GOEI TSUSHO CO LTD v. LEADER ENGINEERING & CONSTRUCTION LTD AND ANOTHER

DCCJ 4581/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4581 OF 2005

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BETWEEN

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JUDGMENT

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The Action

1.  This is an action brought by the Plaintiff against the two Defendants for outstanding purchase price under various purchase orders for the supply of building materials including paints and external wall tiles between April July 2003 and January 2004. The contention of the Plaintiff is that the goods were sold and delivered to Leader Engineering & Construction Limited (“Leader Engineering”) (i.e. the 1^st Defendant) as a disclosed principal through Anco-Tech (H.K.) Limited (“Anco-Tech”) (i.e. the 2^nd Defendant) as agent. It is the Plaintiff’s case that Leader Engineering and Anco-Tech should be jointly and severally liable to pay ¥10,009,598 or HK$790,758.04.

2.  Default judgment (the “Default Judgement”) against Anco-Tech was entered on 4^th March 2008. No execution thereof has been carried out.

Dramatis Personae

3.  It is necessary to set out the relationship between the parties for better understanding of the significance of their acts at different stages.

4.  Leader Engineering is a company incorporated in Hong Kong with registered address at Rooms 1128-1133, Nan Fung Centre, 264-298 Castle Peak Road, Tsuen Wan, New Territories, Hong Kong (the “Nan Fung Office”). It has been carrying on, inter alia, the business of building renovation and repair work. The authorized share capital is HK$1 million, divided into 1 million ordinary shares of HK$1 each. The shareholders are Mr William Cheung Wai Yue (“William Cheung”), Ms Julia Cheung Yue Yue, also known as Chung Yue Yue (“Julia Cheung”) and Mr Cheung Kin Yu. Each shareholder holds one-third of the issued shares. The three of them together with one Mr Wong Chi Hing are the directors.

5.  Anco-Tech was and is a company incorporated in Hong Kong with registered address at Flat E, 4/F, Wah Lik Industrial Building, 459-469 Castle Peak Road, Tsuen Wan, New Territories (the “Wah Lik Office”) and on 4^th March 2004, the registered address was changed to Shop 23, G/F, Wing Fung Industrial Building, 45-50 Sha Tsui Road, Tsuen Wan, New Territories (the “Wing Fung Office”). Anco-Tech was incorporated on 13^th December 2000. The authorized share capital is HK$100,000, divided into 100,000 ordinary shares at HK$1 each. The shareholders were Dia Kowa Ltd holding 90% of the issued shares and one Mr Peter Shiu Ka Fai (“Shiu”) holding the remaining 10% issued shares. The directors were two nominee directors, namely, Apex Consultant (Nominees) Limited (“Apex Nominees”) and Apex Consultant (Management) Limited (“Apex Management”).

6.  Dia Kowa Limited was incorporated on 19^th February 2001, with an authorized capital of HK$ 10,000 divided into 100 shares of HK$100 each. The shareholders of Dia Kowa Limited are Apex Nominees who holds 99% of the shareholding and Mr Chen Hon Mien holds the remaining 1% of the shareholding. Both Apex Nominees and Mr Chen Hon Mien are the directors of Dia Kowa Limited. The former name of Dia Kowa Limited was Right Smart Limited. By a declaration of trust dated 19^th February 2001, Apex Nominees holds the shares in Right Smart Limited (i.e. Dia Kowa Limited) on trust for Julia Cheung. Thus, Julia Cheung is the ultimate beneficial majority shareholder of Anco-Tech through the shareholding in Dia Kowa and Apex Nominees.

7.  Apex Nominees is a company incorporated in Hong Kong with authorized share capital of HK$10,000. The fully paid up share capital is HK$2, equally held by Apex Management and Apex Consultant Secretaries Limited both of whom are also directors. Another director is Mr Lui Siu Tang.

8.  Apex Management is also a company incorporated in Hong Kong with authorized share capital of HK$10,000 and fully paid up share capital of HK$2 equally held by Apex Nominees and Apex Consultant Secretaries Limited both of whom are also directors. The other director is Mr Lui Siu Tang.

9.  Finally, there is one Lucky Enterprise Holdings Limited (“Lucky Enterprise”) with its registered address at the Nan Fung Office. The shareholdings and the directors are the same as those of Leader Engineering.

10.  On the Plaintiff’s side, Mr Yukata Hayakawa (“Hayakawa”) had been the Managing Director since 1966. In his affirmation dated 26^th June 2007 (the “Affirmation”), he affirmed that he suffered a stroke in August 2002 that rendered him unsuitable to travel abroad. After the stroke, his wife Mrs Taeko Hayakawa was responsible for the daily operation of the Plaintiff until Mr Toyohisa Kurimoto (“Kurimoto”) joined the Plaintiff in June 2003.

11.  By an order of Master Lee dated 17^th June 2008, leave was granted to the Plaintiff to produce the said Affirmation of Hayakawa as evidence without calling him.

The Claim

12.  According to the Plaintiff, since about 1998, the Plaintiff had started supplying tiles to Leader Engineering either directly or through Lucky Enterprise. This is not disputed.

13.  Between April 2003 and January 2004, Leader Engineering placed various purchase orders with the Plaintiff through Anco-Tech for “Dia Kowa” paints and “Tono”, “Itakura” and “MK” tiles (the “Goods”) which were used by Leader Engineering in its various projects. The Plaintiff’s case is that despite the complicated shareholding structure of the various companies referred to above, Anco-Tech was and is at all material times controlled by William Cheung and Julia Cheung who were also in control of Leader Engineering at the material times. Thus the goods were actually ordered by Anco-Tech as agent of Leader Engineering.

14.  Leader Engineering admitted that some of the Goods ordered by Anco-Tech from the Plaintiff were used by it in some of its projects as it had purchased and ordered certain Dia Kowa paints, Itakura tiles and Tono tiles from Anco-Tech. Leader Engineering denied that it had purchased “MK” tiles from Anco-Tech or that it was involved in building projects relating to Jordan Building, New Dragon Building, Yuet Wah Building and King’s Court where part of the Goods were used. And it maintained that Anco-Tech was not acting as its agent when it placed orders with the Plaintiff.

15.  In addition to the denials relating to MK tiles and the sites of the building projects, Leader Engineering puts the Plaintiff to strict proof of the claim. In essence, the defence of Leader Engineering is two-fold: that Anco-Tech was not acting for Leader Engineering when it placed orders with the Plaintiff and that the Plaintiff was estopped from claiming by reason of the Default Judgement.

The Plaintiff’s Evidence

16.  As there are quite a lot of documents being referred to, I have set out the page references of the documents in the trial bundles for easy reference.

Kurimoto

17.  Kurimoto gave evidence for the Plaintiff. He was and still is the Sales Director of the Plaintiff and he joined the Plaintiff in June 2003. Annex A attached to Kurimoto’s witness statement sets out the details relating to the Goods, including the invoices, sales notes, the prices and the relevant building projects.

18.  Kurimoto said that on or about 18^th July 2003, he came to Hong Kong to visit William Cheung and Julia Cheung at the Nan Fung office. He was given instructions as to how he could proceed to the Nan Fung Office (i.e. the registered office of Leader Engineering) in a fax letter dated 15^th July 2003 with the letterhead of Anco-Tech (B193). The then registered address of Anco-Tech (i.e. the Wah Lik Office), its telephone and fax numbers were printed at the bottom of the fax letter. This letter was faxed to the Plaintiff through the fax machine of Leader Engineering with number 2413 6493 (the “Fax Number”). The Fax Number was printed at the top of the faxed instructions. Printed next to the Fax Number was the full name of Leader Engineering. I shall refer to the Fax Number and the full name of Leader Engineering as the Leader Engineering’s Imprint. The fax number of Anco-Tech as printed was different from the Fax Number.

19.  It should be noted that all faxed communications emanated from Anco-Tech bore the Leader Engineering’s Imprint.

20.  When Kurimoto arrived at the Nan Fung Office, he did not pay attention as to whether there was any sign at the entrance bearing the name of Anco-Tech. He was first greeted by Ms Annie Leung (“Annie Leung”), an accounting officer of Leader Engineering.

21.  He was then received by William Cheung, Julia Cheung and, presumably Jeff Wu too, who gave him their business cards. On the front of the business cards, the name “LEADER GROUP” was printed and William Cheung was described as Managing Director, Julia Cheung as Executive Director and Jeff Wu as Project Manager. On the front of these business cards, the Nan Fung Office address and the Fax Number were printed. If the business cards of William Cheung and Julia Cheung are unfolded, the full names of Leader Engineering and the following four other companies bearing the name “Leader” could be found on the inside:

(a)  Leader Civil Contractors Limited;

(b)  Leader Construction Contractors Limited;

(c)  Leader Fire Services Engineering Limited;

(d)  Leader Interior Design Limited.

22.  Kurimoto thought he was seeing representatives from Leader Group. In his witness statement, he says that Leader Group means “such group of companies of which [Leader Engineering] and [Anco-Tech] are members or with which [Leader Engineering] and [Anco-Tech] are closely associated, in terms of board control, shareholding ownership or otherwise”. No doubt this formulation is a product of legal drafting. At trial, when asked about the meaning of Leader Group, he said it meant Leader Engineering, Anco-Tech, Lucky Enterprise and those companies for which Julia Cheung and William Cheung were responsible.

23.  Further, at the said meeting, he did not meet anyone claiming to be representative of Anco-Tech.

24.  Kurimoto also said that he always contacted Julia Cheung and Annie Leung in respect of purchase orders placed by Anco-Tech. Because of the information given to him by Hayakawa and his visit to Hong Kong in July 2003, he believed that Julia Cheung placed purchase orders for and on behalf of Leader Group even though the purchase orders were in the name of Anco-Tech. He said that that explained why he always forwarded correspondences to Leader Engineering as the main operating company of Leader Group, even though the orders were placed by Anco-Tech.

25.  Kurimoto confirmed that from time to time, the Plaintiff received fax letters from, Leader Engineering, Anco-Tech and Lucky Enterprise.

26.  When Anco-Tech placed purchase orders, a proforma purchase order form of Anco-Tech was used with Julia Cheung signed as the Administrative Director and stamped with the chop of Anco-Tech. The purchase orders were then faxed to the Plaintiff, with the Leader Engineering Imprint. The Plaintiff would prepare a sales note that incorporated the details from the purchase order. Once Anco-Tech had confirmed the sales note, the Plaintiff would deliver the goods ordered from Japan to Hong Kong.

27.  As far as payment is concerned, Kurimoto confirmed that the practice mentioned in paragraph 12 of the Affirmation of Hayakawa was at all material times applied to all purchases by Leader Group, namely, if the invoice amount was ¥ 2 million or above, the same should be settled by letter of credit. If the amount was below ¥ 2 million, it should be settled by telegraphic transfer. The present claim relates to all defaulted telegraphic payments.

28.  In or about December 2003, the Plaintiff received a complaint from Leader Group that colour inconsistency was found in the paint used in Leader Engineering’s project at Broadwood Park. The paint was the product of Dia Kowa Japan who prepared a report in respect of the complained paint. The report was not accepted by Leader Group. Kurimoto came to Hong Kong with Mr Kouji Kohno and Mr Hiroshi Takada, representativesof Dia Kowa Japan. When they were in Hong Kong, they had a meeting at the Nan Fung office before going to the site at Broadwood Park. When they re-visited the site the next day, they were accompanied by William Cheung and Jeff Wu. In the photographs taken by Kurimoto, it could be seen that the workers were wearing T-shirts bearing the name “LEADER GROUP” and the Chinese name of Leader Group. No representative of Ancto-Tech was present throughout the site visit. As re-painting was urgently needed, Kurimoto agreed that the paint for re-painting would be provided free of charge in the first place. If Dia Kowa Japan was to find that the problem was not caused by the quality of the paint, the Plaintiff would charge the paint for the re-painting work. An invoice number 11552 in relation thereto was issued to Ancto-Tech and sent to the Nan Fung Office.

29.  A second trip was arranged so that representative of Dia Kowa Japan could supervise the re-painting work. The second trip took place between 9^th January 2004 to 15^th January 2004. After the second trip, Kurimoto wrote in a letter dated 19^th January 2004 (A147) to Jeff Wu and Annie Leung, with copies to William Cheung and Julia Cheung, stating that they would be charged for the paint. No reply was made. After the second lot of paint had been shipped to Hong Kong, an invoice number 11559 (A149) was sent to Ancto-Tech at the Nan Fung Office. After receiving the second report from Dia Kowa Japan confirming that the problem was not caused by the quality of the paint of Dia Kowa Japan, Kurimoto sent a revised invoice number 11552 (A151) to Ancto-Tech at the Nan Fung Office on 30^th January 2004. An English version of the second report was also sent. No comment was made by Leader Group on the second report or the invoices. Only in April 2004 when Kurimoto visited Leader Group did Leader Group produce a report dated 10^th March 2004 by Furgo Technical Services Limited quoting the test results from Oriental Loss Adjusters Limited dated 15^th January 2004.

30.  It should be noted at this juncture that the address of Anco-Tech had by then already been changed to the Nan Fung Address by a letter dated 17^th November 2003 (B219) from Anco-Tech to the Plaintiff. Thus when Kurimoto visited Hong Kong in December 2003 and January 2004, Anco-Tech and Leader Engineering shared the same office.

31.  Kurimoto pointed out that neither Leader Engineering nor Anco-Tech had ever clarified that Leader Engineering was not a party to the sale of Goods.

32.  In cross-examination, Kurimoto said that since he was dealing with Julia Cheung, he thought that Leader Engineering and Anco-Tech were interchangeable. He was also asked why the sales notes were not addressed to Leader Engineering if he thought that Leader Engineering was the buyer. He answered that it was because Julia Cheung was responsible for the Leader Group and it was she who sent the purchase order. He was just following the way Julia Cheung dealt with the transaction. He further explained that the invoices were for the recipient only and were not meant to be documents asking for payment. For payment, they would issue a Statement of Account.

33.  As regards the Statements of Account, four of them were produced at the trial, the earliest being dated 5^th February 2003 (B175) and is addressed to Leader Engineering, Anco-Tech and Lucky Enterprise. The next one is dated 6^th August 2003 (B82) and addressed to Anco-Tech only. The last two are dated 27^th December 2003 and 30^th January 2004 (B245 and B286) and are addressed to Leader Engineering and Anco-Tech. The first two statements of account had been prepared before he joined the Plaintiff. He explained that the one addressed only to Anco-Tech was prepared by Mrs Hayakawa who did not know that if Leader Engineering was not put on the Statement of Account, there might be a possibility that payment could not be obtained from Leader Engineering and that explained why the Statements of Account prepared by her were sometimes addressed to Anco-Tech and sometimes to both Leader Engineering and Anco-Tech. He further explained that since all the documents used Anco-Tech as a party, its name was thus put on the Statement of Account. And since ultimately, it was Leader Engineering who was responsible for payment, its name was also put on the Statement of Account.

34.  Kurimoto said that he had been told by Hayakawa of the reason why Anco-Tech was established. He explained that Hayakawa said that the Leader Group did not want the transactions relating to the paint to be handled by Leader Engineering as the clients might be competitors of Leader Engineering. Thus Anco-Tech was established to handle this line of products. Kurimoto further explained that he did not think the fact of different companies was that important because he knew that the management and the money were those of the Leader Group. If there was a problem, the Plaintiff could always consult Julia Cheung and William Cheung of Leader Group. He thought that Anco-Tech was only used for the convenience of the Leader Group while Lucky Enterprise was sometimes used to pay by way of letter of credit. He said that he was aware of the different companies of the Leader Group as, when he joined the Plaintiff, he was told by Hayakawa and Mrs Hayakawa that all the companies were run under the management of Leader Engineering. Thus, when he met Julia Cheung in Hong Kong, he thought that Julia Cheung was representing the Leader Group. His belief was reinforced by the business cards given to him. When Julia Cheung and William Cheung visited Japan, he did not know whether they represented Leader Engineering or Anco-Tech. He just thought that they were representing the Leader Group.

35.  Kurimoto also said that when the Plaintiff was dealing with Anco-Tech, he would always make sure that Julia Cheung was responsible and signed and stamped with the company chop.

36.  Kurimoto also said that at the meeting in November 2003 between him and Julia Cheung, the outstanding amount unpaid was about ¥ 7 million and there was no dispute on the said amount. Because of the unfavourable exchange rate, Julia Cheung wanted, and promised, to pay the outstanding amount owed to the Plaintiff by the end of 2003 without delay. He denied that Julia Cheung promised to pay by the end of 2003 on the condition that the problems concerning the defective goods were resolved.

37.  Kurimoto confirmed that before 2003, there was no payment made by Anco-Tech. But he maintained that payments made prior to 2003 were made under the directions of Leader Engineering. His understanding regarding payments from the Leader Group was that even though the documents might not be in the name of Leader Engineering, payments were made under the directions of Leader Engineering as Leader Engineering was the party who was responsible for the payments. That was why the Plaintiff always sent documents to Leader Engineering’s office.

Shiu

38.  Another witness who gave evidence for the Plaintiff was Shiu. He joined the Leader Group in October 2000. William Cheung and Julia Cheung proposed to him to set up a joint venture with him for the distribution, marketing and sales of construction materials, including paint. As the target customers would be construction companies in Hong Kong who were competitors of Leader Engineering, the three of them understood that common control of the new line of business should not be disclosed.

39.  Shiu explained that Anco-Tech did not bear the name of “Leader” because if “Leader” was used, the other construction companies would not buy from Anco-Tech as they were competitors of the Leader Group.

40.  He further explained that initially, 1,000 shares in Anco-Tech were held by him and 9,000 shares by Wealthy Harbour Engineering Limited which was wholly owned by the parents of William Cheung. Apex Nominee and himself were the directors but Apex Nominee was a nominee director only. Neither it nor Wealthy Harbour Engineering Limited was involved in the management of Anco-Tech. In or about February 2001, a major competitor of Leader Engineering discovered the relationship between the Leader Engineering and Anco-Tech. To cover up the matter, a new shareholder was necessary. At that time, as Anco-Tech was negotiating with the manufacturer of Dia Kowa paints about the distribution agreement, a company using the name of Dia Kowa was used to replace Wealthy Harbour Engineering Limited and hold the shares. Dia Kowa Limited was thus used to hold the shares in place of Wealthy Harbour Engineering Limited.

41.  Shiu said that he was responsible for the management of Anco-Tech. He also confirmed that it was he who placed purchase orders with the Plaintiff for Anco-Tech. He was responsible for the documentation and he countersigned the sales notes. He, however, was not involved in the payment arrangement between Anco-Tech and the Plaintiff and other customers as the same was handled by Julia Cheung and William Cheung. He explained Anco-Tech could not apply for a letter of credit from the bank because it was a new company and did not have sufficient assets to satisfy the requirement of the bank. He did not know how, after the application for a letter of credit was made by Leader Engineering, such an application was treated in the books of Anco-Tech. Nor did he know how the purchase of goods by Leader Engineering was treated in the books of Anco-Tech.

42.  He confirmed that Leader Engineering was not the only customer of Anco-Tech. There were about a few tens of customers. One to two years after incorporation of Anco-Tech, trade with Leader Engineering took up about half of the business of Anco-Tech. He also said that there were also occasions where the stocks in hand were not sufficient to meet the quantity requested in the purchase orders and Anco-Tech had to ask its suppliers to deliver further stocks.

43.  He said that Annie Leung was responsible for the accounts of both Leader Engineering and Anco-Tech. But she worked at the Nan Fung Office.

44.  Shiu said that there were two business trips to Japan when he was accompanied by Julia Cheung in 2001 and by Julia Cheung and William Cheung in or about 2001 and 2002. He himself represented Anco-Tech.

45.  Shiu confirmed that before the establishment of Anco-Tech, he had already been promoting and selling paints of Dia Kowa Japan upon the recommendation of Hayakawa.

Leader Engineering’s Evidence

46.  Julia Cheung gave oral evidence for Leader Engineering. She maintained that Leader Engineering and Anco-Tech were separate entities with separate operations. There was no entity known as “Leader Group”. The business cards which might have been given to Kurimoto and Hayakawa did not list Anco-Tech or Lucky Enterprise as member of the “Leader Group”. She said that Leader Engineering had made no agreements or placed no purchase orders with the Plaintiff for the Goods. She said that before the withdrawal of Shiu from Anco-Tech in around April 2003, Anco-Tech had been operated and managed by Shiu. After Shiu’s withdrawal, she took over the management and administration of Anco-Tech but only to the limited extent of fulfilling the commitments of Anco-Tech. The business of Anco-Tech was to cease gradually.

47.  Initially, Shiu occupied a desk within the premises of Leader Engineering for Anco-Tech’s daily operations. Then Anco-Tech moved to the Wah Lik Office. Afterwards, Shiu continued the operation of Anco-Tech at the Wah Lik Office. In the course of its business, Anco-Tech ordered materials from the Plaintiff and other suppliers. The materials would then either be delivered to Anco-Tech’s customers or stored at its warehouse.

48.  As to the claims of the Plaintiff, Julia Cheung said that all the purchase orders were placed by Anco-Tech with the Plaintiff. All the invoices were issued by the Plaintiff to Anco-Tech except Invoice No. 11496 which was issued by the Plaintiff to Lucky Enterprise by mistake as the corresponding purchase order and sales note were placed by and issued to Anco-Tech. The Goods ordered by Anco-Tech were sold by Anco-Tech to its customer, including Leader Engineering. For those goods sold by Anco-Tech to Leader Engineering, there was no outstanding payment due from Leader Engineering.

49.  Julia Cheung maintained that since all the documents clearly showed that the transactions were those of Anco-Tech, there was no need for Leader Engineering to specifically deny that it was a contracting party. She thought that the purpose of the Statement of Account was to show total sum outstanding and that the heading was not important. She agreed that there were meetings held at the office and project site of Leader Engineering. But she explained that the place of meeting was for convenience only. As Leader Engineering was also faced with complaint of its own customer, it would expedite the resolution of disputes in the presence of Leader Engineering or at its project site.

50.  She further denied that she had made a promise to Kurimoto that Leader Engineering would settle the outstanding amount for the Goods by the end of 2003. All she said was that Anco-Tech would pay the Plaintiff hopefully by the end of 2003 when all the problems regarding the defects of the goods had been resolved.

51.  Julia Cheung further denied that Leader Engineering had carried out any projects at Jordon Building, New Dragon Building, Yuet Wah Building and King’s Court as alleged by the Plaintiff.

52.  Julia Cheung said that Hayakawa had come to Hong Kong with the representative of Dia Kowa in about 2002. They came to the office and warehouse of Anco-Tech for inspection to see how the business of Anco-Tech was developing.

53.  She stressed that the shareholding of Anco-Tech was different from other companies in the Leader Group in that Shiu was a shareholder in Anco-Tech but not other companies in the Leader Group and that she held 90% of shares in Anco-Tech whereas her shareholdings in other companies in the Leader Group was one-third.

54.  As to the application for letter of credit by Leader Engineering for Anco-Tech, Julia Cheung explained that that was because Anco-Tech did not have letter of credit facility with the bank. She elaborated that, to have such facility with the bank, the company must have assets as collateral and that there must be a long standing relationship with the bank who knew that the company had a good business. Regarding telegraphic transfer payment, she said that she was not aware of any such payment made by Leader Engineering for Anco-Tech.

55.  Julia Cheung confirmed that Annie Leung was not an employee of Anco-Tech. She also confirmed that only companies whose names begin with “Leader” were within the Leader Group.

Assessment of Witnesses

56.  Much of the evidence of the present case is in writing and include letters exchanged between the parties and thus indisputable save as to the interpretation to be put on the same and the inference, if any, to be drawn therefrom. I shall discuss the relevant documents below.

57.  Both Kurimoto and Julia Cheung were extensively cross-examined. Kurimoto always gave straight forward answers whereas Julia Cheung was very cautious in her answers. I have no doubt that Kurimoto was an honest witness. The same could not be said about Julia Cheung who was at times evasive and, instead of giving answers to some simple questions asked, she just gave answers she wanted to give.

58.  In assessing the credibility of the witnesses, the inherent probability is always a better yardstick than the performance of the witnesses in the witness stand.

59.  One of the important aspects of the evidence is what was discussed at the meeting between Kurimoto and Julia Cheung in November 2003 when the issue of payment was raised. The evidence of these two key witnesses was conflicting. While Julia Cheung denied that the issue of exchange rate was raised by anyone at the meeting between her and Kurimoto in November 2003, Kurimoto said that Julia Cheung cited exchange rate as a reason for delayed payment. The evidence of Kurimoto was not just corroborated by some subsequent letters from the Plaintiff to the Leader Group (for example B285 and B303) but also by a letter from Annie Leung dated 17^th November 2003 (B220) which cited the appreciation of the Japanese Yen as a reason for the delayed payment. It is quite incredible that the issue of the value of the Japanese had not been raised at the meeting between Kurimoto and Julia Cheung when payment was discussed. Julia Cheung said that she had never seen this letter before, that she probably had not asked Annie Leung to issue this letter and that she could not recall whether Annie Leung had told her that she had issued this letter. Nevertheless, this letter corroborates with the evidence of Kurimoto who said that Julia Cheung had cited the appreciation of the Japanese Yen as the reason for the delay in payment and that she promised to pay at the end of the year.

60.  After Julia Cheung had received the letter dated 30^th January 2004 (B285) from the Plaintiff which pointed out her promise to pay and asked for payment, no reply was made by her to rebut the alleged promise, which, according to her, had not been made by her. Julia Cheung explained that she did not pay much attention to the “PS” section in which her promise was referred to, that she was more concerned about the defective goods at the time and that it was her and Kurimoto’s understanding that payment would be tied up with the solving of the problem of the defective goods. Later, she said in her evidence that Kurimoto actually agreed that payment could be made after the problem of defective goods had been solved. In fact, there were subsequent to this letter a few letters of demand from the Plaintiff asking for payment to which there was no reply. If Julia Cheung’s account of events was what happened, I do not see any reason why Julia Cheung would fail to write to the Plaintiff to rebut the alleged promise and raise the alleged understanding or agreement that payment would be made after the problem of defective goods had been solved.

61.  There are two letters (B162-B163) both dated 14^th November 2001from Leader Engineering and Anco-Tech to Dia Kowa Chemical Industries Co Ltd (“Dia Kowa Japan”). The letter from Leader Engineering was signed by Julia Cheung as Administrative Manager while the letter from Anco-Tech was signed by William Cheung as Managing Director. Both letters were apparently sent in an effort to introduce themselves to Dia Kowa Japan which was a paint manufacturer in Japan. In the letter from Ancto-Tech, Anco-Tech was introduced as one of the members of the “Leader Group”. It could be gathered from the time imprint at the top of both letters to Dia Kowa Japan that they were also faxed by Leader Engineering to the Plaintiff at the same time. It could also be seen from the fax cover of Leader Engineering dated 14^th November 2001 issued by Annie Leung (B164) that the above-mentioned letters had also been sent to the Plaintiff.

62.  Julia Cheung explained that this letter dated 14^th November 2001 (B163) was prepared by Annie Leung and she (Julia Cheung) signed it without reading it and did not spot the mistakes relating to the claim that Anco-Tech being a member of the Leader Group and that William Cheung was said to be the one issuing this letter. I do not accept this explanation. It is quite clear to me that this letter was meant to introduce Anco-Tech to Dia Kowa Japan. It is quite unthinkable that Julia Cheung would have failed to look at the contents of this letter which was used to secure sole agency for Anco-Tech. It is also logical for Anco-Tech to enlist the help of Leader Group by claiming to be a member of that group which had a longer history. As to the name of the issuing person of this letter, it should be noted that the signature was signed immediately above the printed name of the issuing person (i.e. William Cheung) and could not be missed by the person signing the letter. I come to the conclusion that it was signed by Julia Cheung even when she was aware of the mistakes.

63.  Besides the two letters at (B162-B163), the following documents of Leader Engineering were also enclosed to the fax cover dated 14^th November 2001 (B164) and sent to the Plaintiff:

(a)  list of job references of Leader Engineering was also sent to the Plaintiff;

(b)  list of job references;

(c)  part of the appraisal letters;

(d)  bank balance confirmation letter from the banker of Leader Engineering.

64.  Julia Cheung explained that these documents were sent because Leader Engineering was the major client of Anco-Tech and Dia Kowa Japan wanted to know more about the major client of Anco-Tech. This may be the case. But it is also clear to me that the enclosures were sent for the purpose of convincing Dia Kowa Japan of the strength of Leader Engineering which was part of the Leader Group. And by claiming to be a member of the Leader Group, Anco-Tech could enhance its profile in the perception of Dia Kowa Japan. I do not accept that the claim that Anco-Tech was member of the Leader Group was a mistake.

65.  There is another letter dated 19^th March 2003 issued by Julia Cheung to the Plaintiff (B182), informing the Plaintiff that Shiu had resigned from “our group”. Julia Cheung confirmed that she had read it before signing. She also confirmed that the first paragraph thereof was correct. But when the phrase “resigned from our group” was highlighted to her, she then said the letter was not well written and the phrase should read “resigned from our company”. Julia Cheung agreed that this was an important letter in that it informed the Plaintiff of two matters, namely, that Shiu had resigned and that the sales notes could be confirmed by her with the company chop. I should add that there is one more important point mentioned by this letter, namely, all documents could be forwarded to “our Head Office and for the attention of Ms Annie Leung”.

66.  Julia Cheung also said that she signed some of the issued letters without paying much attention to the contents thereof. The most notable was the one (B163) issued to Dia Kowa in which it was stated that Anco-Tech was a member of the Leader Group. I could not accept this explanation as this insouciant manner was quite different from her performance in the witness stand where she appeared to be meticulous.

67.  Bearing in mind all the above, I do not find Julia Cheung’s evidence reliable. I prefer the evidence of Kurimoto to that of Julia Cheung and accept Kurimoto’s evidence.

68.  Shiu’s evidence was not disputed in any material way. I accept his evidence.

69.  As to the Affirmation of Hayakawa, as he was not available for cross-examination, I do not accept his evidence except that relating to the reason for the setting up Anco-Tech and the payment by telegraphic transfer and letter of credit that was corroborated by other witnesses.

The Contracting Parties

70.  It is obvious that all the purchase orders, sales notes and invoices were in the name of Anco-Tech. There should be no dispute that the burden of proving Leader Engineering was the contracting party to the purchase orders in question lies on the Plaintiff.

71.  Whereas, Mr Pao, counsel for Anco-Tech suggested that there was nothing in the purchase orders, sales notes and invoices that indicated that the purchaser was Leader Engineering, Mr Chan, counsel for the Plaintiff, urged the court to look at the large picture and take into account of the circumstances of the whole case in determining the identities of the contracting parties. He submitted that the claim of the Plaintiff was based on apparent or ostensible authority.

72.  In support of his proposition, Mr Chan cited an old English case Reynell v Lewis 15 M & W 517 in which Pollock CB, when discussing the approach to be taken in determining the authority of an agent, said at 526-528:

“The question, in all cases in which the plaintiff seeks to fix the defendant with liability upon a contract express or implied, is whether such contract was made by the defendant, by himself or his agent, with the plaintiff or his agent, and this is a question of fact for the decision of the jury upon the evidence before them.

The plaintiff, on whom the burden of proof lies in all these cases, must, in order to recover against the defendant, shew that he (the defendant) contracted expressly or impliedly; expressly, by making a contract with the plaintiff, impliedly, by giving an order to him under such circumstances as shew that it was not to be gratuitously executed; and if the contract was not made by the defendant personally, it must be proved that it was made by an agent of the defendant properly authorised, and that it was made as his contract ... it often happens that the contract is made by a third person; and the point to be decided is, whether that third person was the agent for the defendant for the purpose of making it, and made the contract as such. The agency may be constituted by an express limited authority to make such a contract, or a larger authority to make all falling within the class or description to which it belongs, or a general authority to make any; or it may be proved by shewing that such a relation existed between the parties as by law would create the authority…In all these cases, if the agent, in making the contract, acts on that authority, the principal is bound by the contract, and the agent's contract is his contract, but not otherwise. This agency may be created by the immediate act of the party, that is, by really giving the authority to the agent, or representing to him that he is to have it, or by constituting that relation to which the law attaches agency; or it may be created by the representation of the defendant to the plaintiff, that the party making the contract is the agent of the defendant, or that such relation exists as to constitute him such; and if the plaintiff really makes the contract on the faith of the defendant's representation, the defendant is bound; he is estopped from disputing the truth of it with respect to thatcontract; and the representation of an authority is, quoad hoc, precisely the same as a real authority given by the defendant to the supposed agent.”

73.  I also find the following passage from Freeman & Lockyer v Buckhurst Park Properties (Magnal) Ltd [1964] 2 QB 480, 503-504 helpful:

“An ‘apparent’ or ‘ostensible’ authority, on the other hand is a legal relationship between the principal and the contractor created by a 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.

In ordinary business dealings the contractor at the time of entering into the contract can in the nature of things hardly ever rely on the ‘actual authority’ of the agent. His information as to the authority must be derived either from the principal or from the agent or from both, for they alone know what the agent's actual authority is. All that the contractor can know is what they tell him, which mayor may not be true. In the ultimate analysis he relies either upon the representation of the principal, that is, apparent authority, or upon the representation of the agent, that is, warranty of authority.

The representation which creates ‘apparent’ authority may take a variety of forms of which the commonest is representation by conduct, that is, by permitting the agent to act in some way in the conduct of the principal's business with other persons. By so doing the principal represents to anyone who becomes aware that the agent is so acting that the agent has authority to enter on behalf of the principal into contracts with other persons of the kind which an agent so acting in the conduct of his principal's business has usually ‘actual’ authority to enter into.” (italics added)

74.  I agree that in determining the actual party to the contract, one must look at all the circumstances of the case, including the relevant documents exchanged, conversation conducted and the acts of the parties. After all, contracts were not reached in a vacuum.

75.  The test to determine the contracting parties must be objective. Otherwise, a contract would be forced upon a party as a result of the idiosyncratic ideas of an individual. The subjective perception of Kurimoto is, therefore, irrelevant.

76.  It should be borne in mind that the transactions relating to the sale and purchase of the Goods were concluded between early April 2003 and late January 2004. Thus, any alleged representations made after this period would not have induced the Plaintiff to enter into these transactions.

77.  The background of the case could be gathered from the letters exchanged among the parties. In addition to those letters set out above, there are still other letters or documents that should be considered.

78.  In a letter signed by Julia Cheung dated 5^th November 2001 (B155), the Plaintiff was informed that “Account Officer of Leader Group, Ms Annie Leung” had been asked to follow up the account of the Plaintiff and that all documents could be sent or faxed to “our Head Office”. The Fax Number is then stated in the said letter.

79.  There is a letter dated 9^th November 2001 (B156-B157) issued by Annie Leung and signed by her on behalf of the Leader Group. Julia Cheungconfirmed the contents of this letter to be correct. I have no doubt that this is an important letter as the telegraphic transfer and letter of credit payment method was suggested in this letter. The letter also suggested that payments must be made within 7 days of receipt of the invoices. It was also her firm understanding that the arrangement was between the Plaintiff and Anco-Tech and had nothing to do with Leader Engineering or the Leader Group. The words “coming orders” in the opening paragraph only referred to those of Anco-Tech. It thus appears that the arrangement recorded in this letter was relevant to Anco-Tech only. Yet it was issued on behalf of the Leader Group by using the letterhead of Leader Engineering and signed by Annie Leung who had never been an employee of Anco-Tech. It was faxed over to the Plaintiff with Leader Engineering’s imprint. Julia Cheung explained that it was Annie Leung who made a mistake and that Hayakawa knew that the arrangement was only related to Anco-Tech.

80.  All the transactions, which are the subject matters of the present action, were concluded after this letter dated 9^th November 2001 (B156-B157) in which the payment terms were suggested by Leader Engineering.

81.  When Julia Cheung was first referred to a fax letter dated 2^nd October 2003 (B216), she at first said that Anco-Tech probably did not have an e-mail address. The said fax letter informed the Plaintiff that the e-mail address of Anco-Tech was leader2@netvigator.com even though Anco-Tech had its own e-mail address at ancotechhk@building.com which is printed at the bottom of the said fax letter. Julia Cheung explained that there was no change to the e-mail address. The new e-mail address could be accessed at the company. She said that it was used because Shiu had already resigned by that time and the new e-mail address would facilitate the follow up.

82.  On 17^th November 2003, Anco-Tech issued a fax letter (B219) to the Plaintiff informing the latter that the correspondence address of Anco-Tech and Lucky Enterprise would, with immediate effect, change to the Nan Fung Office, which was the address of Leader Engineering. She confirmed that she should be the one who asked Annie Leung to type up this letter.

83.  There is finally another important set of documents. They are the covering letters (B160, B165 and B167) issued by Annie Leung (who was an employee of Leader Engineering) by using the letterhead of Leader Engineering informing the Plaintiff of payments made by Anco-Tech by telegraphic transfers. These payments had nothing to do with Leader Engineering. Yet, it chose to take it upon itself to inform the Plaintiff of the payments.

84.  I have no doubt that all these documents showed that Leader Engineering was a contracting party and they induced the Plaintiff to believe that it was actually dealing with Leader Engineering.

85.  It is noted that some of these letters or documents were issued during the period between early April 2003 and late January 2004. They may, therefore, not have any effect on the transactions already concluded. Nevertheless, those letters or documents were still effective as representation in relation to the transactions concluded after those documents had come into existence. The same consideration applies to the conduct of Leader Engineering during the above-mentioned period.

86.  Julia Cheung agreed that the shareholding of Anco-Tech was arranged in such a way that no one would know that Leader Engineering had any shares in Anco-Tech. As a result, the competitors of Leader Engineering would be under the impression that Leader Engineering was not part of the set-up of Anco-Tech. This part of Anco-Tech’s case is not disputed and I believe it must be true from the point view of the customers of Anco-Tech. But that only applies to the customers of Anco-Tech who knew nothing of the real ownership of Anco-Tech. As Julia Cheung admitted that she had told Hayakawa that she was the “boss” of Anco-Tech, the Plaintiff knew that Anco-Tech and Leader Engineering had common ownership. The impression that the outsiders had on Anco-Tech would not operate in the mind of the Plaintiff.

87.  The fact that the shareholding in Anco-Tech is different from that of Leader Engineering is not disputed. But such a difference does not change the fact whether any representations had been made to a third party as to the apparent authority of Anco-Tech.

88.  When Kurimoto first visited Hong Kong in July 2003, he was directed to visit Nan Fung Office, which was the registered address of Leader Engineering instead of the registered address of Anco-Tech (i.e. the Wah Lik Office). He was given business cards of Julia Cheung and William Cheung which only bore the name of Leader Engineering and other companies with the name of “Leader”. The name of Anco-Tech was not on those business cards. Business relationship among Kurimoto, Julia Cheung and William Cheung was yet to be established. The first point of contact was the Nan Fung Office. When such evidence is viewed against the background of previous business dealings between the Plaintiff and Leader Engineering, the perception of Kurimoto that he was dealing with representatives from Leader Engineering is understandable.

89.  As regards the meeting between Kurimoto and Julia Cheung in November 2003, I agree with the submission of Mr Pao that Kurimoto never identified Leader Engineering as the party who had agreed to pay.

90.  All unpaid purchase orders were supposed to be paid by telegraphic transfer. Julia Cheung said that at the time of the issue of the Statement of Account dated 30^th January 2004 (B286), Anco-Tech was able to pay. She also said that Leader Engineering had already paid the goods ordered from Anco-Tech. There was no evidence of such payment from Leader Engineering even though the relevant purchase orders issued by Leader Engineering to Anco-Tech were produced. Except for a few invoices issued to other companies, all the invoices issued by Anco-Tech and produced at the trial were addressed to “Leader Group” but not to Leader Engineering. If there was any formal business relationship between Anco-Tech and Leader Engineering, I would have thought that the correct name of the recipient of the invoices would be properly stated.

91.  According to Julia Cheung, when payments were made by Leader Engineering to Anco-Tech, no defects in the goods had been discovered. That was why payments were made. When Anco-Tech was informed of the claim of Leader Engineering as a result of a settlement agreement between Leader Engineering and its customer of Broadwood Park dated 16^th July 2005 (C134) which was about 2 months before the issue of the writ by the Plaintiff, Anco-Tech had not made any contact with the Plaintiff in respect of its potential claim. Julia Cheung claimed that it was because of the lack of fund of Anco-Tech to engage solicitors. I do not find this explanation convincing. Anco-Tech certainly did not need to engage a solicitor firm to make a demand against the Plaintiff.

92.  There is also no evidence showing that Leader Engineering had made any demand for compensation from Anco-Tech in relation to the loss it had suffered in the project at Broadwood Park. No action for loss has been commenced against Anco-Tech by Leader Engineering. Julia Cheung said that Leader Engineering had issued a debit note for the sum of HK$830,000 to Anco-Tech, attaching the settlement agreement (C134) reached with its client. The debit note however was not produced.

93.  I do not accept that payments had been made by Leader Engineering to Anco-Tech in respect of the goods purchased from Anco-Tech. There is simply no evidence in support.

94.  There is also evidence on the alleged defective quality of the Goods supplied by the Plaintiff. Some reports on the quality of part of the Goods are prepared. The makers were not called to give evidence. I further note that defective quality of the Goods is not pleaded as a defence by Leader Engineering. It is thus not necessary for me to make any finding in relation to the quality of the Goods. Evidence in this area, however, may be relevant to the issue of who actually was the contracting party. I shall deal with the evidence in this respect to that extent. It may be remembered that Kurimoto came to Hong Kong twice in December 2003 and January 2004 with representatives from Dia Kowa Japan. Those visits were the results of such complaints.

95.  As far as the complaints on Tono tiles are concerned, the first complaint was made in a letter dated 20^th February 2003 (A162) by Lucky Enterprise signed by Annie Leung as Account Officer of Lucky Enterprise to the Plaintiff in relation to the Scenic Villa Project. The complaint is about colour variations of the first lot of ceramic tiles. In a further letter dated 22^nd February 2003 (B177) from Lucky Enterprise signed by Annie Leung as Account Officer, the Plaintiff was requested to submit sample of the tiles before delivery. Notwithstanding the complaint, an additional order of ceramic tiles for the Scenic Villa Project was made by Leader Engineering in a letter dated 24^th March 2003 (B183), but not by Anco-Tech.

96.  In a letter dated 5^th May 2003 from Anco-Tech issued by Annie Leung for Julia Cheung (A164), Anco-Tech complained that the first lot of wall tiles used in the Scenic Villa and Medallion Heights projects could not show real colour after application of tile cleansing agent. A further complaint on various aspects of the first lot of wall tiles used in Scenic Villa project was made by Anco-Tech in a letter dated 12^th May 2003 (B190) signed by Julia Cheung. Two reports were prepared by Tono Yogyo Ltd, the Japanese supplier of the tiles. Kurimoto relayed the contents of the two reports to William Cheung, Julia Cheung and Annie Leung by two letters dated 1^st August 2003 and 22^nd August 2003 (A167 and A176).

97.  In respect of the Medallion Heights project, the relevant purchase order and sales notes were issued in the name of Anco-Tech while the invoice was in the name of Lucky Enterprise, probably because the invoiced amount was more than ¥ 2 million. As regards the complaint, Tono Yogyo Ltd’s comment was relayed to Lucky Enterprise in a letter dated 22^nd December 2003 (A185). In reply, Anco-Tech wrote in a letter dated 26^th December 2003 (A188) disputing the comment of Tono Yogyo Ltd. Thereafter, the correspondences (B256, B306, B308 and B309) were exchanged between the Plaintiff and Anco-Tech. As already noted, the fax letters from Anco-Tech bore the Leader Engineering’s Imprint. Thus, consistent with the way the matters were handled, Annie Leung was one of the persons who communicated with the Plaintiff.

98.  For avoidance of doubt, I have not taken into account of the documents referred to above that came into existence after January 2004 in determining whether they had the effect of inducing the Plaintiff into concluding the sale of the Goods.

99.  There was another complaint related to Hoi Luen Industrial Centre Project. But as the relevant documents came into existence after January 2004, it would be unnecessary to deal with them.

100.  It could also be seen from the above that Annie Leung played a very important role in the communication among all the parties. Her absence from the trial has left a large hole in the evidence of Leader Engineering as to for example the instructions, if any, she had received from Julia Cheung, explanation on the words used in the letters drafted by her and the capacity in which she dealt with the Plaintiff. Julia Cheung explained that Annie Leung left her employment in 2005 of Leader Engineering or 2006.

101.  Mr Chan invited the court to draw an adverse inference against Leader Engineering on the basis of its failure to call Annie Leung to testify. In support, he cited the English Court of Appeal case of Wisniewski v Central Manchester Health Authority [1998] Lloyd’s Rep. Med. 223, 240 in which Lord Justice Brooke summarized the principles as follows:

“(1)  In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action.

(2)  If a court is willing to draw such inferences they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness.

(3)  There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference; in other words, there must be a case to answer on that issue.

(4)  If the reason for the witness's absence or silence satisfies the court then no such adverse inference may be drawn. If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his /her absence or silence may be adduced or nullified.”

102.  Mr Chan further submitted that a similar approach was adopted in Li Sau Keung v Maxcredit Engineering Ltd [2004] 1 HKC 434, 443-444A where Madam Justice Le Pichon JA commented as follows:

“In Cavendish Funding Ltd v. Henry Spencer & Sons Ltd [1998] 6 EG 146 at 148-149, Aldous LJ. cited the following passages from the judgment of Newton and Norris JJ. in O'Donnell v. Reichard [1975] VR 915 at 929:

‘It is sufficient to say that in our opinion for the purposes of the present case the law may be stated to be that where a person without explanation fails to call as a witness a person who he might reasonably be expected to call, if that person's evidence would be favourable to him, then, although the jury may not treat as evidence what they may as a matter of speculation think that that person would have said if he had been called as a witness, nevertheless it is open to the jury to infer that that person's evidence would not have helped that party's case; if the jury draw that inference then they may properly take into account against the party in question for two purposes, namely:

(a) In deciding whether to accept any particular evidence, which has in fact been given, either for or against that party, and which relates to a matter with respect to which the person not called as a witness could have spoken...’”

103.  Whether an adverse inference could be drawn would first depend on whether the court is satisfied that a reasonable explanation of the absence of the witness has been given by the party who is expected to call that witness to give evidence. I agree with Mr Chan’s submission that a simple statement that Annie Leung had left the employment is not sufficient. There is no evidence from Leader Engineering showing any efforts made to ascertain whether Annie Leung was willing to give evidence. Since I have rejected the evidence of Julia Cheung and because of the overwhelming evidence in favour of the Plaintiff, there is strictly no need for me to draw any inference against Leader Engineering from the absence of Annie Leung. But if it is necessary, I would draw the inference against Leader Engineering and come to the conclusion that in her dealings with the Plaintiff, she was acting as an agent of Leader Engineering.

104.  Bearing in mind the factual background existed before and during the period between early April 2003 to late January 2004, I am satisfied that Anco-Tech did have the apparent or ostensible authority of Leader Engineering to conclude those transactions set out in Annex A of the witness statement of Kurimoto and Leader Engineering was a disclosed principal.

105.  Mr Chan also cited the case Décor Floors Engineering Ltd v Wing Hong Contractors Ltd & Another [2005] 1 HKLRD 772 and invited the court to come to the same finding. I believe a finding of apparent or ostensible authority is very much fact-based. I do not think I could rely on the case Décor Floors Engineering Ltd.

106.  Mr Pao argued that the representations relied on by the Plaintiff had not been sufficiently pleaded in the Re Amended Statement of Claim. In support, he cited the judgement of Ma CJHC in Wing Hang Bank Ltd v Crystal Jet International Ltd & Ors [2005] 2 HKLRD 795, 799B-G:

“In a trial, particularly where evidence is given by witnesses, it becomes extremely important that each side knows exactly what are the live issues. Where issues are sought to be introduced that have not been adequately or properly pleaded, amendments must be sought unless consent of the other or parties has been obtained. It will simply not do for unpleaded issues to be ‘slipped-in’ when evidence is being given in the hope that the other side is not sufficiently alert to object. Much testimony given in the course of a trial may in truth relate to a number of possible aspects or may simply be background information. Obviously, counsel must be astute to object when necessary but the primary responsibility of ensuring that any issue is properly before the Court is on the party seeking to advance that issue. He must do so clearly not ambiguously, and the usual way of doing so is through the pleadings. Care must be taken to plead issues clearly, and not draft pleadings either vaguely or ambiguously perhaps in the hope that the other side might not readily or easily understand a party’s real case.”

107.  Mr Chan cited the same judgement of Ma CJHC at 799H-J in reply. Referring to the passage quoted above, Ma CJHC commented that:

“What has just been set out is not to be construed as an encouragement to take ‘pleading points’ by which I mean pedantic, small or quite insignificant points of pleadings. Nor will objections as to pleadings have much force where the parties have chosen to disregard the pleadings and conduct the hearing on some unpleaded basis. As Issacs and Rich JJ said in Gould & Others v Mount Oxide Mines Ltd & Others (1916) 22 CLR 490 at p. 517:

But pleadings are only a means to an end, and if the parties in fighting their legal battles choose to restrict them, or to enlarge them, or to disregard them and meet each other on issues fairly thought out, it is impossible for them to hark back to the pleadings and treat them as governing the area of contest.”

108.  Mr Chan also cited Gould & Others v Mount Oxide Mines Ltd & Others (1916) 22 CLR 490 in support.

109.  I believe the principles are that, as a general rule, a party seeking to advance a case must do so by pleading clearly all the relevant facts so that the other party knows the case he has to meet. Objections raised on minor or insignificant pleading points are not encouraged. Where parties have chosen to conduct the hearing on a basis not pleaded, objections thereto may not usually be entertained. The prime consideration of the court is fairness and justice in the circumstances. Every case must depend on its own facts.

110.  It could be gathered from the case of the Plaintiff that what is being relied on as representation is, among other things, the documents and letters exchanged among the Plaintiff, Anco-Tech and Leader Engineering. In my view, paragraphs 18(b) and (c) of the Re Amended Statement of Claim have certainly dealt with this aspect of the Plaintiff’s case. Leaving out the amended parts, these two paragraphs read as follows:

“(b) certain negotiations and correspondences in respect of the supply of the said paints and tiles were sent by the Plaintiff to the 1^st Defendant and the 1^st Defendant had never denied that it was not the relevant party of the subject transactions and/or it was not the correct recipient of the same; and

(c) the Plaintiff carried on all dealings, such as negotiations of terms, correspondence concerning delivery, after sales service etc. in respect of the purchase orders, with the representatives of the 1^st Defendant; all relevant negotiations and meetings were held either at the 1^st Defendant’ registered office or at its project sites;”

111.  As to other aspects of the representation, the same have been set out in other sub-paragraphs of paragraph 18 of the Re Amended Statement of Claim. In short, I agree with the submission of Mr Chan that the issue of apparent authority had been dealt with in the pleadings and covered by oral and documentary evidence at the trial.

112.  It was argued by Mr Pao that the Plaintiff appeared to be relying on the fact that Leader Engineering was an applicant for letter of credit for payment of goods ordered by Anco-Tech from the Plaintiff as a representation. He submitted that it was not the pleaded case of the Plaintiff. I do not agree. I think the sub paragraphs of the Re Amended Statement of Claim mentioned above are wide enough to cover this aspect. Even without this aspect of the evidence, I would still have come to the same conclusion on apparent or ostensible authority because of the preponderance of evidence in favour of the Plaintiff. As such, I reject Mr Pao’s submission in this respect.

113.  As to the giving of business cards to Kurimoto, I bear in mind that it happened in July 2003 when some of the purchase orders that form the subject matter of the present claim had already been concluded. The act must be assessed against the background of the case including Kurimoto’s knowledge of the purpose of the setting up of Anco-Tech and the letters previously exchanged among the parties. Viewed against this background, the business cards which only bear the names of Leader Engineering (but not that of Anco-Tech) and other companies with the name “Leader” certainly conveyed a message to Kurimoto that Leader Group in general and Leader Engineering in particular was the party he was dealing with.

114.  Leader Engineering’s failure to deny that it was the correct recipient of the documents from the Plaintiff, in particular, the Statement of Account should also be considered in the same way. In fact, Leader Engineering had actually written to the Plaintiff in a letter dated 9^th November 2001 to deal with the Statement of Account without any denial (see for example B158-B159). The perception and understanding of the Plaintiff that Leader Engineering was the party it was dealing with is perfectly reasonable.

115.  As to the meetings held at the construction site of Leader Engineering, I agree with Mr Pao that not much significance should be attached to it. I have ignored this aspect in coming to the conclusion on apparent authority above.

Default Judgement

116.  As a result of my ruling above, it is necessary for me to deal with the issue of election raised by Mr Pao.

117.  Mr Pao submitted that there could only be one party to the contract with the Plaintiff in relation to the purchase orders which are the subject matter of the present claim. As such, the Plaintiff is precluded from pursuing against Leader Engineering for the same relief once it has elected to enter a default judgement against Anco-Tech. He cited the case Cross v Matthews & Wallace (1904) 91 LT 500 in support.

118.  In Cross v Matthews & Wallace, the Plaintiff sued the two defendants for goods supplied. A default judgement was entered against Matthews who was the agent. The case proceeded to trial and it was found as a fact that the debt was contracted by Matthews solely as agent for Wallace. On learning that default judgement had been entered against Matthews, the judge adjourned the hearing to allow Matthews to apply for an order setting aside the default judgement. An order to set aside the default judgement was granted and Matthews was allowed to defend the case. When the action came on hearing, the plaintiff did not offer evidence against Matthews and judgement was entered against Wallace who appealed against this decision.

119.  Relying on Morel v Earl of Westmorland (89 L. T. Rep. 702; (1904) AC 1), Lord Alverstone CJ held that:

“…[the judge] ought to have given judgement for the defendant Wallace, because the fact of a judgment having been signed against Matthews showed an election on the part of the plaintiffs to accept the liability of the agent …I am trying to lay down …the principle that where, in setting aside a judgement, there was nothing except the consent of the person against whom the judgement had been obtained that was not sufficient to allow a plaintiff to revive his rights against third persons, if he had had an effective judgement against a person who was the agent of a principal now sought to be made liable.”

120.  Mr Pao also cited the case Cyril Lord Carpet Sales Ltd v Browne (1966) 111 SJ 51 where the plaintiff had first instituted an action against the agent. Later the plaintiff started another action against the defendant. Willmer LJ held that whether there had been an unequivocal election was a question of fact. He further held that “[t]he institution of proceedings against one of two possible defendants was strong evidence in favour of an election to pursue that defendant but not conclusive”.

121.  Mr Chan argued that the Default Judgement was not an election and it was entered as a result of procedural defaults of Anco-Tech. He also pointed out that the Plaintiff had not recovered anything from Anco-Tech pursuant to the Default Judgement as confirmed by Julia Cheung that Anco-Tech was unable to satisfy the Default Judgement.

122.  Mr Chan also cited the case Pendleton v Westwater & Swingware Ltd [2001] EWCA Civ. 1841 in which the plaintiffs sued two defendants for repayment of loans, the second defendant being a limited company wholly owned by the 1^st defendant. Default judgement was obtained by the plaintiffs against the 2^nd defendant. It was argued on behalf of the 1^st defendant that the plaintiffs could not proceed against the 1^st defendant as they were fixed with an irrevocable election made by them to go against the 2^nd defendant and the election barred any claim against him.

123.  After reviewing the pleading and the evidence adduced at trial, Lord Justice Laws of the English Court of Appeal took the following factors into consideration:

(a)  the plaintiffs’ case was pleaded on a number of alternative bases including that of joint liability which only appeared in the prayer; the substantive case of the plaintiffs as emerged from the evidence at trial was that the debt was owed by the 1^st defendant;

(b)  the default judgement was entered against the 2^nd defendant without the court having considered the merits of the matter at all;

(c)  the 2^nd defendant was merely the vehicle for the 1^st defendant’s activities;

(d)  the judgement against the 2^nd defendant remained unsettled.

124.  Laws LJ further commented as follows:

“18. The merits here are all one way. In the context of this case the first defendant’s reliance on an election by the claimants is the barest technicality. If the doctrine of election threatens to work injustice it must be applied rigorously, with great care, and as narrowly as may be consistent with legal principle …

…

25. Taking all these materials together, it seems to me that on these specific facts – and I lay down no general rule whatever – it is not demonstrated that the claimants made a conclusive or unequivocal election by taking default judgement …I would not accept that the bare proposition  … that the entry of the judgement in every case, without more, necessarily amounts to an election …

…

26. It may be – and the question is an important one- that in principle a default judgement does not bar the continuance of a claim against other defendants under the rule in Morel’s case. I do not distinctly so hold. I make it clear that for my part I conclude there was no unequivocal election here by reference … to the particular facts of the case …”

125.  Another case cited by Mr Chan is L C Fowler & Sons Ltd v St Stephens College Board of Governors [1991] 3 NZLR 304 where the plaintiff entered into an agreement with an agent of a school to arrange overseas tour. The agent misappropriated the money paid by the school and absconded. Default judgement was entered against the agent. In giving judgement for the plaintiff, Thomas J approached the issue of election by way of the principles relating to waiver and merger. His Honour commented at p.309 and p.311 as follows:

“Certainly, where liability is joint and several it is untenable to suggest that the mere act of suing one of the debtors amounts to a waiver of the right to sue the other. Where the liability is a joint liability, and therefore there is only one cause of action against both principal and agent, the action of suing one to the exclusion of the other may add some credence to the claim that the plaintiff has waived his right to sue the other person. But it will not be decisive. The answer will still depend on the circumstances and whether the plaintiff made a deliberate and unequivocal decision based on a full knowledge of all the relevant facts …

…

In the case of a contract where the principal is disclosed but the liability is a joint liability, however, the creditor should be able to sue both debtors and obtain judgement against both, although of course the debt or obligation could be satisfied only once. For the plaintiff to be told that his pr her claim is barred because they did not sue the codebtors at the same time, or after they have chosen to sue and obtain judgement against the one who has turned out to be insolvent, is an irony which would discredit the law.”

126.  It is trite law that, depending on the circumstances, an agent could also be held liable to perform the contract with the principal. (Article 98 and the comments, Bowstead & Reynolds on Agency, 18^th edn)

127.  In our case, joint liability is pleaded in the body and the prayer of the Re Amended Statement of Claim. The documents relating to the sale of the Goods do not contain any terms that show whether Anco-Tech and Leader Engineering should both be liable. The evidence adduced at trial showed that invoices were issued to both Anco-Tech and Leader Engineering and both had paid. Together with the letter (B156) whereby the payment method and payment terms were suggested and all the letters exchanged, I come to the conclusion that a joint liability was created on Anco-Tech and Leader Engineering. Similar to the case Pendleton, the default judgement was entered without the court having to consider the merits. The Default Judgement is still unsatisfied. In my view, these factors render the present case indistinguishable from Pendleton. I thus rule that the Default Judgement does not amount to an election.

128.  Mr Chan also argued that for the doctrine of election to be applied, Leader Engineering must have altered its position to its detriment but there was no such alteration or detriment. He cited Stven v Hyde (unreported, Lexis Transcript, 17^th February 1989, 88/NJ/395) which was decided by Sir Douglas Frank QC sitting in the Northern Ireland Queen’s Bench Division. I agree.

129.  Mr Chan also relied on section 5 of Civil Liability (Contribution) Ordinance, Cap. 377 which provides that:

“Judgement obtained against any person liable in respect of any debt or damage shall not be a bar to an action, or to the continuance of an action, against any other party who is (apart from any such bar) jointly liable with him in respect of the same debt or damage.”

130.  This plainly applies to our case. Mr Chan drew further support from the case Asia Television Ltd v Mak Chi Kin [2006] 4 HKC 347. I agree with Mr Chan that the Default Judgement could not bar the Plaintiff’s claim against Leader Engineering.

131.  I believe that Cyril Lord Carpet Sales Ltd is distinguishable from the present case because of my finding of no election having been made by the Plaintiff. As to Cross & Co v Matthews & Wallace, I agree with Mr Chan that the modern approach laid down in Pandleton and L C Fowler & Sons Ltd v St Stephens College Board of Governors has watered down the draconian principle set out in Cross & Co v Matthews & Wallace.

132.  I do not accept the submission of Mr Pao on election.

133.  I would thus enter judgement against Leader Engineering in the sum of JP¥ 10,009,598 with interest at prime plus 1% from date of writ to date of judgement and at judgement rate thereafter. Costs should follow the event and be to the Plaintiff with Certificate for Counsel. The costs order shall become absolute in 14 days.