SAI MAN LOGISTICS LTD v. PACKERS EXPRESS LTD

DCCJ 2913/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2913 OF 2011

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JUDGMENT

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Introduction

1.  It is a simple contract dispute.

Background

2.  Since 1997, the Defendant (“Packers Express”) has engaged Sai Man Logistic Company (“the Company”) to provide logistic services. They have written agreements dated 1 October 1997, 12 November 2000 and 1 March 2005 respectively.

3.  In around October 2008, the Company assigned all its interest under the contract with Packers Express including the outstanding service fee to the Plaintiff (“Sai Man”). It was done with the consent of Packers Express.

4.  Sai Man now claims for $240,000 being the outstanding service fee.

5.  Packers Express denies that claim on the ground that they have fully settled the service fee.

The Plaintiff’s Case

6.  There is only one witness, Mr. Cheung Sai Man (“Mr. Cheung”).

7.  Mr. Cheung was the sole proprietor of the Company. He is also the sole shareholder and director of Sai Man.

8.  By an agreement in written dated 1 March 2005, Packers Express engaged the Company to provide logistic services at a monthly fee of $54,000 (“the Contract”).

9.  In or about January 2007, upon the request of Mr. Dickie Chan Kut Hung (“Mr. Chan”) of Packers Express, Mr. Cheung agreed that Packers Express may partially settle the monthly service fee at the rate of $51,000. The remaining $3,000 has to be settled as soon as possible (“the 1^st Oral Agreement”).

10.  Pursuant to the 1^st Oral Agreement, the Company issued 2 invoices each month in respect of the service fee to Packers Express as from February 2007 onwards. One is in the sum of $51,000 and the other one is $3,000.

11.  In around October 2008, all the rights and obligations of the Company under the Contract were assigned to Sai Man with the consent of Packers Express.

12.  Thereafter, Sai Man continued to render logistic services under the Contract to Packers Express.

13.  In around November 2008, Mr. Chan told Mr. Cheung that Packers Express was unable to pay $51,000 per month. He requested to settle $48,000 per month and the balance of $6,000 be paid the soonest possible. Mr. Cheung acceded to the request (“the 2^nd Oral Agreement”).

14.  Pursuant to the 2^nd Oral Agreement, Sai Man issued 2 invoices each month in respect of the service fee as from November 2008. One is in the sum of $48,000 and the other one is $6,000.

15.  The Contract was terminated by mutual consent on 31 March 2011.

16.  While Packers Express has fully settled all the invoices for the amount of $51,000 and $48,000, it has not settled any invoice for the amount of $3,000 or $6,000 (“the Small Invoices”).

17.  The total amount outstanding under the Small Invoices is $240,000.  

The Defendant’s Case

18.  Mr. Chan is the only witness for the Defendant.

19.  In or around January 2007, the parties agreed that the service fee under the Contract be reduced from $54,000 to $51,000 per month.

20.  In about November 2008, the parties further agreed that the service fee be reduced from $51,000 to $48,000 per month.

21.  Packers Express has fully settled the service fee and thus Sai Man is not entitled to their claim. He has never received any invoice in the sum of $3,000 or $6,000.

Discussion and Analysis

22.  The only issue here is the amount of the monthly fee at the material times. Is it $54,000 as advanced by Mr. Cheung or $51,000 and   subsequently $48,000 as put forward by Mr. Chan?

23.  I have carefully considered the evidence of Mr. Cheung and Mr. Chan. It is my ruling that Mr. Cheung is not a reliable witness and I reject his evidence.  My reasons are as follow.

24.  First, Mr. Cheung told the Court that he made use of the computerized accounting system (“the System”) to generate the Small Invoices and handed the same to Mr. Chan. However, he did not keep any hard copy. Further, he kept such Small Invoices away from the System by exporting the relevant data to a separate excel file. Other than Mr. Cheung himself, no one, not even the auditor of the Sai Man. or its accounting staff who was responsible for following up unpaid invoices, knew the existence of this electronic file. His explanation was that he did not want his staff to know the existence of the Small Invoices and to chase after Mr. Chan for payment. He also said that he did not want his employee to know that he allowed Mr. Chan such long delay in payment.

25.  I cannot understand why Mr. Cheung has to keep the existence of the Small Invoices as a secret. He is the owner of Sai Man and he can make whatever decisions he like including the amount of service fee and credit period for payment. If he really did not want his staff to chase after Mr. Chan for payment, he can simply instruct his staff not to do so in relation to the Small Invoices.

26.  Secondly, it is not disputed that Mr. Chan paid a total sum of $15,000 as bonus to Mr. Cheung in February 2008 upon the request of Mr. Cheung. By then, the outstanding under the Small Invoices is around $36,000. With such payment, it is clear that Packers Express must have made good profits in 2007 and early 2008. Such profits must be far more than $15,000. It also means that Packers Express should be able to pay the outstanding service fee which is around $36,000 at that time. It is totally unreasonable for Mr. Cheung not to treat the payment of $15,000 as part payment of the outstanding fee but as bonus for his staff. It is also totally unreasonable for Mr. Chan to pay bonus but not to pay off part of the existing debt if it is so owed. 

27.  Thirdly, it should be noted that either party may terminate the Contract by giving one-month notice. If Packers Express was in financial difficulty and unable to afford the service fee at $54,000 per month, it could simply terminate the Contract and negotiate a new one with Sai Man or any other service provider. There is no need for Mr. Chan to continue to shoulder the high rate.

28.  Fourthly, I have great reservation about the character of Mr. Cheung. In February 2012, he served a notice for severance payment to Packers Express (Box 2, p234). He further lodged a complaint to the Mandatory Provident Fund Schemes Authority (“MPFSA”) that Packers Express has failed to pay for his mandatory provident fund (for the letter from MPFSA to Packers Express, see Box 2, p239).

29.  It is clear that the only relationship between Sai Man and Packers Express is that under the Contract. It is a business relationship but not employer/ employee relationship. Why did Mr. Cheung serve the notice and lodge the complaint?

30.  I note that Sai Man has produced the re-generated Small Invoices to support its case. However, Mr. Cheung admitted that he is free to delete, add or even alter the data of the System. It greatly undermined the evidential value of the Small Invoices and other invoices produced.

31.  I note the submission of Ms. Gwilt, Counsel for the Sai Man, that the oral testimony of Mr. Chan was not totally consistent with his witness statement and that the reduction of the service fee was not supported by any document whether new contract or internal memorandum. I am of the view that these did not affect the credibility of Mr. Chan. He gave clear and concise evidence. I find that he is an honest and reliable witness. I accept his evidence.

32.  Ms. Gwilt also submitted that the oral agreements as put forward by Mr. Chan are not supported by consideration. I believe Ms. Gwilt raised this because Mr. Poon, Counsel for the Packers Express, mentioned variation of the Contract in his submission.

33.  Indeed, the pleaded case of the Defendant is that the parties agreed that “the monthly service fee be reduced from HK$54,000 to HK$51,000 as from January 2007” (paragraph 6 of the Defence) and “the monthly service fee be reduced from HK$51,000 to HK$48,000 as from November 2008” (paragraph 10 of the Defence).  The Defence did not mention variation.

34.  Further, in the witness statement of Mr. Chan, he said that he “… had several discussions with Mr. Cheung as to the reduction of the monthly remuneration of the Logistic Services provided by Sai Man, later by the Plaintiff, which Mr. Cheung was the owner throughout, in or about late December 2006 and October 2008 respectively, and in all occasions Mr. Cheung, in his own capacity and later on behalf of the Plaintiff, orally agreed that the monthly remuneration be reduced from HK$54,000 to HK$51,000 as from January 2007, and from HK$51,000 to HK$48,000 as from November 2008” (paragraph 12). Again, variation was not mentioned.

35.  No question was put to Mr. Chan concerning whether the reduction of service fee is a variation of the term of the Contract or the parties agreed to discharge the then existing contract and entered into new agreements. The Reply filed on 7 October 2011 mentioned nothing about lacking of consideration. The only evidence we have on this subject is that under paragraph 12 of Mr. Chan’s witness statement.  It is my ruling that under the oral agreements, the existing contracts between the parties were discharged with new contract entered.

36.  In Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, the plaintiff entered into a subcontract with the defendants, who held the main building contract, to carry out carpentry work in a block of 27 flats for an agreed price of £20,000. The plaintiff got into financial difficulty because the agreed price was too low for him to operate satisfactorily and at a profit. The main contract contained a time penalty clause and the defendants, worried lest the plaintiff did not complete the carpentry work on time, made an oral agreement to pay the plaintiff an additional sum of £10,300 at the rate of £575 for each flat on which the carpentry work had been completed. Approximately seven weeks later, when the plaintiff had substantially completed eight more flats, the defendants had made only one further payment of £1,500 whereupon the plaintiff ceased work on the flats. The plaintiff then sued the defendants for the additional sum promised. The judge held that the agreement for payment of the additional sum was enforceable and did not fail for lack of consideration, and gave judgment for the plaintiff.

37.  The Court of Appeal in dismissing the appeal held that where a party to a contract promised to make an additional payment in return for the other party's promise to perform his existing contractual obligations and as a result secured a benefit or avoided a detriment, the advantage secured by the promise to make the additional payment was capable of constituting consideration therefore, provided that it was not secured by economic duress or fraud; that the defendants' promise to pay the plaintiff the additional sum of £10,300, in return for the plaintiff's promise to perform his existing contractual obligations on time, resulted in a commercial advantage to the defendants; that the benefit accruing to the defendants provided sufficient consideration to support the defendants' promise to pay the additional sum; and that, accordingly, the agreement for payment of the additional sum was enforceable.

38.  The agreement to reduce the service fee keeps the Contract alive. If Sai Man refused to reduce the service fee, it was open to Packers Express to terminate the Contract. Thus, such agreement avoided this detriment. Therefore, even if it is only a variation of a term of the Contract in this case, it is still supported by consideration.

Conclusion

39.  I have considered all the evidence and submissions made by Counsel. Since I have rejected the evidence of Mr. Cheung, there is nothing concrete to support the Plaintiff’s case. It is my ruling that the Plaintiff has failed to prove its case and I dismiss the Plaintiff’s claim.

40.  I make an order nisi that the Plaintiff to pay the Defendant’s costs of this action together with all costs reserved to be taxed if not agreed with certificate for Counsel. This order nisi shall become absolute unless there is application to the otherwise within 14 days after handing down of this Judgment.