KIM WING ENGINEERING CO LTD v. FUK SHING CONSTRUCTION ENGINEERING LTD AND ANOTHER

DCCJ4474/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4474 OF 2005

JUDGMENT

1.  The plaintiff claims against the defendants for breach of contract of hire of an air compressor.  The plaintiff asks for the return of the machine or payment of the value of the machine.  In addition, the plaintiff is claiming against the defendants for payment of the hiring charges from the date of the hire until the delivery of the said hire machine.  The defendants deny they are liable to the plaintiff.  Their defence is that they were not the hirer of the machine.

Background

2.  The plaintiff is and was a limited company carrying on the business of hiring out machinery and equipment for use in the construction industry.  The 2nd defendant, Mr Lai Kam Fuk, has been trading in the business registration name of Fuk Shing Engineering Company.  Mr Lai incorporated the 1st defendant on or about 10 September 2004.  He is the 1st defendant’s sole director and shareholder. 

3.  The 1st and 2nd defendants are and were in the business of construction contractors and have been hiring construction machinery and equipment from the plaintiff for use in their construction sites, in the 2nd defendant’s case, since the year 2000, and in the 1st defendant’s case, since its incorporation in September 2004.

The Plaintiff’s case

4.  The plaintiff’s evidence came mainly from Miss Lai Ng-mui, a staff of the plaintiff at its office in Mongkok, Kowloon.  Her responsibilities were taking orders from hirers and arranging for the delivery of the machinery and equipment to the hirers and matters incidental to the hires.  Miss Lai maintained in  her evidence that because the plaintiff did not demand payment of deposits or other security for the machinery from its hirers, the plaintiff would only hire out machinery and equipment to known and trusted customers who have proved their trustworthiness.

5.  Mr Lai Kam-fuk of the 2nd defendant, being a customer of the plaintiff since 2000, belonged apparently to that category of customers.  It is Miss Lai’s evidence that on the morning of 30 April 2005, she received a phone call from Mr Lai, whose voice she said she could recognise because of his accent.  Mr Lai requested the hiring of a 365CD air compressor (hereinafter referred to as “the machine”) for use at a site in Pokfulam in Hong Kong (hereinafter referred to as “the site”).  Miss Lai said she accepted the request for hire and agreed to supply the machine on 3 May 2005 after the public holiday weekend.  She claimed that Mr Lai called her again that afternoon while she was having lunch.  The phone call was also about another matter concerning the replacement of a generator at one of Mr Lai’s construction sites.

6.  During the same phone call Mr Lai reminded her of his request of the machine, the air compressor hiring on 3 May 2005.  Miss Lai said she also received a phone call that afternoon from one Miss Yau about the replacement of the generator that Mr Lai had referred to and she also asked Miss Lai if the air compressor machine was available and ready.  Miss Lai confirmed the hire with Miss Yau during that phone conversation.

7.  According to Miss Lai she had prepared the hire agreement in the plaintiff’s standard form contract, dating it 3 May 2005 and naming Fuk Shing Engineering Limited as the hirer soon after she received Mr Lai’s request.  The hire agreement was No. H/A08396 (see page 75 of the documents bundle).  This document was prepared and signed by Miss Lai and then given to her boss to be delivered to the plaintiff’s warehouse in Yuen Long.

8.  In the morning of 3 May 2005, Miss Lai said she received a call from Mr Hung Kwai-lan, the plaintiff’s mechanic, at the Yuen Long warehouse.  Mr Hung informed her, the driver of lorry, registration No. HF7916, had come to the warehouse returning a generator, Machine No. 455, hired by the 1st defendant on 5 October 2004.  The same driver requested the collection of an air compressor.  Mr Hung queried whether he could release the air compressor to the driver who had returned the generator in the name of Win Fortune.  Miss Lai then attempted to contact Mr Lai on the telephone in order to verify if the driver was authorised by Mr Lai to pick up the air compressor.  Unfortunately, she was not able to reach Mr Lai on the phone.  She then contacted Miss Yau on the telephone to confirm if the driver of HF7916 was authorised to pick up the machine.  Miss Yau confirmed the hire to Miss Lau.  On that basis the machine was released to the driver and lorry attendant of HF7916 and the agreement was signed by the lorry attendant.

9.  Miss Lai’s evidence was supported by that of Mr Hung, the plaintiff’s warehouse mechanic in charge of the plaintiff’s warehouse in Yuen Long.  His evidence was, the driver of HF7916 came with the lorry attendant to return the generator No. 455, representing to Mr Hung that they were sent by Win Fortune Company Limited (“盈駿”).

10.  The lorry attendant signed the plaintiff’s collection form acknowledging the return of the generator by Win Fortune.  Then the driver asked to pick up the machine.  Mr Hung claimed that he took out the hire agreement, discovering that the hirer named was Fuk Shing Engineering Company,  he asked the driver why was that so.  Mr Hung was told by the driver that Win Fortune and Fuk Shing were the same company.  On the side of caution, Mr Hung called Miss Lai at the office to confirm if he could release the machine to the driver.  Miss Lai called him back later and told him he could release the machine to the driver and the lorry attendant.  Thereupon the attendant signed the hire agreement on behalf of the hirer.

11.  On or about 6 May 2005, Miss Lai received a phone call from Miss Yau who told her that the machine had been stolen from the site.  She asked for the purchase details of the machine for the purposes of her report to the police.  Miss Lai faxed over the invoice of the machine to Miss Yau (page 1 of the documents bundle) and in return Miss Lai requested Miss Yau to give her a copy of Miss Yau’s police statement reporting the loss (page 51 to 52 of the documents bundle).

12.  The plaintiff instructed solicitors later on to write to the defendants demanding the return of the machine and payment of hiring charges.  Miss Lai admitted that it was not until four months later that she reported the loss to the police because she was instructed by her boss that she should give time to the defendants to return the machine but the defendants never did (her police statement can be found at pages 53 to 56 of the bundle).

13.  It is the plaintiff’s case that the machine was purchased in May 2000 for the sum of $370,000.  According to the plaintiff’s case, it would cost $400,000 to replace it in November 2005.  A second-hand machine, manufactured in the year 2000, would cost $250,000 to replace.  A quotation of the aforesaid replacement costs appear on page 57 of the documents bundle.  The quotation is from the plaintiff’s supplier, Atlas Copco.

The Defence case

14.  The only witness for the defence was Mr Lai Kam-fuk, the 2nd defendant.  He denied he had ever hired the air compressor machine in question from the plaintiff on 3 May 2005, either on his own behalf or on behalf of the 1st defendant.  He claimed that he had informed Miss Lai  on previous occasions that all hirings to the 1st and 2nd defendants have to be confirmed with him because his company was the main contractor of over ten constructions sites and he had many subcontractors working under him on these sites.

15.  He denied he had contacted Miss Lai over the hiring of the said air compressor machine on 30 April 2005 or 3 May 2005.  Neither was he contacted by Miss Lai on those two occasions other than for a matter over replacement of a generator on 30 April 2005.  He admitted he had called Miss Lai about the replacement of a generator on the morning of 30 April 2005 and he did call Miss Lai on the same afternoon concerning the matter of the generator’s replacement.  He denied, however, having talked to her about the hiring of the air compressor machine on the same day.

16.  Mr Lai admitted he was in partnership with Mr Wong Kin-ching who was one of his former contractors.  He admitted he was invited by Mr Wong to become a shareholder and partner in the company called Win Fortune Engineering Limited.  Mr Lai further admitted that because of this matter over the lost air compressor machine, he decided to retire from Win Fortune in April 2006 and transfer his shareholdings.  He claimed it was Win Fortune which hired the air compressor and not the 1st or 2nd defendant.  Mr Lai further admitted that in spite of his repeated hiring of machinery and equipment from the plaintiff throughout the years, and had understood the terms and conditions of the hire agreements, he preferred not to take out any insurance coverage for these hires and he would take up the responsibility himself for any loss or damage to the machines hired.  The present dispute over the air compressor machine is denied by Mr Lai for he does not admit he hired the air compressor on 3 May 2005. 

The issues

17.  The issues to be decided are:

(1) whether Mr Lai placed an order of hire with Miss Lai on 30 April 2005;

(2) whether Miss Lai made a mistake and confused the name of the hirer on 30 April and 3 May 2005;

(3) whether Miss Yau was acting as the agent of Mr Lai over the hiring of the air compressor on 3 May 2005.

Findings

18.  The evidence of Miss Lai is clear and straightforward.  She said she received a phone call in the morning of 30 April 2005 from Mr Lai requesting for the hire of an air compressor, 365CD, to be used on the day after the holiday weekend, that is, 3 May 2005, 1 May being a Sunday and 2 May a public holiday.  Mr Lai did not specify whether the hire was under the 1st or 2nd defendant’s name so Miss Lai prepared the hire agreement putting down the 2nd defendant’s name, Fuk Shing Engineering Company, as the hirer (page 75 of the documents bundle).

19.  On that same afternoon, according to Miss Lai, the foreman at Mr Lai’s Tsuen Wan site, called her informing her that a generator hired to the 2nd defendant by the plaintiff had broken down.  He requested a replacement.  In the same afternoon Miss Lai received a call from Miss Yau confirming the replacement of the generator and asking Miss Lai if Mr Lai had reserved the air compressor, 365CD.  Miss Lai replied in the affirmative. 

20.  According to Miss Lai’s evidence, she admitted to having been introduced to Miss Yau by Mr Lai at a lunch meeting on 8 May 2003.  Miss Yau was introduced as Mr Lai’s staff.  At the same lunch Mr Lai also introduced one Mr Wong Kin-ching as his partner.  Miss Lai admitted to having received a namecard from Mr Lai as this was a new namecard in which Mr Lai was described as a director of two companies, Fuk Shing Engineering Company and Win Fortune Engineering Limited (page 50 of the documents bundle).

21.  On that occasion, Miss Lai admitted to have been given a cheque in settlement of machine hire.  The cheque was written out by Miss Yau and signed by Mr Wong.  Mr Wong had signed the cheque for and on behalf of a Sunrise Machinery Engineering Company.  In return the plaintiff sent a receipt to Mr Lai acknowledging the payment the next day, setting out the plaintiff’s invoices to the 2nd defendant, which is Mr Lai’s firm for machinery hires in the previous months (page 138 of the documents bundle).

22.  Miss Lai was adamant in her answer in cross-examination that she did not confuse the call from Miss Yau with the call from Mr Lai.  Miss Lai recalled that Mr Lai telephoned her again that afternoon about two matters: the matter over the replacing of the generator and the matter over the hiring of the air compressor to confirm the hire requested earlier in the day.  Miss Lai claimed that she had in fact also called Mr Lai that afternoon and had a telephone conversation with him.  So far as Miss Lai was concerned, in the afternoon of 30 April 2005, she did confirm with Mr Lai the hiring of the air compressor on 3 May 2005.

23.  When cross-examined about the police statement given in September 2005, that she had in her statement put down 1 May 2005 as the date of the telephone call with Mr Lai, she confessed that she may have been careless and failed to check the statement before signing the statement.  But she maintained the date of her phone calls with Mr Lai on the hiring of the air compressor machine was on 30 April 2005.

24.  As to the events of the morning of 3 May 2005, Miss Lai claimed that she could not reach Mr Lai on the phone to confirm the hire of the machine after she received a call from Mr Hung of the warehouse.  She then sought confirmation with Miss Yau before the machine was released to the driver and lorry attendant who had returned the generator hired by Mr Lai. 

25.  After hearing Miss Lai’s evidence, and the evidence of Mr Hung, I find Miss Lai to be a witness of truth.  She was able to give details on the phone calls she received and those she had with Mr Lai on 30 April 2005, particularly on the timing of these phone calls and contents of the phone calls.  It was clear that Miss Yau’s phone call came only in the afternoon to confirm that Mr Lai did reserve the air compressor, 365CD (commonly known 830CD).  Miss Lai was also able to give full details about the generator that Mr Lai wanted to replace at his Tsuen Wan site.

26.  It is quite clear that if not for the cautious Mr Hung in checking and confirming the name of the hirer before releasing the machine, Miss Lai would not have felt the need to contact Mr Lai and Miss Yau to confirm the hire was made by Mr Lai, even though Mr Hung was informed by the driver that Win Fortune had returned the generator, and would be picking up the air compressor hired by Fuk Shing Engineering.

27.  Mr Lam, counsel for the plaintiff, submitted that so far as the plaintiff is concerned, it would only hire out expensive machinery to trustworthy customers.  Win Fortune was not one of those customers.  However, when a customer suggested Mr Lai confirm that he was the hirer, the plaintiff would hire out the machinery, including expensive machinery.  Miss Lai’s evidence was that the plaintiff would accept the return of machinery from anyone on the plaintiff’s behalf, although the plaintiff would not accept an order for hire of expensive machinery unless it was confirmed by Mr Lai.  This was probably because the plaintiff knew that Mr Lai had many subcontractors at his many  different construction sites and each may require different machinery.

28.  Mr Lai admitted that subcontractors supplied the labour and he would supply machinery and equipment to his subcontractors at his various construction sites and that was why he was responsible for the hiring of the machinery, although this machinery could be returned to the plaintiff by his subcontractors.  From the cheque payments exhibited in the documents bundle for the machinery hires in the name of the defendants, it is clear that the plaintiff would not refuse a cheque payment from a third party in settlement of the defendants’ machinery hires.

29.  According to Miss Lai’s evidence, the plaintiff would not bother if Mr Lai had moved the hire machines from one site to another.  Miss Lai claimed that the plaintiff had no control over this behaviour, and this had apparently been a frequent practice, but so long as Mr Lai admitted that he was the hirer of the machinery, the plaintiff would accept Mr Lai’s confirmation. This clearly shows the plaintiff had placed a great deal of trust in Mr Lai as a customer.

30.  On the other hand, although Mr Lai admitted in court he knew and authorised the driver and the lorry hired by Win Fortune to return the generator on 3 May 2005, he claimed he did not know about the hiring of the air compressor and it would be picked up by the same lorry and the same lorry attendant on the same day.

31.  I find Mr Lai’s evidence rather incredible.  He had been using the same transport company for many years.  This was the same transport company, at the time called “Hop Shing”, used by Win Fortune, and Hop Shing had supplied transport to Mr Lai’s construction sites on a regular basis.  On 3 May 2005, Mr Lai instructed Hop Shing to return the generator to the plaintiff from the Tsuen Wan site.  Is it then possible for Mr Lai not to know the same company and the same driver and the same lorry would be picking up an air compressor from the same warehouse of the plaintiff?  It is furthermore incredible, since Mr Lai was at that time a 50% shareholder and a director of Win Fortune. 

32.  I find Mr Lai a most unconvincing witness.  He was evasive, particularly when I asked him to give his residential address, it was only after persevering with the question of his residential address that Mr Lai gave a very brief village address, giving the electricity meter as the number of his residence.  In the Companies Registry record for the 1st defendant and Win Fortune, Mr Lai gave a grocery store address, in which he had no interest, as his business address.  He claimed it was his correspondence address.  In his business registration, he used a different address in Yuen Long.  In the business registration of the 1st defendant, in September 2004, on page 11 of the bundle, he had yet another residential address in Tai Po Road, Sham Shui Po, Kowloon. 

33.  He admitted to have no office running his construction business.  He denied he had any office staff.  He denied Miss Yau was working for him and he admitted that he can only be reached by telephone.  The telephone number and fax number on his namecard, he said, belonged to his home phone numbers.  As to which home, at which address, remained unknown to this court.  He claimed to be the main contractor of over ten construction sites.  But for a very successful main contractor businessman,  he has no office and no office staff.

34.  He admitted he had no paid staff other than his subcontractors and he also admitted that he would not take out insurance coverage for the machinery hired in spite of conditions written on the hire agreements from the plaintiff.  I find it difficult to rely on Mr Lai’s evidence or his recollection that he did not call Miss Lai over the hiring of the air compressor machine on 30 April 2005.

35.  I further find that in May 2003 he did introduce Miss Yau to Miss Lai as his staff, his “foki”, and Mr Wong as his partner.  This was not denied by Mr Lai.  The purpose of his introduction was obviously to let Miss Lai know that Miss Yau was working for him and can be contacted on his business matters or, vice versa, that Miss Yau would contact Miss Lai on the 2nd defendant’s business.  I accept that the plaintiff, in spite of that occasion having been introduced to Mr Wong, would still refuse to hire out expensive machinery to Win Fortune.  That was why Mr Hung called up Miss Lai on 3 May 2005 about the difference in the name of the hirer on the agreement, even though the driver had told Mr Hung Win Fortune and Fuk Shing are one and the same company and Miss Lai had to call Mr Lai to confirm yet again the hire.  Unfortunately, she was only able to reach Miss Yau who confirmed the hire.

The law on agency

36.  The authors of Bowstead & Reynolds on Agency, 18th ed. at page 335 to 336, paragraphs 8-013 to 014, said the following:

“Article 72.

 Apparent (or ostensible) authority.

Where a person, by words or conduct, represents or permits it to be represented that another person has authority to act on his behalf, he is bound by the acts of that other person with respect to anyone dealing with him as an agent on the faith of any such representation, to the same extent as if such other person had the authority that he was represented to have, even though he had no such actual authority.

 8-014.  Doctrine of apparent authority.

This article seeks to formulate the general doctrine of apparent, sometimes called alternatively, ostensible authority.  It should be read together with the three articles following.  Under this doctrine, a principal may be bound by the acts of an agent which he has not authorised and has even forbidden.  Most western systems of law have found the necessity for some type of reasoning which at least imposes liability if it does not confer the right to sue in situations such as those covered by this doctrine.  The English version is plainly based on the notion of a representation by the principal.  The leading case which is constantly cited is Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd in which Diplock LJ said:

‘An apparent or ostensible authority ... is a legal relationship between the principal and the contractor created by representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the ‘apparent’ authority, so as to render the principal liable to perform any obligations imposed upon him by such contract.  To the relationship so created the agent is a stranger.  He need not be (although he generally is) aware of the existence of the representation but he must not purport to make the agreement as principal himself.  The representation, when acted upon by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract.  It is irrelevant whether the agent had actual authority to enter into the contract.” 

The wording of the Article is retained because it is almost traditional, and also is in accord with Diplock LJ’s formulation. Restatement, Third, however, distances itself from the notion of representation used above by referring to situations ‘where the third party reasonably believes that the actor has authority to act on behalf of the principal and that belief is traceable to the principal’s manifestations’.  Thi9s, with its use of the more neutral word ‘manifestation’ is probably, because it is less specific, a better formulation of the notion, common to most legal systems but uneasy in its justification, that apparent authority stems in some way from the principal’s conduct.”

37.  The 8 May 2003 introduction and the conduct following the introduction between 2003 and 2005, was the manifestation by Mr Lai to the plaintiff that Miss Yau was the servant of Mr Lai and had the authority to act and carry out his instructions.  I am satisfied that Mr Lai did call Miss Lai on 30 April 2005 in the morning and requesting the hiring of the machine.  Miss Lai did confirm the hire with Mr Lai in the telephone call in the afternoon and also in a separate phone call from Miss Yau, the hire was therefore confirmed on 30 April 2005. 

38.  I am also satisfied that in the morning of 3 May 2005, Miss Lai sought confirmation from Mr Lai.  Failing to reach Mr Lai when the driver asked to pick up the machine, Miss Lai called up Miss Yau and Miss Yau confirmed the hire on Mr Lai’s behalf.  Therefore the plaintiff is entitled to accept the further confirmation by Miss Yau on Mr Lai’s behalf on 3 May 2005 as Mr Lai’s agent and servant and that Miss Yau had the apparent authority of Mr Lai to confirm the hire on 3 May 2005.  On a balance of probabilities, I find the plaintiff has proved its case against the 2nd defendant. 

39.  I am not satisfied that the 1st defendant was involved as a hirer.  The 1st defendant was not named in the hire agreement and the order was placed by Mr Lai, the 2nd defendant, himself.  Therefore I grant judgment against the 2nd defendant that he should return the machine to the plaintiff immediately.  If he failed to return the machine he should compensate the plaintiff in the sum of $250,000.  I am not satisfied the plaintiff should recover the value of a brand new machine because the machine hired, though stated in the hire agreement at a value of $390,000, was in fact a used machine when it was hired out in May 2005.  It was a brand new machine in the year 2000 but it was no longer a brand new machine in the year 2005. 

40.  I further order the 2nd defendant to pay to the plaintiff hire charges at the rate of $15,000 per month from 3 May 2005 to the date of delivery of the machine or full payment of the $250,000 in lieu of the replacement of the machine.  Interest on the hire charges at half judgment rate up to the date of judgment and thereafter at judgment rate until full payment.  Costs to follow the event to be borne by the 2nd defendant, to be taxed if not agreed, with certificate for counsel.