HAMSTAR LTD v. GOLDEN WHEEL DIE CASTING FACTORY LTD

DCCJ2083/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2083 OF 2006

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J U D G M E N T

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1.  In this action, the plaintiff claims against the defendant for outstanding payments for goods sold and delivered between 11 July 2002 and 20 December 2002 in the sum of $112,275.  The defendant completely denied placing any of the orders claimed from the plaintiff whatsoever. 

2.  The plaintiff is a paint and paint accessories wholesaler incorporated in Hong Kong with a factory manufacturing paint in Mainland China.  The plaintiff admitted it has a factory manufacturing paint from imported materials for export purposes.

3.  It is the evidence of the plaintiff’s general manager, Mr Chan Kam-fai (“Mr Chan”) that he was introduced to the plaintiff’s director, Mr Wong Hong-nin, Eddie (“Mr Eddie Wong”) by a friend called Mr Lam Siu-wah who took him to see the defendant’s Mr Eddie Wong at the defendant’s office in Tsim Sha Tsui sometime in June 2002.  He was told by Mr Eddie Wong of the defendant that the defendant would buy paint from his company, the plaintiff company, and the defendant would give him some business.  Later on, he was introduced by Mr Eddie Wong to a Mr Lau Tak-shing who Mr Eddie Wong said Mr Chan should contact in future.

4.  According to Mr Chan, Mr Lau Tak-shing (“Mr Lau”) was introduced to him as the defendant’s factory manager.  He claimed Mr Eddie Wong further told him that the defendant had three factories in China.  Thereafter, he was taken by Mr Lau to visit the defendant’s factory in Dongguan and subsequently he was contacted by Mr Lau and liaised with Mr Lau or his staff over paint orders and deliveries; these orders were in fact placed by Mr Lau or his staff to the plaintiff’s factory in China.

5.  Mr Chan produced in support the invoices (pages 47 to 124 of the bundle).  He also produced two return delivery notes (pages 83 and 125) written in the letterhead of “ 東莞橫瀝金輪實業玩具廠 ” dated 11 September 2002 and 18 December 2002.  He claimed the invoices were sent to the defendant, but Mr Chan was not sure when they were sent because they were sent by the plaintiff’s accounts office, not by Mr Chan himself. 

6.  Mr Chan further produced the delivery notes (pages 200 to 270) which were delivered with the goods supplied to the defendant’s subsidiary factory in China, in Dongguan.  He claimed the plaintiff’s accounts department in Hong Kong would have delivered monthly accounts to the defendant’s Hong Kong office together with copies of the invoices on a monthly basis.  These monthly accounts statements appear on pages 271 to 275 of the bundle.

7.  The plaintiff further relied on a document purportedly filed by the defendant’s subsidiary in China (page 276 of the bundle).  It is a customer’s information sheet for the plaintiff’s own record.  It recorded the defendant’s office address in Hong Kong and the defendant’s Hong Kong telephone numbers with the defendant’s factory address in Dongguan and its phone and fax numbers.  Mr Chan claimed that each of delivery notes had been signed by the defendant’s mainland factory staff upon receipt of the paints delivered.  There was also a stamp endorsed on each note.  The majority of these stamps endorsed on each delivery note either bear the words “ 金輪機鑄製品廠 ” or “ 東莞橫瀝昌達玩具廠 . ”

8.  The plaintiff, however, failed to produce any purchase orders from the defendant.  Mr Chan claimed it was because the defendant’s purchase orders were placed with the plaintiff’s factory in China directly and these purchase orders were kept by the plaintiff’s office in the factory in China.  Unfortunately, these were not retrieved from the plaintiff’s factory in China, therefore they were not produced at the trial.

9.  The defence supporting evidence came from Mr Eddie Wong, the director of the defendant, and the second witness, Mr Wong Fat-nin.  Mr Eddie Wong claimed that the defendant had never placed any of the orders alleged by the plaintiff.  He claimed that the defendant is an exporter of toys.  Although the defendant did have a subsidiary company in China between 1997 to 2002 known as  “ 東莞橫瀝金輪機鑄製品廠 ” (hereinafter referred to as “the subsidiary”) with a licence to manufacture from imported materials articles for export from the Dongguan local authority, however, according to Mr Eddie Wong, the subsidiary did not carry out any manufacturing activities.  He claimed the manufacturing was all done by the defendant’s contractors in China.

10.  Mr Eddie Wong claimed that one contractor, “ 佳毅模廠 ” , a mould factory, would make moulds and accessories for the defendant.  The defendant would then place the moulds with one of its contractor factories such as “ 昌達實業玩具廠 ”( hereinafter referred to as “ 昌達 ”) to manufacture toys on orders placed by the defendant.

11.  Mr Eddie Wong further denied that the defendant held any shares or interests in “ 昌達 ” and he claimed that Mr Lau Tak-shing was the production manager of “ 昌達 ” , that Mr Lau was never on the staff of the defendant. 

12.  Mr Eddie Wong further denied Mr Chan was introduced to him by Mr Lam Siu-wah.  He claimed that in fact Mr Lau Tak-shing had brought Mr Chan to see him sometime in June 2002 and informed him that “ 昌達 ” was going to buy paint for the orders of toys to be manufactured for the defendant by “ 昌達 ” .  He said he had agreed to the arrangement at the time and he further claimed that Mr Lau was in fact the general manager of   “ 昌達 ” which was one of the defendant’s contractors.

13.  Mr Eddie Wong denied the defendant’s Hong Kong office had ever received monthly statements and invoices from the plaintiff.  He admitted that the lease of the factory premises in “ 東莞橫瀝 ” was indeed taken out by the defendant or the defendant’s subsidiary in Dongguan, but it was shared by “ 昌達 ” and “ 佳毅 ”  Mould Factory with   “ 昌達 ” occupying 70% of the floor area while the defendant’s subsidiary and “ 佳毅 ” each sharing 15% of the factory premises.  The defendant’s subsidiary would use its space as an office for quality control and for storage purposes only.  No manufacturing process went on at the defendant’s subsidiary in China.

14.  Mr Wong Fat-nin was employed by “ 昌達 ” in Mainland China and was at the relevant time in charge of all general affairs at the factory, including placing orders for materials, collection of materials and delivery of goods, etc., including invoicing.  He said he took instructions from Mr Lau Tak-shing.  His evidence supported the evidence of Mr Eddie Wong generally.  He further testified that he first met Mr Chan of the plaintiff in early July 2002 when Mr Lau brought Mr Chan to meet with “ 昌達 ” ’s proprietor, Mr Liu, and he was informed by Mr Lau then that in future Mr Chan’s factory would supply paint to “ 昌達 ” .

15.  Mr Wong Fat-nin admitted that all the purchase orders to the plaintiff were handwritten by Mr Lau’s assistant or by a staff of “ 昌達 ” in charge of paint, and they were endorsed with “ 昌達 ” ’s chop or a chop engraved with “ 金錀機鑄製品廠 . ”   He admitted that these chops were made by “ 昌達 ” .  He also identified the chops endorsed on the plaintiff’s delivery notes (pages 200 to 270) and the signatures were from the staff of “ 昌達 ” . 

16.  He explained the reason why there were stamp chops in a name similar to the defendant’s, other than “ 昌達 ” ’s own chop.  It was because for the purposes of easy identification that the materials ordered and received were for use by “ 昌達 ” on the goods ordered by the defendant to be manufactured by “ 昌達 ” .  Therefore, the chop endorsed on the delivery notes that stated “ 金錀機鑄製品廠 ” also had the words “No. 28 factory” because it was a chop specially made for the defendant’s goods and materials ordered for the goods ordered by the defendant.  It also meant that the No. 28 factory was to identify “ 昌達 ” and “28” was the number given by the defendant for “ 昌達 ” ’s orders that came from the defendant for the manufacturing of toys for the defendant.

17.  It was Mr Wong Fat-nin’s evidence that “ 昌達 ” shut down and closed in early 2003 due to mismanagement of the proprietor, Mr Liu.  Mr Wong Fat-nin also admitted that the plaintiff’s staff did call him up many times, asking for payment and settlement of outstanding paint charges.  He recalled the outstanding charges were about $110,000, these records were kept by the accounts department of “ 昌達 ” .

Findings

18.  The plaintiff produced none of the purchase orders for the paints supplied to the defendant.  The plaintiff’s strongest evidence in this case seemed to be the delivery orders stamped with the chop “ 金錀機鑄製品廠 ” which were duly signed upon receipt of the goods.  The plaintiff also claimed that copies of the invoices together with the monthly statement were sent monthly to the defendant’s Hong Kong office for settlement.

19.  The defendant, however, denied ever receiving these invoices and monthly statements until many months later, in or about 2003 and 2004, upon the plaintiff’s chasing the defendant for payment and Mr Eddie Wong’s enquiry of the outstanding charges that they were sent in a bundle to Mr Wong. 

20.  According to Mr Chan’s evidence, these invoices and monthly statements were not delivered or issued by him.  They did not go through him as they were issued by the plaintiff’s accounts office in Hong Kong after receiving information from the plaintiff’s factory in China.  Mr Chan did not personally handle these invoices or monthly statements.  As to the customer particulars form produced by the plaintiff, it was used as a record kept by the plaintiff.  It is, however, not known who had filled in the particulars on this form although Mr Chan claimed it must be someone from the defendant or defendant’s subsidiary.  This was denied by Mr Eddie Wong.

21.  Another piece of evidence against the defendant came from the two personal cheques issued by Mr Eddie Wong in 2002 and 2003 which were used to pay some of the paints supplied by the plaintiff.  Mr Eddie Wong claimed that they were personal loans from him to Mr Liu, the owner of “ 昌達 ” , and these loans were later repaid back to Mr Wong.  This could well be the case since Mr Eddie Wong knew “ 昌達 ” was working on the defendant’s orders and the paints purchased from the plaintiff would be used on the defendant’s goods; furthermore, the defendant or Mr Wong could have deducted the payments for the goods manufactured by “ 昌達 ” for the defendant.

22.  After considering all the evidence adduced by the plaintiff, I find the plaintiff’s evidence insufficient to satisfactorily prove that it was the defendant or its subsidiary in China which had placed the purchase orders for the paint.  It does not mean that the plaintiff did not supply the paint to someone or a factory in Dongguan.  It is just that the plaintiff’s evidence was insufficient to show the plaintiff did supply paints to the defendant or the defendant’s subsidiary in China.  It is possible that the plaintiff’s factory in China did deliver paints to someone working at the premises shared by the defendant’s subsidiary and “ 昌達 ” .

23.  I find the most convincing evidence came from Mr Wong Fat-nin, the ex-employee of “ 昌達 ” , who had come from Mainland China to give evidence in this trial.  Not only was he an independent witness, he also had personal and direct knowledge of the operation of “ 昌達 ” and the orders placed by “ 昌達 ” with the plaintiff.  I find he was an honest witness.  He admitted that at the factory premises rented by the defendant’s subsidiary in Dongguan, there was a large sign on the outside with the defendant’s subsidiary’s name displayed.  Inside the premises, there were three factory signs displayed.  They were the actual tenants and/or subtenants at the premises.  One was the defendant’s subsidiary in China, the “ 東莞金輪機鑄製品廠 ” .  The second was “ 佳毅模廠 ” , the mould manufacturer; and the third factory was “ 昌達 ” . 

24.  It is Mr Wong Fat-nin’s evidence that in fact “ 昌達 ” occupied most of the premises, something like 70% of the said factory premises in Dongguan.  He admitted that the reason for the large sign displaying the defendant’s subsidiary outside the premises was because the lease was signed in the name of the defendant’s subsidiary with the landlord.  He admitted that it may be dishonest because the defendant’s subsidiary was only occupying a small part of the premises.  However, he insisted that Mr Chan knew which factory was ordering paints from the plaintiff all along.

25.  Mr Chan, on the other hand, was not a satisfactory witness.  He admitted that the debt was written off a few years ago at a time when his boss was ill.  His boss later died and the debt had then been written off.  It was the widow of his boss who decided in 2006 to go after the debt again.  He claimed it was due to his oversight that the debt was not recovered.

26.  Mr Chan is an experienced businessman.  He had been in the paint business for a long time.  He must know the regulations in China from experience.  Furthermore, the plaintiff has its own factory in China that could only supply to factories manufacturing goods for export from imported materials.  It is therefore unlikely that Mr Chan should be unaware of the fact that “ 昌達 ” was only a contractor of the defendant.  If he was unsure of it, he would have or should have made enquiries to find out who the plaintiff was supplying paint to.

27.  Putting the plaintiff’s case at its highest, that the plaintiff was deceived into believing that it was supplying paint to the defendant’s wholly-owned subsidiary in Dongguan, the plaintiff may have a claim in fraud under those circumstances.  Unfortunately, that was not the plaintiff’s pleaded case.  An action under fraud must be pleaded.  I refer to Order 18, Rule 12/16 at page 316 of the Hong Kong Civil Procedure 2007, the chapter on pleadings.  It is stated:

                        “Fraud

                        An allegation of fraud must be pleaded distinctly and with the utmost particularity (per Bokhary JA in Aktieselskabet Dansk Skibsfinansiering v Wheelock Marden & Company Limited [1994] 2 HKC 264 at page 270B to C) and it is not allowable to leave fraud to be inferred from the facts.”

28.  On the plaintiff’s pleaded case, the burden is on the plaintiff to prove the factory the plaintiff had been supplying paints to and selling paints to was the defendant’s subsidiary.  I find the plaintiff has failed to discharge that burden and therefore I dismiss the plaintiff’s claim against the defendant with costs to the defendant, to be taxed if not agreed.

(Discussion re certificate for counsel)

29.  I have to agree that the case is a simple one with a simple defence and no certificate for counsel is granted.