EDMOND LABELS LTD. v. CAMTON (SPORTSWEAR) CO. LTD. AND ANOTHER

HEADNOTE

Agency : Apparent Authority.

    Employee of limited company using business or name card describing himself as managing director. Extent to which company liable to third party relying thereon. Conduct of principal in allowing employee full use of office facilities after termination of employment. Principal not liable for representations of agent, if third party is aware of lack of authority or is put on enquiry.

IN THE DISTRICT COURT OF HONG KONG

CIVIL JURISDICTION

ACTION NO. 8252 OF 1990

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BETWEEN

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JUDGMENT

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1. This case poses the dilemma, not infrequently encountered in mercantile transactions, of deciding which of two supposedly innocent persons must suffer as a result of the dishonesty or wrongful conduct of a third. The plaintiff seeks to recover from the first defendant (D1) the sum of $74,670, as the price of goods allegedly sold to D1, or as damages for its non-acceptance, pursuant to a contract allegedly concluded in August 1989 by Raymond Leung, on behalf of the plaintiff, and Ng Hung Yiu (D2) on behalf of D1. It does so on the basis that D2 was duly authorised by D1, alternatively held out by D1 as having authority to enter into that contract. In the alternative, the plaintiff claims damages against D2 for breach of his implied warranty of authority. The writ was issued on the 17th August 1990. D2 filed no defence, and judgment in default was entered against him on the 20th September 1990. By its defence, filed on the 15th September 1990, D1 denies that D2 had actual or apparent authority to enter into the contract on its behalf.

2. I have no hesitation in holding that the plaintiff's claim based on actual authority on the part of D2 must be rejected. There is clear evidence, which I accept, that D2 was never appointed as D1's managing director and was never expressly authorised by D1 to enter into the contract in question. Indeed, I find as a fact that, at the material time, he was no longer employed by D1, having been dismissed from his position as sales manager for China at the end of June 1989. The plaintiff's claim has been pursued at the trial almost exclusively on the basis that D2 had apparent authority to enter into the contract on behalf of D1. It has done so on a somewhat broader basis than that pleaded in paragraph 3(2) of the Particulars of Claim, namely, that D1 "held out [D2] as its managing director and as being duly authorized" by D2 to enter into the contract. Somewhat surprisingly, further and better particulars of those allegations were not sought. But, I am satisfied that D1 has not been prejudiced by the fact that the plaintiff's case has been advanced on a broader front.

3. The plaintiff's case essentially rests on three types of  evidence, namely, the testimony of Mr. Raymond Leung; certain documentary evidence; and the manner in which D1 conducted its business, generally and with particular regard to D2's activities. With regard to the latter, it is not seriously disputed that D2 was allowed to enjoy an extraordinary degree of freedom to enter and remain at D1's office, and have access to the facilities therein, such as files, stationery and fax machine, long after his employment had come to an end. Managerial control of D1 was supposedly in the hands of Mr. Ng Kwok Wai ("Mr. Ng"), one of its directors. But, Mr. Ng spent most of his time in Macau; and, in my view, made no satisfactory arrangements for controlling the activities of his staff or the use of the company's office during his absence. Indeed, Mr. Ng did not impress me as having exercised much real managerial control while he was in Hong Kong. According to him, D2 was dismissed at the end of June 1989. Yet, D2 was still in and about the office at the end of July 1989. Mr. Ng did not bother to enquire why he was there. He merely assumed that he was "handing over" to Mr. Mak Kam Wa, who was D1's other sales manager.

4. Although the evidence has covered a period of approximately twelve months between the end of May 1989 and June 1990, it is important to remember that the plaintiff's case is that the contract in question was concluded on or about the 21st August 1989, the date when three Sales Confirmations (Exhibit P6) were allegedly sent to D1 by the plaintiff. Evidence of what occurred after that date is not directly relevant to the question whether D2 had, or was held out as having, authority to conclude that contract on behalf of D1. Its only relevance is in assisting the court to assess the general reliability and credibility of the various witnesses, and in determining the inferences, if any, which might be drawn regarding the situation before the 21st August 1989.

5. The plaintiff's case can be summarised as follows. At about the end of May 1989, Mr. Leung received a telephone call from Mr. Lam, an employee of D1. As a result, Mr. Yeung went to D1's office, and on his second visit was introduced to D2 and Mr. Mak Kam Wa, both of whom presented him with their name cards (Exhibit P2). The card presented by D2 described him as "Managing Director"; but in all other respects was identical to those of Mr. Lam and Mr. Mak (Exhibit P1 and P2). D2 wanted Mr. Yeung to make labels with the "Head" logo and numbers in the form of labels or transfers to be ironed onto clothing. After further discussions, including a demonstration in D1's office, the plaintiff received two written orders on D1's notepaper. One (Exhibit P3) was left at the plaintiff's reception desk; the other (Exhibit P4) was transmitted by fax from D1's office. Written confirmations of these orders (Exhibit P6) were sent to D1 on the 21st August 1989. At or about the end of August 1989, the plaintiff received a letter of authority (Exhibit P7) and sent to D1 copies of the invoices for the labels in question (Exhibit P9). Despite a reminder dated the 22nd January 1990 (Exhibit P8), no payment or delivery instructions were received by the plaintiff from D1.

6. D1 claims that it knew nothing of these dealings between Mr. Yeung and D2 until July 1990, when Mr. Yeung visited D1's office and sought and obtained information regarding the whereabout of D2 (Exhibit P12). It did not realise that the plaintiff was seeking to hold it liable for D2's dealings until it received a letter from the plaintiff's solicitors in August 1990 (see P13). It did not receive the written confirmation, the invoices, nor the letter dated the 22nd January 1990 (Exhibit P6, P9 and P8).

7. The plaintiff relies heavily on the fact that D2's name card described him as "Managing Director". Essentially, that is no more than a representation by D2, which cannot create apparent authority unless D1 permitted him, or placed him in a position which made it appear that he was authorised, to describe himself as such. One difficulty facing the plaintiff is the fact that it had never had any previous dealings with D1 or D2. It is, therefore difficult to point to someone in charge of D1's business who may have had authority to represent the extent of D2's authority, or to permit D2 to do the same. In this respect, Mr. Chow's reliance on the evidence that Mr. Lam and Mr. Mak were involved in introducing D2 to Mr. Yeung, does not assist the plaintiff, because Mr. Yeung did not regard either of those persons as being in charge of D1's office or operations. In the present case the plaintiff must show that D2's representation as to his status, or authority to enter into the contract in question, can be traced back to some conduct or representation by Mr. Ng. As Lord Pearson said in Hely-Hutchinson v. Brayhead Ltd. [1968] 1QB549 (at 593):

"That may be shown by inference from the conduct of the board of directors in the particular case by, for instance, placing the agent in a position where he can hold himself out as their agent and acquiescing in his activities, so that it can be said they have in effect caused the representation to be made. They are responsible for it and, in the contemplation of the law, they are to be taken to have made the representation to the outside contractor."

8. In the present case, has it been shown that Mr. Ng was responsible for D2's representations?

9. I have to say that I found Mr. Ng's evidence regarding the use of name cards evasive in the extreme. He professed complete ignorance of how D2 or others came to be in possession of cards like Exhibit P2, and of their source. D2 was not even asked to hand in his cards after his dismissal. It is, in my view, fairly obvious, from looking at Exhibits P1 and P2, that cards bearing the "Head" logo or trade mark and details of D1 had been printed by and for D1 for use by its executives. Whether the stock of blank cards was kept by the printer or by D1 has not been explained. It is notoriously easy to get name cards printed, without the printer making enquiries as to the accuracy or integrity of the information contained thereon. I do not suggest that printers should check beforehand; nor do I suggest that employers are fixed with legal liability for all representations on the name cards of their employees. But, in the present case, the name cards are distinctive. The design and layout must have been commissioned by D1. It is highly improbable that they were produced by different printers. The only additions are the names and titles of the holders. For all practical purposes, these blank cards were much the same as, blank cheques signed on behalf of D1. On the evidence before me, I have no difficulty in inferring that Mr. Ng acquiesced in D2's use of his name card, and more probably knew that he was misrepresenting his true or exact position in D1's business set-up. Or, at least, he went along with D2's inflated description of his ambiguous relationship with D1. Like many other facts, the latter has not been fully explained. It seems that D2 was engaged by D1 as a sort of freelance advisor before he became an employee of D1. As already indicated, after June 1989 he was afforded extraordinary privileges and access to D1's office, etc. for a supposedly "dismissed" employee.

10. Although I am satisfied that D2 was never expressly appointed as managing director of D1, nor expressly given the authority usually conferred on such an agent, I am satisfied, on the balance of probabilities, that Mr. Ng was aware that D2 was behaving generally in a manner which suggested a wider authority than that of D1's sales manager for China. I consider that Mr. Ng knew what was going on in D1's office, so far as the activities of D2 were concerned. He didn't care, or turned a blind eye, because he did not believe that he, D1, or the other "partners" in D1 could be fixed with liability for D2's activities after his "dismissal" at the end of June 1989, and the limited publication of the notice dated the 1st July 1989 (Exhibit D4). I do not think that the evidence is sufficient to enable me to infer and find as a fact that Mr. Ng knew that D2 was describing himself as managing director of D1. But I am satisfied that it is sufficient to give rise to a prima facie case of apparent authority to make the contract in question, when one considers the evidence in its totality.

11. D1's denial of having received certain documents (i.e. Exhibits P6, P8 and P9) may be true because these documents were never sent by the plaintiff, or because they were automatically handed to D2 during one of his visits to D1's office, or forwarded to him after September 1989. Equally D1's denial may be false! I find it extremely difficult to accept Mr. Mak's evidence that any correspondence emanating from someone other than a known customer of D1 was simply passed to D2, because it was marked for his attention, but otherwise addressed to D1. That may have been the practice prior to June 1989. If, as Mr. Mak claimed, that practice was continued until the end of 1989, I consider that it tends to support the inference that D2 was very much left in control of D1's business at the material times.

12. It is not, however, sufficient for the plaintiff to show that D1 made representations as to D2's authority, or may be estopped by its conduct from denying D2's authority to make the contract in question. The plaintiff must show that it relied on such representation or appearance of authority. Either basis of potential liability for the unauthorised acts of another requires the person relying thereon to be ignorant of the lack of authority. In my view, this form of liability ceases if the third party has notice of the agent's lack of authority, or is put upon inquiry by the circumstances of the transaction. In this context, the reliability of Mr. Yeung's evidence is crucial.

13. As stated earlier, the alleged contract was the first time that Mr. Yeung had had any dealings with D1. Although his negotiations with D2 were spread over the period from May to August 1989 he did not carry out any search related to D1 at the Companies Registry. I am not sure that such a search would have been of any material use. It might have revealed that D2 was not a director or managing director of D1, if one accepts that the state of affairs in the last Annual Return (31.10.1988) remained the same in 1989. But, in the present case, I am not disposed to find that constructive notice of the information at the Companies Registry was constructive notice that D2 lacked all authority to enter into the alleged contract in cuestion.

14. There were apparent contradictions in Mr. Yeung's evidence regarding the number and dates of his visits to D1's office, as well as the persons present on these occasions. Much of this aspect of the evidence is, in my view, due to confusion caused by the fact that when counsel referred to the "second" or "third" meeting, it was not entirely clear that he was referring to the second or third visits to D1's office by Mr. Yeung. In the circumstances, I do not regard the apparent inconsistencies or contradictions in Mr. Yeung's evidence on this aspect as helpful to my assessment of his reliability on the essential points. However, he was distinctly shaky on Mr. Mak's presence and involvement in these meetings. He was very evasive about their first meeting, and contradicted himself as to the degree of Mr. Mak's attendance at, and interest in, the meeting at which Mr. Yeung demonstrated the application of the "iron-on" labels to samples of clothing in D1's office, in the presence of other persons. As to the latter, I prefer Mr. Mak's evidence that his presence was accidental and very transitory. He merely saw a group of persons in the reception area of the office on his way to the toilet! As Mr. Yeung did not regard Mr. Mak as "in charge" of D1, the significance of his attempt to make it appear that Mr. Mak took a mere prominent role is not obvious. It can only cast doubt on Mr. Yeung's credibility or reliability in general terms.

15. Looking solely at Mr. Yeung's evidence as to events leading up to the conclusion of the contract, which I find to be on or about the 21st August 1989, there are, in my view, at least five aspects of the evidence which point to the more probable conclusion that Mr. Yeung was aware of D2's lack of authority, or was dealing exclusively with D2 as a principal in his own right. The alleged orders (Exhibits P3 and P4) did not bear the chops of D1. Only one was signed, namely Exhibit P3. It was signed by D2 without any indication that he was doing so on behalf of D1 or any other person. Mr. Yeung apparently felt it necessary to send out Exhibit P6 before the alleged contract was concluded. The fact that they were never returned with the acceptance or signature of D1 is, in my view, a significant factor which, at least, put the plaintiff on notice that D2 may not have had any authority to bind D1 to the proposed transaction. Another "danger signal" is the so-called "letter of authority" (Exhibit P7), permitting the plaintiff to manufacture labels, etc., bearing the "Head" logo, etc. It was not signed by anyone on behalf of D1. Nor was it returned to the plaintiff. The dubious status of this document may be sufficient to defeat the plaintiff's claim. But, in my view, the really significant feature of Mr. Yeung's evidence is that which relates to his dealings with Mr. Chak Bing Man.

16. Mr. Yeung's first meeting with Mr. Chak was on the 15th August 1989, when colour codes (Exhibit P5) were delivered to the plaintiff. At the same time, Mr. Yeung was apparently told by Mr. Chak that the finished product should be delivered to Kin Kwok Company (Exhibit P11), where D2 could be located. Some confirmation that Mr. Yeung was told to direct the goods to Kin Kwok by Mr. Chak can be found in the additions to the name card of Mr. Chak (Exhibit P10) given to Mr. Yeung at or about the same time. Accepting instructions from a stranger, not believed to be an employee or agent of D1, to deliver the goods to another stranger with no known connexion with D1, at a time when D2 cannot be located at D1's office, lead me to conclude that Mr. Yeung realised before he sent out the Sales Confirmation that D2 was not acting as a bona fide agent of D1, but solely in his own interest.

17. I consider that the plaintiff has failed to make out a case that D2 had apparent authority to enter into the contract on behalf of D1. That case would have been stronger if it had been shown that D1 received, but ignored, the Sales Confirmations (P6) or the invoices (P9) or the letter dated the 22nd January 1990 (P8). But, I am not satisfied that any of these was ever sent to D1. The last document is a curiosity in many respects. It does not appear to relate to the alleged contract in terms of quantities, description of labels, or the agreed price. It makes no reference to D1's failure to pay cash on delivery or by cheque, or to the invoices (P9). The threat of legal proceedings was not carried out until six months later. Mr. Yeung contradicted himself regarding the invoices. In chief he said they were posted to D1. In cross-examination he said that copies were faxed to D1; the originals were sent to Kin Kwok Company. If they were faxed to D1, this could have been proved. There is no evidence of such despatch or any other mode of transmission, apart from Mr. Yeung's hearsay assertion that they were sent to D1.

18. For the reasons given above I have come to the conclusion that D2 was not held out by D1 as having any authority to enter into the contract in question. In so far as there are conflicts in the evidence on the basic issue, I prefer that of Mr. Mak to that of Mr. Yeung. In particular, I find that Mr. Mak took no active part in D2's negotiations leading up to the alleged contract. I find that the only time that he gave his name card to Mr. Yeung was in July 1990, when Mr. Yeung sought information regarding the whereabouts of D2. The fact that Mr. Yeung did not ask D1 for payment, even when he met Mr. Mak in July 1990, confirms my view that Mr. Yeung realised, at all material times, that he was really dealing with D2 as a principal and not as an agent of D1.