HING YIP GARMENT FACTORY LTD v. ESSENCE KNITTING & GARMENT FACTORY LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

-----------------

-----------------

JUDGMENT

-----------------

1. This is an action by the plaintiff against the defendant for goods sold and delivered. The subject matter of the action is a quantity of raw fabric totalling about 14,000 pounds.

2. The plaintiff called its only witness, Mr Lee Chan-wing. The defendant called four witnesses. I say at the outset that I accept the evidence of Mr Lee Chan-wing in toto. Seldom have I seen such a straightforward and honest witness.

3. The history of the matter was given by Mr Lee in evidence which supplemented his written statement, which had been submitted to court, together with the written statements of the other witnesses.

4. Basically, what happened was that in or about the end of May 1993, one Mr Lo Tak-kwong contacted the plaintiff and said that he was looking for about 14,000 pounds of raw cloth for one of his customers by the name of Cotton Supreme Knitting and Garment Factory Limited, which I shall refer to as Cotton Supreme. Mr Lee said in evidence that, as his company used to order a lot of cloth from various sources, he could obtain a good price and he would sometimes assist other people by ordering cloth for them. So, the arrangement in this case was that the plaintiff would give Mr Lo a commission of 50 cents per pound for the raw cloth ordered.

5. As far as the plaintiff was concerned, there was no agreement for sale and purchase for the raw cloth signed between the plaintiff and the purchaser. It also subsequently transpired that because Cotton Supreme was getting into financial difficulties, it was the defendant who was going to pay for the raw cloth.

6. It is clear from the evidence that the raw cloth was manufactured by a supplier by the name of Shum Yip, and the goods were not delivered to Hong Kong, but delivered to a dyeing factory in China, which I shall refer to as the Leader Dyeing Factory. The delivery orders dated 2nd June and 5th June 1993 have been exhibited.

7. According to Mr Lee, therefore, Mr Lo Tak-kwong was, in fact, acting as a middle-man in this transaction. According to Mr Lee, he made up an invoice in respect of the goods dated 9th June 1993 on that day - that is the document on page 26A in the bundle. There it states that the goods totalling 14,049.26 pounds were for the account and at the risk of the defendant, payment was specified to be made on 5th July 1993, and the total amount of the purchase price came to $189,665.01. That document, according to Mr Lee, was produced in triplicate; one kept by the plaintiff itself and the other two handed over to Mr Lo to be given to the buyer, both for acknowledgement and payment purposes.

8. Mr Lee says that on about 10th June 1993, he was informed by a Mr Lee Fai of Fai Kee Clothes Company, who used to be the employer or principal of Mr Lo Tak-kwong, that Mr Lo had committed deception against him and he advised Mr Lee to be very careful in all his dealings with Mr Lo Tak-kwong.

9. In those circumstances, on 11th June 1993, Mr Lee went to the office of Cotton Supreme in Kwai Chung. He says that there he met a Mr Ng Kwok-leung. He identified himself as a director of the plaintiff. He produced his visiting card and he told Mr Ng that the plaintiff was, in fact, the owner and supplier of the goods. He showed the original of the invoice, which I have referred to, to Mr Ng. He asked Mr Ng not to pay the price of the goods to Mr Lo as Mr Lo was only a middle-man and said that he had been advised that Mr Lo was, in effect, not a very proper person.

10. According to Mr Lee, Mr Ng telephoned the accounts office of the defendant and checked about these goods. Whilst he was still on the phone, he informed Mr Lee that, in fact, the defendant had not made payment to Mr Lo for these goods. He further said that the defendant would not make payment for these goods to Mr Lo and asked him not to worry and he confirmed that the defendant would make payment to the plaintiff on 5th July 1993. Mr Lee still felt a bit unsafe. He, therefore, asked Mr Ng whether he was willing to record this matter in black and white. Mr Ng, at once, showed displeasure and asked whether it was that Mr Lee did not trust him. Soon thereafter, Mr Lee left the office of Cotton Supreme.

11. Mr Ng gave evidence. He denied that he had told Mr Lee that the defendant would make payment to the plaintiff for the goods on 5th July 1993 or at all. Mr Ng said that Mr Lee did not produce any invoice as alleged and that he did not quite believe Mr Lee and wanted Mr Lee to come to him, together with Mr Lo, to clarify the matter. I accept the evidence of Mr Lee and I disbelieve Mr Ng in this regard.

12. As I see it, there was absolutely no reason why Mr Lee should not have produced the invoice to prove to Mr Ng that the plaintiff was indeed the supplier of the goods.

13. According to Mr Ng, all that the plaintiff produced was a white sheet of paper with the words "50 cents" written on it in pencil. I do not believe that. If Mr Lee had not produced the invoice, how could Mr Lee have given all the details about the goods to Mr Ng?

14. Mr Lee further gave evidence about what happened on 12th June 1993. According to him, he visited the office of the defendant in Cheung Sha Wan, in Kowloon. There, he first saw a female accountant of the defendant and he said that the goods belonged to him and he requested the defendant not to pay Mr Lo, who was only a middle-man. He was then introduced to a Mr Wong, Mr Stephen Wong, who is one of the managers or directors of the defendant. Mr Lee, in fact, identified Mr Stephen Wong, who was sitting in the courtroom, whilst Mr Lee was giving evidence. Mr Lee says that Mr Wong confirmed to him that no payment had yet been made for the goods and that Mr Wong would not pay the price for the goods to Mr Lo. Mr Lee requested Mr Wong to issue, in favour of the plaintiff, a post-dated cheque in settlement of the invoice in question. Mr Stephen Wong refused and said that the defendant would only settle the invoice on 5th July 1993.

15. Mr Stephen Wong gave evidence and denied that what was alleged by Mr Lee took place. He said that he remembered meeting a person who was making a lot of noise in the defendant's office, at some stage, probably August, and he could not quite remember whether it was the Mr Lee who appeared in court. He certainly denied that there was any promise to pay the plaintiff the price for the goods. Again, I accept the evidence of Mr Lee and reject the evidence of Mr Stephen Wong.

16. According to Mr Lee, he had been trying to locate Mr Lo, who finally replied to his pager call on 19th June 1993. Mr Lee demanded that Mr Lo should go to the defendant's office to secure a chop from the defendant on the invoice in question, and Mr Lo acceded to such request.

17. After about two weeks, Mr Lo handed a copy of the invoice to Mr Lee which bore a chop of the defendant, which was very unclear. It was also written on the invoice the name, Mr Luk, and there was also a telephone number and a pager number, which happened to be Mr Luk's pager number.

18. After that, Mr Lee tried to get in touch with Mr Luk of the defendant, but not with much success. So, on or about 8th August 1993, there was a telephone conversation between Mr Luk and Mr Lee, during which Mr Luk informed Mr Lee that the defendant had already paid the sum of $100,000 to Mr Lo as partial settlement of the invoice in question and that the defendant would only pay the remaining balance, in the sum of $89,665, to the plaintiff. That offer was not accepted by Mr Lee.

19. Mr Lee then sought advice from his lawyers and was advised that he should accept the balance first whilst claiming the outstanding balance of $100,000. On 9th August 1993, Mr Lee went to see Mr Luk intending to obtain the remaining balance. However, Mr Luk refused to pay the remaining balance, so no payment was obtained at all.

20. On 10th August 1993, Mr Luk faxed three documents to the office of the plaintiff. Mr Lee was asked how he knew that it was Mr Luk who faxed the documents to his office. He said that he did not know whether Mr Luk had directly or personally faxed the documents to him, but he got the documents through the fax machine in his office.

21. The documents have been produced in the bundle of documents. The first one is on page 27. It is a document written on note paper, bearing the letterhead of the defendant, and it says, "temporarily borrow $100,000 from Century Rich Company Limited. This sum is to be deducted from invoice K004-9". Then the signatory appears to be Cheung Hing Printing Factory, and below it there's a number which appears to be an identity card number E3343301(1), and the signature of Lo Tak-kwong. The date of that document is 28th June 1993, and below that the signature of Mr Stephen Wong appears. That document also bears, what appears to be, the record of a fax machine print out, "10 August 1993, 15.49, Century Rich Company Limited". And then it bears the fax number "7853172".

22. The second document is a copy of a cheque dated 28th June 1993, the payee being Cheung Hing Printing Factory, for the sum of $100,000, and the drawer of the cheque was Century Rich Company Limited.

23. The third document is a receipt also dated 28th June 1993, which bears an illegible signature, but is purportedly a receipt acknowledging receipt from Century Rich Company Limited for the sum of $100,000, being in payment of a loan of $100,000. Now, Century Rich is one of the associated companies of the defendant.

24. Further, according to Mr Lee, on 11th August 1993, he went to the defendant's office and spoke to Mr Luk. He told Mr Luk that the alleged loan to Mr Lo or Mr Lo's company had nothing to do with the plaintiff, since the invoice in question clearly set out the name of the plaintiff.

25. All that was denied by Mr Luk, or Mr Lu as he is called - I think he gave his name, Mr Lu Shun-leung, in his statement and when he was giving oral evidence. Anyway, Mr Luk and Mr Lu are the same person. According to Mr Luk, he could hardly remember having met Mr Lee, let alone having so many dealings with him. He certainly denied faxing, or causing to be faxed, the three documents, which I mentioned, to Mr Lee. He suggested that Mr Lee could have either tampered with the fax machine or could have got those three documents from some other source, but he was unable to suggest from what source and in what manner.

26. I accept the evidence of Mr Lee and find that those three documents must have been faxed by or on the instruction of Mr Luk of the defendant.

27. Those three documents would indeed show that the payment by Century Rich Company Limited to Mr Lo, or his company, could not have had anything to do with settling the invoice in question because they show that it was in relation to another contract, other than the subject matter of the invoice. And it was a payment made by Century Rich as opposed to the defendant to Mr Lo, or his company, rather than the plaintiff.

28. Mr Lee further says that in mid-August 1993, since the original chop of the defendant on the invoice, which had been obtained by Mr Lo, was unclear, he went to the defendant's office and requested Mr Luk to put the defendant's chop on the invoice again. Mr Luk agreed to do so, but Mr Luk also wrote down certain characters in Chinese to the effect that Mr Lo would be responsible for the receipt and collection. He wrote down the words, "Lo Tak-kwong is responsible for delivery and collection".

29. According to Mr Luk, nothing of that sort happened. He said that he put the second chop on the invoice at the request of Mr Lo Tak-kwong on an earlier occasion, and the purpose of putting the chop was just to acknowledge receipt of the document.

30. I asked Mr Luk whether he saw that the invoice bore, at the top of the page, the full particulars of the plaintiff. He said he had not noticed. I find that incredible. I find Mr Luk an evasive witness, and I again accept the evidence of Mr Lee and reject the evidence of Mr Luk.

31. According to Mr Lee, at the end of August 1993, there was a meeting held at the defendant's office where he himself, two directors of the defendant, both surnamed WONG, including Mr Stephen Wong, Mr Luk and one female accountant of the defendant and Mr Ng of Cotton Supreme. And during the meeting, Mr Lee repeated his request for payment, and Mr Stephen Wong told him that, since the sum of $100,000 had been paid to Mr Lo or his company, therefore, the defendant would not settle the entire amount, and he said that Mr Wong said that the plaintiff could sue him, and after that Mr Lee left the meeting.

32. As I said earlier, Mr Ng also gave evidence, but he denied that Mr Lee, of the plaintiff, had clearly told him that the plaintiff was the supplier of the goods. That is in plain contradiction to the documentary evidence, I refer to the document which appears at page 32 of the bundle of documents, which was an instruction order given by the defendant to the Leader Dyeing Factory, instructing the latter to dye certain quantity of cloth. And under item (a), there were three Chinese characters which were handwritten, which translated to mean, "fabric of Hing Yip". Hing Yip, being the plaintiff.

33. Mr Ng admitted that it was he who wrote those words. If Mr Ng were not aware of the rightful claim of the plaintiff, he would not, in my judgment, have written those words on this instruction order.

34. I further find that the following features support my finding that the defendant knew full well, as from 11th June 1993, that it was purchasing the cloth from persons or companies other than Mr Lo or his company. There was never any purchase contract signed between the defendant and any seller of the goods. The defendant has never received an invoice for the goods, other than that issued by the plaintiff. Indeed, the pleadings of the defendant is also revealing in this respect - I refer to the Amended Defence. In paragraph 3, sub-paragraph (2), it is pleaded, Lo, at a later stage, informed staff of the defendant that he did not place the said order with Cheung Fung, but with a principal of his, whose name was not made known to the defendant. Then in sub-paragraph (4)(iii) of the same paragraph, it is said, on the same day, being 28th June 1993, Lo mentioned to Raymond Lu, that's Mr Luk of the defendant, that the said order was eventually placed with one firm by the name of Hing Yip, that is, the plaintiff.

35. So although the plaintiff might have been an undisclosed principal acting through the agent, Mr Lo Tak-kwong, in the beginning, by 11th June 1993, according to my finding, the defendant would have known clearly that it was the plaintiff who was the supplier of the goods in question. At that stage, the defendant had not made payment to the plaintiff for the goods. Having acquired that knowledge, the defendant had become obliged to pay for the goods to the plaintiff.

36. I also ask the rhetorical question as to why the defendant would be willing to pay the balance of $89,665 to the plaintiff if the defendant should not be liable to the plaintiff for the goods at all. In paragraph 13 of the Amended Defence, it is admitted that Mr Luk did tell Mr Lee that the defendant had paid $100,000 to Mr Lo and that the defendant was willing to pay $89,665 to the plaintiff.

37. I further refer to the receipts, or rather invoices, issued by the Leader Dyeing Factory, which appear between pages 81 and 72 of the bundle of documents, which show clearly, especially to the defendant, that the goods were coming from a factory called Shum Yip.

38. I have considered the authorities cited by counsel for the defendant and come to the conclusion that they do not really assist because they can be distinguished on the facts. The principles of law are well established. There is no doubt that an undisclosed principal can sue on the price of the goods sold by its agent, and that is what the plaintiff is doing in this case.

39. The defendant counterclaims against the plaintiff for defective goods. In that regard, Mr Wong Ching-hei was called to give evidence, it is quite apparent that Mr Wong did not have personal knowledge of details of the alleged defect.

40. I have not seen any expert report about the alleged defects. There has not been produced any sample of the cloth which is allegedly defective, and therefore, I find that the defendant has not proved its case on liability in the Counterclaim.

41. Moreover, even if liability had been proved, the question of damages suffered by the defendant would be greatly in doubt. In relation to that, I refer to the documents appearing at pages 97 and 98 of the bundle, which are invoices issued by Century Rich to Christina Sportswear Limited. Mr Wong Ching-hei relied on, inter alia, those documents as proof of damages suffered by the defendant.

42. In the witness-box, he confirmed that, according to his understanding, on those invoices, Christina would be the buyer of the goods in question and Century Rich, as opposed to the defendant, would be the seller of the goods.

43. In the result, I give judgment in favour of the plaintiff in the sum of $189,665.01 as claimed in the Re-amended Statement of Claim, and I dismiss the defendant's Counterclaim.

44. I award interest on the judgment sum from 6th July 1993 until the date of judgment at the rate of 9.5% per annum and thereafter at the judgment rate until payment.

45. I also award costs on party and party basis to be taxed if not agreed.