XCHRX PETER JEWELLERY CO. v. CHARTERWIN INTERNATIONAL LTD.

1994, No. A 12377

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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Background

1. On 27 April 1994, judgment was entered under Order 14 against Double Jewellery Manufactory (Double) for the sum of $342,837, and against Charterwin International Limited (Charterwin) for the sum of $145,140. The defendants now appeal.

The Plaintiff Case

2. I recite, firstly, the evidence adduced by the plaintiff. The plaintiff and the defendants are in the business of jewellery trading.

3. On 26 April 1994, Mr Patel Jayesh Babubhai (Babubhai) and Mr Dinesh Babubhai Tejani (Tejani), representing the plaintiff, went to an office used by the defendants. There they met Mr Tsui Wah Leung (Tsui) and Mr Chan Yin Kwok (Chan). The plaintiff alleges that, on this occasion, it sold 35.40 carets of diamonds to Charterwin for a purchase price of $145,140. Charterwin was given 120 days to pay the price. Other diamonds were also shown to Tsui and Chan, but these were not purchased. This I will refer to as the first deal.

4. This deal was reflected in an invoice dated 26 April 1994. This document bears the plaintiff's name, address and other details. It is headed "INVOICE". It is addressed to Charterwin. It records a unit price per caret, and the total amount. On the face of it, it records the deal as alleged by the plaintiff. Next to the date, in brackets, appears the date "26.7.94", and against the word "TERMS" appear "120 days". Under the words "Received goods mentioned above", the invoice is signed on behalf of Charterwin and bears this company's chop.

5. On 28 April 1994, Babubhai and Tejani again met with Messrs Tsui and Chan in the same office. On this occasion, Babubhai and Tejani were representing the 4C Trading Company. Babubhai and Tejani deposited 124.61 carets of diamonds with Tsui and Chan, who were representing Charterwin. I will call this the second deal. This deal was not a sale, but the diamonds were deposited on consignment; that is for examination and inspection. The deal was reflected in a document headed "Receipt and Bailment Note" dated 28 April 1994. It contains the terms on which the diamonds were handed over. It is signed with a signature that appears to be the same as that on the invoice concerning the first deal. The plaintiff has produced a blank receipt and bailment note that it says it uses for this purpose. Apart from the name and details of the issuer, it is identical in terms, format and layout to that used in the second deal by 4C Trading Company.

6. On 1 May 1994, Babubhai and Tejani met Tsui and Chan once again in the same office. The plaintiff sold 111.18 carets of diamonds to Double for a purchase price of $342,837. Credit of 90 days was allowed. The diamonds were made up of two lots; one being 56.30 carets from those deposited under the second deal, and the other being 54.88 carets from those that had been shown to Tsui and Chan on 26 April 1994, but not purchased on that occasion. This I will call the third deal.

7. This third deal is reflected in an invoice similar to the one used in respect of the first deal, except the date in brackets is 1 August 1994, to reflect the terms of 90 days credit. The invoice is signed, again with a signature similar to that used on the first invoice, and bears the chop of Double.

8. Between August and November 1994, representatives of the plaintiff made repeated efforts to obtain payment of the prices under the first and third deals, without success. On 15 November 1994, the plaintiff's solicitors wrote letters of demand to the defendants. These letters clearly allege that the first and third deals were sales and they demand payment of the prices. There was no response to these letters.

9. In early December 1994, Tejani and Mr Jaydeep Champakbhai Shah (Shah) met Tsui and Chan. Chan offered to pay at the end of January 1995. This offer was refused. The return of the diamonds was demanded. The defendants offered other diamonds. These were rejected as being of lower quality. Chan then offered some jewellery to set off the sums due. Tejani and Shah returned on 6 December to see this jewellery. They took five pieces on a consignment basis. This transaction was recorded in a document dated 6 December 1994. It is marked with the name and details of Double. It is headed "INVOICE", but this is crossed out and the word "CONSIGNMENT" written in its place. It is addressed to the plaintiff and records the details of five pieces of jewellery. The plaintiff had these pieces valued, but they were of low quality. They were returned together with the consignment note.

The Defendants' Case

10. Except where I will indicate, the defendants' version of events does not differ from that of the plaintiff.

11. The defendants, through their common director Mr Tsui, say that the first and the third deals were not sales. The diamonds were consigned to the defendants for sale within 90 or 120 days. It was agreed "that for the diamonds which the defendants could successfully sell to its customers, the [defendants] should account to the plaintiff the "prices" appearing on [the invoices] issued by the plaintiff to the [defendants]. The [defendants] would be entitled to pocket the difference between the two prices. . . All of the diamonds remaining unsold after [the 90 or 120] days were to be returned to the plaintiff." Mr Tsui says that he now realises that the invoices failed to record the consignment arrangement between the parties. He says that none of the diamonds could be sold, and he repeatedly asked the plaintiff to collect them. However, the plaintiff refused to do so, wrongfully claiming that the diamonds had been sold to the defendants. He says he has been advised that the defendants have "reasonably good" defences to the claims.

12. A Miss Woo, who says she is the secretary to Messrs Tsui and Chan, made an affirmation supporting what the defendants say.

13. Mr Chan made an affirmation. He does not deny the details of the second deal, but says he did not know that Babubhai was the proprietor of 4C Trading Company. He says that since September 1994, the plaintiff's representatives did repeatedly demand payment for the diamonds. Every time, he reminded them that the diamonds were on consignment and told them that they could be arranged to be returned to the plaintiff from China at any time. On or about 6 December 1994, the plaintiff's representatives demanded payment again. Chan said he could arrange to have the diamonds returned from China but that would mean a loss of the chance to sell them to his customer in China. He agrees essentially with the plaintiff's evidence about the handing over of the pieces of jewellery, and produces the consignment note. Chan says the diamonds were returned from China but the plaintiff refused to accept them, claiming that they were not the same diamonds. The defendants, he says remain willing to return the diamonds.

14. Tsui made another affirmation similar, if not identical, in content to that of Chan mentioned in the preceding paragraph.

15. No explanation is given by anyone on behalf of the defendants for failing to deny the contents of the demand letters

Assessment

16. I have to decide whether what the defendants say is credible. Are the assertions made believable? I think not. I think not for these reasons.

17. Tsui and Chan are businessmen engaged in trading in diamonds. They are not people who could not be expected to know the difference between an invoice and a consignment note. That they did indeed know the difference is clearly indicated by the fact that, when they gave the pieces of jewellery to the plaintiff on consignment, they used a consignment note, not an invoice.

18. In addition, they entered into the three deals over a period of less than a week with the same individuals. In the first and third deals, which the plaintiff alleges were sales, an invoice is used, but in the second deal, which the plaintiff alleges was a consignment, a receipt and bailment note is used. It matters not at all whether or not Tsui and Chan knew that 4C Trading Company was also owned by Babubhai. In these circumstances, it is simply not credible for Tsui and Chan to say that they thought that all three deals were on consignment. And it is not as if the documents were drawn up by the plaintiff and 4C Trading Company, and the defendants paid no attention to them. Even if they were not signed on behalf of the defendants, as they were, one would expect any businessman to scrutinise them. Even if those reflecting the first and third deals were thought to be consignment notes, they would need to be read carefully to ensure that they recorded correctly what was being handed over. Certainly, after the second deal, one would have expected Tsui and Chan to say to Babubhai and Tejani - "Just a moment. In the first deal and this deal, you have used an invoice, but in the second deal you used a receipt and bailment note. Why? The deals are the same."

19. It is also significant that, in the third deal, what featured in the invoice were some of the same diamonds that had been handed over under the second deal. If the third deal was on consignment, as was the second deal, why was it necessary to deal with them at all? They were already held by Tsui and Chan on consignment.

20. It is also incredible that, when, as Tsui and Chan allege, they were holding the plaintiff's diamonds and always ready to hand them back, that they proposed, and the plaintiff accepted, delivery of the pieces of jewellery as part of a possible settlement, instead of the plaintiff taking back its diamonds. The only possible explanation for that is that the diamonds were not available. Even without this factor, it is not believable that Tsui and Chan were always ready to hand over the diamonds, but the plaintiff refused to accept them. Tsui and Chan do not suggest that the diamonds were over-valued in the invoices. The obvious course for a businessman, in the situation of the plaintiff as alleged by the defendants, would be to take back the diamonds, and sue for any damages suffered.

21. The defendants say that the plaintiff insisted from an early stage that the first and third deals were sales, and were demanding the purchase prices. If, as the defendants say, all three deals were clearly on a consignment basis, this is not credible.

22. There is also the matter of the defendants lack of response to the formal letters of demand. These, according to the defendants, record a completely incorrect version of the facts. No explanation at all is given for the failure to deny these allegedly false facts. It must have been in the mind of the defendants' legal advisers that the lack of response to a letter of demand must be explained in Order14 proceedings. It can only be that there was no explanation that could be advanced.

The Result

23. For these reasons, the appeals must be dismissed. There seems no reason why the defendants should not bear the costs, so I make an order nisi accordingly.