any of the invoices or other documents relating to the deliveries, and indeed she does not recognise the chops on them as belonging to her company; she says the only chop she has is rectangular. She does not seem to have much communication with her husband about her business in which she says he occasionally helped out, or about his own business which she says is now carried on at the same premises.

22. There is no dispute that the plaintiff delivered goods to the defendant company's premises from late 1995 to the middle of 1999. These deliveries were accepted by persons working there by the application of various chops, earlier in the name of the defendant company and later in the name of Kam Cheong. The goods were sold and delivered, but the issue is whether they were sold to the defendant under a contract of sale between the plaintiff and the defendant, or sold to Mr Chow and merely accepted by the defendant's employees or husband on Mr Chow's behalf.

23. As I indicated when I heard it, some of Madam Chow's evidence, in particular that about her lack of knowledge of the chops, is unlikely and further it was never mentioned before she came into the witness box. She claims a great deal of ignorance and I find it difficult to believe her on this. However, one has to look at the plaintiff's evidence to see whether there is enough affirmative evidence of a contract.

24. In fact such evidence is tenuous. There is an assertion in Mr Li's statement that Mr Chow said that he represented the defendant, by which no doubt it is sought to make the defendant liable as his principal. In oral evidence, however, it appears from Mr Li that Mr Chow was ordering the zippers for himself, using the defendant as a device and if that is the case he was in no way representing the defendant as a purchaser.

25. There is no evidence of any contact between the plaintiff and the defendant, or those directly working for her at her shop (including her husband Mr Wong) except one telephone call in which according to Mr Li, Mr Wong said that he knew Mr Chow and delivery could be made in the name of Cheung Shing Hong. In my view this is at best equivocal; it certainly does not indicate any specific agreement on behalf of the defendant to be liable as purchaser for the goods delivered.

26. Counsel for the plaintiff says that the facts that the plaintiff delivered the goods, and sent the invoices for them to the defendant over a long period, and that the defendant never objected to them, must mean that the defendant accepted liability for the price of the goods. He relies on the case of Hayton International Ltd v. Massoni Treasures (Mandarin) Ltd [1990] HKCU 1, in which the Court of Appeal reversed the finding of fact of a District Judge that watches claimed to have been sold and delivered were sold on consignment for sale or return within 90 days, on the basis that the invoices on the face of them required payment in 45 days. Counsel relies on the contemporaneous documents which, he says, clearly show that the zippers were delivered to, invoiced to and accepted by the defendant so the defendant must be liable.

27. Of course the courts frequently hear cases where witnesses try to fly in the face of contemporaneous documents. The assertion that the documents do not mean what they say, and that there was some other agreement behind them, is all too common. However in this case there is clear evidence from the plaintiff's own witnesses that there was another arrangement behind the documents, namely that the zippers were ordered by Mr Chow for his own business in Dongguan, that it was he who paid for them, and that the use of the defendant was a device to comply with the plaintiff's policy of only selling to Hong Kong registered businesses.

28. I have no doubt that this was a mere device. It appears from Mr Yoshinaga that the plaintiff did not care who the Hong Kong company was, so long as it had a business registration certificate. Although Mr Li said that the certificate should have been checked, it is by no means clear that it ever was or that any certificate ever came to light before the commencement of the proceedings. Again, although it was the policy that credit references would be obtained, they never were; the decision to extend credit apparently depended on Mr Chow's having managed to pay in advance for the first few consignments. The plaintiff never in fact treated the defendant as the real customer.

29. It is obvious that what was really happening here, and the plaintiff knew and intended it, was that the goods were being sold to Mr Chow and paid for by him, and merely delivered to the defendant for collection by him either later or by immediate transfer to a cross-border vehicle. Delivery to the defendant was done with the defendant's consent, but in the circumstances I do not see that any contract of sale and purchase between the plaintiff and the defendant can be inferred from the documents.

30. The plaintiff's policy envisaged that goods supplied in Hong Kong should be sold to a Hong Kong business which would be liable for the price of them, no matter what happened to the goods thereafter. In effect the plaintiff would have a local guarantor for the price of goods actually intended for a purchaser on the Mainland, instead of having to rely on getting its money from that ultimate purchaser, even if the ultimate purchaser was to pay directly for the goods, as in this case Mr Chow did, until he defaulted. This is prudent, and no doubt a common enough arrangement. But for it to work, the local company must agree to be liable as purchaser. In my view there is insufficient evidence that the defendant either herself or by her servants or agents agreed to accept liability as purchaser or to do anything more than accept deliveries.

31. This being so the plaintiff's claim fails. The action is dismissed with costs (nisi) to the defendant to be taxed if not agreed.