WEALTH METAL FACTORY LTD v. KINGSBRIGHT TECHNOLOGY (SHENZHEN ) CO LTD

HCSA 6/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO 6 OF 2013

(ON APPEAL FROM SMALL CLAIMS TRIBUNAL
CLAIM NO 17707 OF 2012)

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J U D G M E N T

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Introduction

1. This is an appeal by the defendant Kingsbright Technology (Shenzhen) Co Limited明輝光源科技(深圳)有限公司 against an order of Mr Timon Shum, Learned Adjudicator of the Small Claims Tribunal,  in respect of a claim by the claimant Wealth Metal Factory Ltd同發寶工業製品有限公司 for a sum HK$22,139.50 being the balance of the price for goods sold and delivered between August to December 2011. 

2. The defendant’s main ground of appeal is that it was not the contracting party.  By the time of the hearing of the appeal before this court, the defendant (“D”) was represented by Senior Counsel Mr Paul Lam , assisted by Mr Vincent Lung, and the plaintiff/claimant (“P”) was represented by Counsel Mr Joseph Lam.

3. The Adjudicator’s order was made on 27 November 2012 (“Order”) and brief reasons were given ex tempore on the same day (“Reasons”) ordering D to pay P the sum awarded.  On an application for review by the defendant, the Order was affirmed (“Review Order”) and again brief reasons were given ex tempore on the same day (“Review Reasons”).  D then applied for leave to appeal against the Order and the Review Order.

4. The Adjudicator subsequently handed down a detailed on 14 March 2013 in relation to the Order (“Judgment”), and a detailed judgment on 15 March 2013 in relation to the Review Order (“Review Judgment”).

5. On 27 March 2013, Poon J granted leave to appeal on 7 grounds, as reflected in D’s Notice of Motion.  Thereafter, on 24 June 2013, an order was made by consent that D was to pay HK$22,139.50 into court as security for the award in favour of P under the Order and further a sum of HK$70,000 as security for P’s costs of the appeal.  D had duly complied with these payments.

6. At the hearing before this court, D only relied on 6 of the 7 grounds of appeal.

Background

7. Over 20 years ago, on 29 July 1992, a company with the Chinese name明輝光源科技(深圳)有限公司 and apparently an English name Kingsbright Technology (Shenzhen) Co Limited was incorporated and registered in Shenzhen (“PRC Company”), with a registered paid capital of US $2.75m and a 100% foreign investor/ shareholder called China-Hong Kong Mechanical Limited香港中港機械有限公司.  Its registered address was/is at 深圳市寶安區福永街道橋頭社區立新路一号.  The legal appointed representative of the PRC Company was Mr Yuen Se Kit 袁仕杰 (“Yuen”).  According to the registration record of the PRC Company, on 2 September 2009, the legal appointed representative was changed from Yuen to a 劉逸洪.

8. The China-Hong Kong Mechanical Limited香港中港機械有限公司 was/is a company incorporated in Hong Kong.  Up until 2 September 2009, or earlier on 14 August 2009 according to D’s witness Mr Ho Chi Keung (“Ho”), the financial director of a company called John Manufacturing Limited 中興電子廠有限公司 (“JML”)[1], Yuen was a director and shareholder of 香港中港機械有限公司. 

9. On 2 September 2009, the shareholder of China-Hong Kong Mechanical Limited香港中港機械有限公司 changed to a company called Kingsbright Hi-Technology Co. Limited 香港明輝光電科技有限公司, and the directors were changed to a Mr Suen孫逸楷and a Mr Chiu趙创奎.  According to Ho, Yuen thereafter had nothing to do with the company Kingsbright Hi-Technology Co. Limited 香港明輝光電科技有限公司[2]. 

10. Thus, since 2 September 2009, Yuen appeared to have severed his links with the PRC Company.

11. P is a metal factory and according to the evidence of its director Li Siu Lok (“Li”), commencing from around 1994/1995,  P started trading with JML, which had/has its registered address at 6 floor, Yau Lee Commercial Centre, No 45 Hoi Yuen Road, Kwun Tong (“Yau Lee Address”).  The annual return of JML as at 23 April 2012 showed that Yuen was the majority shareholder of JML holding 9,998 out of 10,000 issued shares of nominal value HK$100 each.  Yuen was also one of 2 directors, the other being a corporate director of the same Yau Lee Address.

12. According to Li, prior to 2005, all the goods sold by P to JML were delivered to the Yau Lee Address.  In 2005, under the direction of JML, P started to deliver the goods to the PRC Company in Shenzhen, and upon receipt of the goods, payment would be made by JML in Hong Kong.

13. D was incorporated in Hong Kong on 28 February 2007 with exactly the same English name and Chinese name as the PRC Company, namely Kingsbright Technology (Shenzhen) Co Limited and 明輝光源科技(深圳)有限公司. According to D’s annual return filed on 28 February 2012, Yuen was the sole shareholder and director of D at that date. D’s registered office was at the Yau Lee Address.

14. P’s case was as follows:

(i) In March 2007, P was informed by JML that due to re-structuring, a new company D was incorporated, and that from then on, it would be D which would trade with P, and that the goods would still be delivered to the PRC Company as in the past.

(ii) D had/has the same address, namely the Yau Lee Address as JML, and also same telephone number and fax number.  According to P, payment would still be for P to collect the payment cheques at D’s office, and the contact person was the accounts clerk Miss Lau Yuet Yin劉月賢 (“Lau”).

(iii) In 2010, P was notified by Lau that as D’s purchasing staff Mr Chan Ying Fai (“Chan”) usually worked in Shenzhen, all future purchase orders would be faxed directly from the PRC Company, but settling of accounts would still be responsible by Lau and that the payments would be directly credited into P’s bank account.

(iv) On 29 March 2012, P was still able to contact Lau and received a sum of HK$20,612.40 being payment of the price of goods for the months of July and August 2011, but thereafter, the payments were stalled, and the invoices from August 2011 to December 2011 remained outstanding and unpaid.

15. D’s case before the Adjudicator was simply that D never entered into any contractual relationship with P.  D relied on the following, among other things:

(i) Lau started working as an accounts clerk for JML on 22 February 1993, and after probationary period, she signed a Chinese employment agreement on 21 May 1993 with JML[3].  She subsequently signed a formal employment agreement with JML prepared by solicitors for the company several years later on 3 February 1997[4].  Her employment with JML ceased on 31 October 2009[5].  She then became employed by another company called Johnco Industrial Limited on 1 December 2009 as an accounts manager[6].  She left that employment on 31 May 2011[7].

(ii) As for Chan, it appears that he started working for John Manufacturing Ltd on 25 October 2005[8]. During the period from 1 April 2008 until 4 July 2008[9], he was employed a manager by a company called China-USA Technology Limited中美科技有限公司.

(iii) Since incorporation and up until 5 July 2012, according to D, it had not commenced business[10].

16. The 1^st hearing before the Adjudicator was a pre trial review, and Ho was D’s authorized representative at that hearing.  As Ho was neither a shareholder nor a director, nor an employee of D, he was told by the Adjudicator to ask Yuen to attend the trial, and Yuen duly appeared. Yuen did not give any oral evidence himself.  He called 2 witnesses, namely Ho and Lau. P was represented by its director Mr Li (“Li”), who gave oral evidence. P also called 2 other witnesses, its accounts clerk Ms Cheung (“Cheung”) and its sales manager Mr Ching (“Ching”).

The Findings of the Adjudicator

In the Judgment

17. The Adjudicator found that P traded with JML until March 2007.  

18. Li’s evidence was in March 2007 he was notified by JML that there would be a new company incorporated in Hong Kong, namely D, and that in future the trading would be between D and P, but the goods were to continue to be delivered to the PRC Company.  Li’s such evidence was accepted by the Adjudicator[11]. 

19. The Adjudicator also accepted Cheung’s evidence that prior to those invoices which were relevant to the present case, P did send  other invoices to D earlier, and D did arrange for settlement, and whether the payments were made by D, or arranged by D to be paid by others was in the Adjudicator’s view not the important issue[12].  The Adjudicator further accepted Ching’s evidence that he did deliver the invoices issued by P to D at the Yau Lee Address and hand them to Lau[13].

20. The Adjudicator rejected Lau’s evidence that she had never received any invoices issued by P to D on two grounds, namely (i) what Lau said did not make sense(不合情理), as there was no reason why P would issue the present claim against D without even having issued invoices to D[14], and (ii) Lau’s evidence was contradictory to what Yuen had put to Li during cross examination, namely that Lau had returned to P the invoices and delivery notes issued by P to D[15].

21. The Adjudicator had further said that from the point of logic, if P had a contractual relationship with the PRC Company and that this matter had nothing to do with D, there was no reason as to why P would issue the delivery notes and invoices to D, and that D must have done so in accordance with instructions of related persons[16].

22. The Adjudicator rejected the evidence that D had never commenced business since incorporation as such evidence was hearsay, and D did not call the makers of the statements[17].

23. The Adjudicator then found that there was a contractual relationship between P and D.

In the Review Judgment

24. The only issue which the Adjudicator felt that he needed to deal with on D’s application for Review was D’s submission that Lau was never employed by D, and thus there was no authority given to Lau to represent D[18].

25. The Adjudicator pointed out that although Lau said that she was never employed by D, she admitted that she had gone through D’s books of accounts, in order to decide whether she needed to produce such accounts to the Inland Revenue Department.  The Adjudicator thus found that even through Lau was not D’s employee, she had provided services to D, and could thus be regarded as D’s agent “即使劉悦賢並不是被告人的僱員, 但她為被告人服務, 可被視為被告人的代理人”[19].

26. The Adjudicator further accepted Ching’s evidence that he had given the invoices and delivery notes to Lau, and never received any message that the invoices had nothing to do with D[20].

27. The Adjudicator said that it was unsurprising that D had instructed persons who were not employed by D to represent D in carrying our certain acts, as during the Review hearing, D was represented by Ho who held no post in D and was not employed by D. Further, D had called Ho to give evidence on behalf of D during the trial.

28. The Adjudicator refused D’s application for Review and affirmed the Order.

Grounds of Appeal

29. It is trite that finding of facts by the Adjudicator is generally immune from challenge as it involves no error of law, unless such is perverse or irrational, or where there is no evidence to support the decision or where the decision was made by reference to irrelevant factors or without regard to relevant factors[21].

30. D’s grounds of appeal were:

(1) Failing to identify the contracting party by reference to the written agreements;

(2) Failing to consider the fact that D ceased to have any link with the PRC Company since August/September 2009;

(3) Refusing to give any weight to documents supporting that D had not commenced business at the material time;

(4) Holding against D on the ground that P issued delivery orders and invoices to D without giving adequate reasons which in any event is plainly wrong;

(5) Holding that D had paid P in the past which is plainly wrong;

(6) Holding that Lau was D’s agent even if she was not its employee which is plainly wrong;

Ground (1)

31. Under Ground (1), D relied mainly on the fact that those relevant purchase orders between 15 August 2011 to 12 November 2011 (“Purchase Orders”) upon which P’s claim was based were issued by the PRC Company, with the registered address of the PRC Company stated thereon[22].  This was a fact which was noted by the Adjudicator[23]and which was not disputed by P.

32. Mr Lam SC submitted that each of the Purchase Orders was an offer, and by countersigning on it or delivering goods pursuant to it, P accepted the offer, and a contract was thereby concluded.  The Purchase Orders constituted the written agreements between the parties, and it was clearly the PRC Company which was the contracting party.  As for the delivery notes and the invoices which were said to have been delivered to D’s office at the Yau Lee Address, such were all post contractual documents, and could only be relevant if the PRC Company was D’s agent, or if there was a mistake which would need rectification.

33. On the other hand, Mr J Lam submitted on behalf of P that the Purchase Orders formed only one piece of P’s many evidence, and that the Adjudicator had taken into account other evidence in making the above findings and conclusion that P and D had a contractual relationship.

34. Mr Lam SC had referred this court to the case of Shogun Finance Ltd v Hudson [2004] 1 AC 919.  In that case, a dealer agreed a price for the sale of a motor vehicle on hire-purchase to a fraudster who obtained finance for the purchase from the plaintiff Shogun. Upon receiving the 10% deposit from the fraudster, the dealer released the car and the next day the fraudster sold it to the defendant, who bought the vehicle in good faith.  Shogun claimed against the defendant for, among other things, damages for conversion and the defendant counterclaimed that he had acquired good title to the vehicle.  The judge below gave judgment for Shogun, and the defendant’s appeal was dismissed by the Court of Appeal and on further appeal, again dismissed by a majority of the Lord Justices in the then House of Lords.

35. In Shogun, the appeal raised a difficult problem about the effect of fraudulent misrepresentation on the formation of a contract[24].  It was held, among other things, that the purported contract between the fraudster and Shogun was constituted by the hire-purchase agreement and oral evidence could not be adduced to contradict the terms of the written agreement[25].

36. Lord Walker, one of the majority Lord Justices, had said in his judgment that he regarded the issue in the appeal as essentially a problem about offer and acceptance; and in determining whether a contract had been formed by offer and acceptance, the court should adopt an objective approach, and would not inquire into what either party actually intended, but into the effect, objectively assess, of what they said or wrote[26] (emphasis added).

37. It was also said by Lord Philips, another of the majority Lord Justices, that the correct approach in that case was to treat the agreement as one concluded in writing and to approach the identification of the parties to that agreement as turning upon its construction[27]. Further, Lord Hobhouse, also one of the three majority Lord Justices, had said that where the parties had been specifically identified in the written agreement, oral or extrinsic evidence was not admissible, except evidence could be adduce of the fact that where the person signing was also acting as the agent of another[28].

38. A contractual relationship can only exist between parties to a contract.  There were no findings by the Adjudicator that there was/were any oral contract/s between P and D, or how and when their contractual relationship arose.  The relevant written documents referred to by the Adjudicator were the Purchase Orders, the delivery notes and the invoices.

39. Although the delivery notes and the invoices were addressed to D, each of the Purchase Orders bore the heading of the PRC Company, with its registered address in Shenzhen, telephone and fax numbers in Shenzhen.  Each one was addressed to P, and the delivery address was in Shenzhen.  It was stated payment within 60 days would bear a 2.5% discount.  The description and quantity of goods purchased, and the delivery date were clearly stated.  The two Purchase Orders in August 2011 were in fact chopped with a receipt chop, stating that “感謝貴公司的訂單, 我方已於今日收悉……追貨單號 xxxxx，……交貨期則與本司回複為準”.

40. On the face of it, it would appear that each of the Purchase Orders was an offer, and by countersigning on it or delivering goods pursuant to it, P had accepted the offer, and that each of the Purchase Orders would appear to constitute a written agreement between P and the PRC Company for the purchase of the goods therein.  Anyway, there was no finding by the Adjudicator that the Purchase Orders did not constitute written agreements, and there was no finding that the PRC Company was an agent of D in sending the Purchase Orders.  I accept that it would appear from the Reasons/Review Reasons and the Judgment/Review Judgment that the Adjudicator may not have in mind the approach and principles in Shogun, and he did not deal with the legal significance of the Purchase Orders.

41. In light of the above, I am of the view that D has made out Ground (1).  

Ground (2)

42. There appeared to be no challenge by P that there were changes in the shareholder and the directors of the PRC Company in August/September 2009, and that thereafter Yuen was no longer the legally appointed representative and Ho’s evidence was that Yuen had nothing to do with the new shareholder company.  P’s case was only that he was not notified and that he had no knowledge of such changes at the time.

43. The Adjudicator noted the changes in paragraph 33 of the Judgment, and he clearly was aware of these changes.  Mr Lam SC submitted that the Adjudicator had failed to deal with this piece of evidence or to take it into account, since in light of the above changes, and after such changes, there would be no conceivable reason as to why D would request P to deliver the goods to the PRC Company or buy goods for the use of the PRC Company.

44. Mr J Lam, on the other hand, pointed out on behalf of P that it was D’s case that it never had any business relationship with P, not that it only ceased to have business relationship with P with effect from August/September 2009, and that Ground (2) implied that D admitted being related/linked to the PRC Company before August/September 2009.

45. The Adjudicator accepted that the request to P to deliver the goods to PRC Company was made in 2005 by JML, and further, in March 2007, P received notification from JML that thereafter, it would be D which would trade with P, and that the goods would continue to be delivered to the PRC Company[29]. 

46. However, there did not seem to be any finding by the Adjudicator as to whether he accepted Li’s evidence that in 2010, P received notification from Lau that as D’s purchasing staff Mr Chan often worked in the PRC Company, therefore the Purchase Orders would be directly sent by the PRC Company to P.

47. There seemed to be only 2 remittance slips produced by P during the hearing before the Adjudicator, one dated 7 January 2011 and one dated 29 March 2012, and both indicated that payments for the goods were by direct remittances into P’s BOC account in Hong Kong by the PRC Company, with its address in Shenzhen[30], and not by D.

48. Whatever arrangement for payment there had been before August/September 2009, the Adjudicator did not seem to have dealt with the changes thereafter.

49. The Purchase Orders were sent by the PRC Company to P from August to December 2011 by which time there  appeared to be no link between the PRC Company and D.  As mentioned earlier, there were no findings by the Adjudicator whether the PRC Company was contracting or sending the Purchase Orders as an agent for D.

50. Having considered the above, I am of the view that D has also made out Ground (2).

Ground (3)

51. The letter from D’s certified accountants showing that D had not commenced business since 28 February 2007 was issued on 5 July 2012[31].  However, the letters from the Inland Revenue Department addressed to D were respectively dated 13 March 2009 and 17 August 2011[32].

52. The IRD letters stated the Department’s practice not to call for the annual submission of Profits Tax returns by corporations in circumstances where (i) trade or business has not commenced or has ceased and not recommenced; or (ii) trade or business carried on does not give rise to assessable profits (before the set-off of any losses brought forward).  The letters further indicated that as D fell within those circumstances, D would not be required to submit annual Profits Tax returns, at least for those relevant years, presumably years ended 31 March 2009, and 31 March 2011.  These letters were also copied to D’s certified accountants who sent the letter of 5 July 2012.

53. The IRD letters were sent long before P lodged his present claim.

54. As stated in Lui Sheung Kwan and Chui King Sum [2012] 2 HKLRD 599, under s 23 of the Small Claims Tribunal Ordinance, the usual rules of evidence shall not apply to proceedings in the Tribunal, and that the Tribunal could admit hearsay evidence, provided the discretion was not exercised arbitrarily or unreasonably or that irrelevant matters were considered. 

55. It is further stated in the above case that the court’s reception of hearsay evidence must be fair and just and when the court is considering the reception of hearsay evidence, it must take into account 4 factors: (a) the reasons put forward by the party requesting the court to receive the hearsay evidence as to why the witness concerned is not called; (b) the credibility of the hearsay evidence; (c) the relevance and importance of the hearsay evidence; and (d) whether there is any disproportionality between the expenses involved in providing the hearsay evidence and the claim amount[33].

56. D’s witness, Ho, had given evidence that from 2007 until August 2009, he believed that it had been possible that P could have sent the invoices to JML[34], but then the Adjudicator followed up and asked him whether D had received invoices after March 2007, to which Ho said it was possible, but after August 2009, definitely none[35].  Ho then further said if “they” had ordered the goods, then “they” would pay. It was not quite clear whom or which company Ho was referring to when he said “they”.  Even if he did mean D, and not JML, I do not think this would necessarily indicate that D had traded or had carried out business from 2007 to August/September 2009, as submitted by Mr J Lam.

57. Mr Lam SC complained that the Adjudicator did not ask D why the accountant was not called, or warned D that he would not give any weight to the documents unless the accountant was called.  The IRD letters indicated two circumstances under which D could not be called upon to submit Profits Tax returns, and it was not clear which of the circumstances would apply to D.  Having said this, the two IRD letters were “contemporaneous” documents produced to support D’s case that it had not traded or commenced any business.  Although the information received by the accountant would probably have come from D, it was not quite clear what information was in fact provided to the accountant.  D should be at least warned by the Adjudicator that he would not give any weight to the letter from the certified accountant and also the IRD letters unless the accountant was called.

Ground (4)

58. Under Ground (4), the main complaint by Mr Lam SC were in relation to paragraph 35 of the Judgment when the Adjudicator had said that “from the point of logic”, if P had a contractual relationship with the PRC Company, and had none with D, there was no reason as to why P would issue delivery notes and invoices to D, and that D must have received instructions from “related persons” before it would do so.  Mr Lam SC submitted that such reasoning was inadequate and incomprehensible, and plainly wrong.

59. It was not quite clear as to who the “related persons” the Adjudicator was referring.  The Adjudicator could have in mind one of them being Lau.  The details and when such instructions which were alleged to be given would be of importance, particularly as D claimed he had ceased to have any relationship with the PRC Company since August/September 2009.

60. Having considered the above, I accept that the reasons given by the Adjudicator may not be adequate.

Ground (5)

61. As mentioned earlier, there were 2 Customer Credit Advices in relation to the bank remittances in January 2011 and March 2012[36]  which showed that the remitter was the PRC Company, with its address in Shenzhen stated expressly in English on those documents.  P’s director, Li, when asked about these documents, said that he did not know who made the payments, and that he did not care so long someone paid[37].

62. What the Adjudicator accepted was the evidence of P’s accounts clerk Cheung’s evidence that there were earlier invoices which P had delivered to D and that D had made arrangement to pay.  As pointed out by Mr J Lam, the Adjudicator did not say that payment was made directly by D.  In fact, the Adjudicator had said it was not important as to whether D had paid directly, or arranged to pay through others.

63. Mr Lam SC complained that the Adjudicator seemed to have brushed aside the Credit Advices.  The Adjudicator gave reasons why he accepted the evidence of Cheung and found that D had arranged for payment in the past, namely prior to the relevant invoices of P’s present claim.  He could not be said to be plainly wrong in his reasons.

Ground (6)

64. For this ground, again, the Adjudicator did give reasons as to why he found Lau was D’s agent and he could not be said to be plainly wrong in his reasons.

Conclusion

65. I allow D’s appeal on Grounds (1) to (4). Although I am prepared to allow the appeal, I am not prepared to simply dismiss P’s claims against D.  The confusion was caused mainly by D having exactly the same names as the PRC Company, and continued to do so even after its claim that it had severed link with the PRC Company in August/September 2009, and also JML and D having same address. D complained that it had not been given an opportunity to call its certified accountant to give evidence that it had not commenced any trading or business since incorporation in February 2007.  A re-hearing would give D that opportunity.  According to P, the mode of payment to P changed only in 2010, from payment by cheques to direct credit into P’s bank account.  Copies of cheques can be obtained by P from the bank to show the payer and the bank account in Hong Kong prior to the change, which may shed light on D’s involvement, if any, or if the payer had been D, at least whether it was carrying out business.  More importantly, the Adjudicator had not considered the legal significance of the Purchase Orders and whether the PRC Company had sent the Purchase Orders as an agent of D, and also the changes in 2010. 

66. I accept that the amount claimed by P was small, in particular compared to the legal costs incurred so far by the parties.  Although Mr Lam SC has submitted a re-hearing is unattractive, having considered the above circumstances and the possible additional evidence, I will direct the matter be remitted to the tribunal for a new hearing before another adjudicator.

67. Costs be costs in the cause of the new hearing.  This is an order nisi, which will be made final after 21 days.