LEE TSZ HUNG SIMON t/a LEE CHUEN TRANSPORT v. TAI YUE KAN t/a TACK SANG CO.

HCA7290/1996

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.7290 OF 1996

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J U D G M E N T

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BACKGROUND

1. The plaintiff carries on a transportation business and the dispute in this case involves three separate amounts which make up the total of $77,800, being claimed as sums due for transportation services rendered by the plaintiff for the benefit and at the request of the defendant : an amount of $22,500 for transportation of goods in March 1993 evidenced, it is said, by a debit note, No.7391, dated 11 March 1993; an amount of $18,450 evidenced by a note dated 3 April 1993; and an amount of $36,850 evidenced by a debit note dated 19 April 1993. It is accepted that these charges were levied and that the transportation services were rendered, but the defendant says that the plaintiff was in breach of the contract of services and that as a result he suffered loss, and he seeks to set off that loss by way of counterclaim.

2. This case has to do with goods that were transported to Taiwan to a customer of the defendant called Master Metal Industrial Company Limited ("Master Metal"). Master Metal imports building material into Taiwan. The essence of the contract between the plaintiff and the defendant is that the defendant employed the plaintiff to carry out transportation functions in Hong Kong for goods arriving from the Mainland, for onward transmission to Taiwan. The plaintiff's function was to unload material from containers, load them into other containers and then transport the new, or second, containers to a shipping company for shipment to Taiwan.

3. The defendant runs two businesses, one is called Tack Sang Company ("Tack Sang"), the defendant company; the other called Cinder Metal Limited. He appears to import and export goods. Quite when the plaintiff started doing work for these companies is not entirely clear. The defendant says in 1991 and the plaintiff says that, for Tack Sang, it was 1992. Be that as it may, there is no question but that in March and April 1993 the plaintiff agreed to handle three separate shipments for the defendant : the first on or about 13 or 14 March 1993 represented by Debit Note No.7391; the second on or about 5 April 1993 (Debit Note No.7526); and the third - the one that has caused all the trouble in this case - in mid or late April 1993, Debit Note No.7640. There is no question but that the plaintiff, save in one disputed respect, carried out the work for which he was engaged. He took the relevant documents to the shipping company and obtained clearance to remove the containers from the container base, and took the containers to a yard and there placed them on a platform, unloaded them and then reloaded the goods into eight other containers for delivery to a shipping company for forwarding to Taiwan. He paid monies to others whose services were engaged to assist in this task. None of this is disputed.

4. So why should he not be paid for all this work and effort? The answer, according to the defendant, is that there was a facet of the job that the plaintiff failed properly to perform; a facet of the agreement which they had made that he did not honour or carry out efficiently with the result, it is said, that the defendant suffered loss, and for which he makes a counterclaim.

5. He says that it was, from the outset of their relationship, agreed between the plaintiff and the defendant that, whenever the plaintiff carried out transportation work for the defendant in respect of goods that had come from the Mainland, it was for the plaintiff, after unloading the goods from their original containers and, before loading them onto the second containers, to remove from all the boxes in which the goods were housed, all labels, stickers, shipping marks, and any other indicators which revealed the fact that the building material came from the Mainland. This was because, before September 1993, the importation of products into Taiwan which were marked as made in the Mainland was likely to cause problems with the Taiwanese authorities, and render the goods liable to detention or even confiscation. The defendant's case is that he made the position clear to the plaintiff when he first engaged him and that the plaintiff said that he was well aware of this practice.

6. The defendant has no argument about the services carried out by the plaintiff in respect of Debit Note Nos.7391 and 7526, but he has a grievance about the services carried out in respect of the last invoice No.7640. The goods represented by that debit note were pipe fittings which Master Metal wanted to import from the Mainland. They were carried in eight containers. On about 15 April 1993, the defendant placed an order with the plaintiff to handle the shipment, and all relevant shipping documents were delivered to the plaintiff. An invoice was delivered later by the plaintiff, but not paid, since payment was only required within 90 days.

7. But things, it is said, went wrong at the Taiwan end. Mr Tai says that he received a call in early May 1993 from the manager of Master Metal, saying that a PRC label had been discovered in one of the eight containers. It was, he said, a very serious matter, and he had to deal with the Taiwanese authorities and he, the manager, would hold the defendant responsible. So, I note, here we have a complaint, still maintained in front of the High Court in Hong Kong, not that the plaintiff was responsible for shipping goods to Taiwan that were not supposed to be shipped to Taiwan, but a complaint that the plaintiff failed to keep his part of the bargain to assist the defendant in hoodwinking the Taiwanese authorities. Anyway, what happened in Taiwan was that one of the containers, the one with the tell-tale marking allegedly still on it, was, according to the defendant, detained by the Taiwanese authorities. Mr Wong, the manager of Master Metal, thereafter came to Hong Kong and, whilst here, he and the wife of the plaintiff and the defendant had a meeting, and, according to the defendant, the plaintiff's wife agreed on the plaintiff's behalf to withhold the debit note until the matter had been finalized. In the event, the defendant was held liable by Master Metal for detention fees allegedly levied by the authorities in the sum of NT$230,311; application fees for customs clearance in the sum of NT$75,000, and compensation to the customers of Master Metal for late delivery of the goods in the sum of US$12,000. The defendant asserts that he paid all these sums, and he now seeks to counterclaim them.

8. All this is reflected in the following way : the plaintiff by his Statement of Claim (issued in 1995) claims $77,800 for services rendered, plus interest. The Defence pleads the duties of the plaintiff in respect of the contract evidenced by Debit Note No.7640 - the duties I have outlined, including the duty to take away tell-tale labels, and then pleads that the plaintiff was in breach of the agreement because he failed to remove all the labels, he left one showing, and so on, as I have outlined. There is a counterclaim; again, as I have outlined.

9. It is not asserted in any of the pleadings, by way of defence, that the contract was tainted with illegality. That is a matter to which I shall return.

10. The case was ordered by the District Court to be transferred to the High Court, presumably because of the amount of the counterclaim. In the event this small claim engaged the parties and the court in three and a half days of evidence.

THE EVIDENCE

(1) The plaintiff

11. I have heard the evidence of Mr Lee, the plaintiff, as well as that of his wife (Madam Fei) and the evidence also of the defendant and of Mr Wong of Master Metal.

12. I was impressed by the evidence of Mr Lee and of Madam Fei; especially the evidence of Madam Fei whom I found to be a witness of particular probity and honesty.

13. Mr Lee has been carrying on the business of transportation for about 20 years. He drives his own lorries and trucks, and uses sub-contractors to do some of the work for him. He married in 1989 and, since then, his wife has worked with him in the business doing the documentation and chasing for payment of bills. His work has mainly been to take goods off barges. Rarely, he says, did he unload goods from containers for reloading onto other containers intended for export. Since about mid-1992, he had carried out some work of this kind for Mr Tai, perhaps twice every three months. On each such occasion, he had been asked to remove labels that had been stapled onto boxes and to write the details onto the boxes themselves. In each such case, the label showed the goods to be made in Thailand. It is clear that he suspected that the goods were not made in Thailand, but he says that it was nonetheless possible that they were. He chose not to press the matter with Mr Tai. Had he done so, all that Mr Tai would have said was that if they were bogus in origin, how could they pass muster with the Chinese customs authorities? He knew that the goods were headed for Taiwan. According to the plaintiff, the task he had to perform for the defendant was multifaceted. He knew that goods were to arrive from the Mainland, and he was sent the bills of lading by the defendant. Using these, he ascertained when the goods were due to arrive. And once he was told that the goods had arrived, the imported containers were towed from a container terminal at Tsing Yi on container trucks to the plaintiff's yard. Then, from a navigation company called Yong Yeou Navigation Company Limited ("Yong Yeou"), he obtained eight empty containers, and the goods were then transferred from the loaded containers to the empty containers the goods. But not before the labels had been taken off and the boxes marked. The new containers, now loaded, were delivered then to a company designated by Yong Yeou, namely, Kasai Oriental Limited ("Kasai"), and Kasai issued a receipt for their delivery. That receipt was given to the defendant who then obtained or prepared the bill of lading for the goods to go to Taiwan. As for the now empty containers, in other words, the ones that had been on ship from the Mainland and had been emptied at the yard, they were returned to the shipping company to a container yard in So Kwun Wat.

14. Mr Lee added that he was asked only to remove these labels and mark the details on the wooden boxes but that nothing else was asked of him, such as to pay special attention to any particular kind of marking. He still has all the labels which he removed, and I have seen them. They read as follows :

"MASTER
B15 - KEELUNG
P/NO. [the number]
MADE IN THAILAND."

The plaintiff's case is that he had been told only by the defendant that the labels were loose or might come loose on the wooden crate, and that it would therefore be much better if the information were copied directly onto the cases. This was to make it easier to make a customs declaration, in the sense that it could not be said by the authorities that the goods had no markings. He was never told to conceal anything that might reveal that the goods came from the Mainland. Although he knew that the eight containers came from the Mainland, he had no idea of the place of origin. What he and his workers did was to remove the labels as asked and to write the information on the boxes. All this was done in the presence of the defendant's worker or representative, a man known as "Big Kwong". So, he performed the contract as he had been asked, and he has due his money.

15. As for his knowledge of the origin of the goods, he said that it was possible to have goods made in Thailand, purchased in the Mainland, and sold on from there. He points out also that the containers marked as they had been, "Made in Thailand", must have passed through Chinese customs, and there should be proof that they came through the customs marked "Made in Thailand". "There were suspicions", he said "but we could not be sure." He would not normally verify the place of origin before unloading or before loading.

16. As for the document that was said to have been found in the crate or container, which bore the Chinese characters and is said to have given the game away to the Taiwanese authorities, I have seen that document. I do not have the original, because the original is said to be in the possession of the Taiwanese authorities. The document is entitled "Fumigation Certificate", and it shows that the goods in container No.4166377 were fumigated, and the document purports to bear the imprimatur of the Health and Quarantine Bureau of the People's Republic of China. The plaintiff says that he believes this document to be a forgery, for he points out that, in the first place, the document is not one that would ever be inside a container because it would be required by the shipper on the Mainland for presentation to the authorities there; and, secondly, because the container number shown on it is the number of one of the containers into which goods were loaded in Hong Kong - that much is certain from the documents I have seen, and he points out that the number of that container could hardly have been known to those on the Mainland before the goods had arrived in Hong Kong, because the allocation of empty containers in Hong Kong is a random matter arising only once one goes to collect empty containers, and that was done after the goods had already arrived here.

17. As for the suggestion that he entered upon a compromise with the defendant, he denies it.

(2) The defendant

18. I also heard the evidence of Mr Tai, the defendant. He is obviously an experienced and successful businessman. He described how he came to meet the plaintiff, and how he was anxious to ensure that the defendant was a reliable man. He said that the plaintiff was specifically told that he was required to remove everything including any writing, names, and simplified Chinese characters, indicating that the goods were from the Mainland, and that the plaintiff promised that if anything went wrong, he, the plaintiff, would be responsible. Mr Tai made no secret of the fact that he believed at the time that if goods going into Taiwan from the Mainland were discovered as coming from that place, they would be, or ran the risk of being, confiscated; although for non-sensitive goods such as the ones which are the subject of this action, they would generally be returned, though the importer would be black-listed. I have had no evidence about Taiwanese law in this regard, but the evidence of Mr Tai and the length to which he and others went to disguise the origin of these goods, clearly suggests that there were restrictions at the time upon the importation of goods from the Mainland. Quite what they were - whether a total prohibition, or whether permitted subject to licensing, whether the regulations restricted importation of goods from the Mainland regardless of the place of manufacture - I cannot say, for I have no, or no reliable, evidence about it. All I can say is that the defendant was engaged in some form of deception. Nor do I know what the regulations in the Mainland were.

19. The evidence of Mr Tai is that the goods in question had been purchased by Master Metal from a Mainland factory in Xiamen to be shipped from Tianjin. He never in fact saw the boxes or the goods in them. He said that in early May 1993, the goods arrived in Taiwan but that he received a call from Mr Wong to say that the goods had been detained; and that a letter was sent by Master Metal informing the defendant of the detention of the goods, and making it clear that they held the defendant responsible for what had happened.

20. In early June, according to this evidence, Mr Wong came to Hong Kong to discuss the matter with Mr Tai. The plaintiff had agreed to meet them but when the date arrived, the plaintiff could not, for some reason, attend, and he sent his wife instead. They met at a restaurant and she wanted proof of detention of the goods which at that stage they did not have, because the goods had only recently been detained. Still, it is asserted that she agreed that the amount owed could be put aside for the meantime until the matter was sorted out. Then, after one or two months, Mr Wong's boss, a Mr Kor, came to Hong Kong and there was a meeting in the Lee Gardens Hotel attended by the plaintiff, and at this meeting Mr Kor outlined the expenses he would have to incur - not the figures, but the heads of damage, as it were, that he was likely to suffer and he made it clear that he looked to the defendant to meet them. Mr Tai asserts that, at that meeting, the plaintiff agreed to waive the amount due in respect of the three debit notes, in consideration of which it was agreed that the expenses incurred by Master Metal by reason of the goods' detention would be a matter to be dealt with as between Master Metal and the defendant. Mr Tai did not think that those expenses would be very high, so he agreed to that proposal. In due course, that is, in November 1993, he received a demand, he says, from Master Metal for the sums which are now the subject of the counterclaim. He adds that he has paid these sums through a Taiwanese friend.

21. By the time that Mr Tai gave evidence it was clear, because I had made it clear, that illegality was in issue in the case : in other words that, although the matter was not pleaded, it was open to this court to take the point, and that it seemed to me that the defendant would have considerable difficulty in persuading me, even if the facts otherwise warranted, to give judgment in his favour when his claim was based on a breach of a suggested obligation to assist in deceiving the Taiwanese authorities. In his evidence, Mr Tai said that it was not at all clear that the goods imported from the Mainland for re-export to Taiwan were in fact not made in Thailand and, accordingly, that it was not at all clear that there would be a problem with Taiwan. Very often parts of the goods, he said, were manufactured in Thailand and further processed on the Mainland : indeed, that is what he was told by China North Industrial ("China North"), the Mainland exporters. Accordingly, he did not feel that he was doing anything wrong. I found unsatisfactory and unconvincing Mr Tai's evidence on this question of where the goods were made and what information he had, and what he knew about the regulations. He asserted that he nonetheless went to the trouble of ensuring that all traces of Mainland connection with the goods were removed because he did not want to "excite" the Taiwanese customs authorities. This sits ill with his comment in a witness statement made before this hearing, the tenor of which was quite clear, namely, that he wanted all labels removed because products marked as made in the PRC were not allowed to be imported into Taiwan.

(3) Mr Wong of Master Metal

22. Mr Wong, now retired, formerly of Master Metal, also gave evidence. Master Metal had a long standing business relationship with the defendant before the incident in question. He said that in 1988, there were negotiations between the defendant and Master Metal and China North. China North was to be responsible for sourcing semi-finished products from Thailand, and the products were to be processed on the Mainland, in Shandong, and the defendant was to be responsible for shipping the goods through Hong Kong, and that during transshipment, the goods had to be "cleaned"; in other words, rid of Mainland marks and signs. In the course of discussion about respective roles in relation to such business, it was accepted and agreed that China North was to tell the Chinese authorities that the goods were made in Thailand. It is, I think, implicit in the evidence he gave that that is what the Chinese authorities would be told even if the goods were in fact made in the PRC. Yet he says that he did not know, in relation to the goods in question in this case, that when they came through the Mainland to Hong Kong they would already be marked "Made in Thailand". He said that if the Taiwanese authorities saw simplified Chinese characters, the goods would be detained. He said that these particular goods were detained in Taiwan, and that the authorities there faxed to him the fumigation certificate. He said that a couple of days after the goods were detained, Master Metal was given a copy of the PRC label which had been found in the container. He was also unable to say who made the goods in Thailand, or in what part of Thailand the goods were made. He was also present at the meeting between the defendant and the plaintiff's wife in June 1993.

FINDINGS

23. I find that the plaintiff performed the services for which the invoices were rendered and that, subject only to the question of illegality to which I shall return, the plaintiff is entitled to the amount he seeks.

The settlement agreement

24. I find that there was never an agreement as suggested by the defendant that the plaintiff would withhold demands for payment of his services, or an agreement that the amount owed to him would be held against compensation due for the expenses incurred in Taiwan by the defendant's customers. I say this for a number of reasons :

25. I believe the evidence of Madam Fei. She was a most impressive witness. She spoke of the meeting she held in 1993 with the defendant and a gentleman from Taiwan. She had been presenting bills for payment of the invoices, but the defendant had been saying that the goods had been detained and since he had, for that reason, not been paid by his customer, he could not pay the plaintiff. At the meeting, she asked the man from Taiwan whether it was true that the goods had been detained but she remained sceptical about the story that she was given because they did not tell her what characters had been found, nor did they show her any documentation to support what they were alleging. The first she saw of any documentation, in purported support of the allegation, was after proceedings had been instituted. Her evidence about this meeting was eminently believable and is supported by the fact that in 1993 and 1994 there were issued by her statements asking for payment of the sum due under these invoices. I have seen them; and there is no suggestion of any correspondence from the defendant saying that these demands did not sit well with the agreement already reached; nor is there any document showing any demand from the defendant for payment of the less allegedly due. The defendant accepts that he received demands from the plaintiff, invoices, in 1994, which included the amount which is the subject of the plaintiff's present claim, but says that "as there was a set-off, so I could just ignore it".

26. It is a notable feature of this case that not only did the plaintiff send invoices to the defendant in mid-1994 for the amounts due or allegedly due for the 1993 work, but that in October 1994, the plaintiff's solicitors sent a letter before action, demanding payment of $77,800, identifying clearly enough what the claim was for. The defendant instructed solicitors. Their reply was to ask for further details : "eg invoice, contract ...", a strange request given that the defendant must have known full well what the claim was for and, if he were telling the truth, that the matter had been settled. Copies of the invoices were then sent by the plaintiff's solicitors under cover of a letter dated 31 October 1994. There was no reply, and in December the plaintiff's solicitors wrote yet again, to which the defendant's solicitors said that they were awaiting their client's instructions. It was only after the writ was issued that the defendant's solicitors, in April 1995, suggested that there was a defence and a counterclaim, although, even then, its nature was not specified. Mr Tai's explanation for this failure to put his case when one would have expected the case to have been put - a case that must have been simple and clear to Mr Tai, if true - is that he travelled a lot, and that because the first firm of solicitors had sat on the file, another firm had to be instructed.

27. The first that ever appears in writing from the defendant asserting the settlement is in the Defence and Counterclaim dated July 1996, some two years plus after the loss which he says that he suffered.

28. Furthermore, I do not for one moment believe that the defendant would have agreed to settle the matter in the way he suggests, at a stage when he did not know, according to his own case, how much would be due to Master Metal or its clients in respect of the loss allegedly occasioned by the plaintiff.

The counterclaim

29. I entertain some doubt as to whether the goods in question were in truth detained; but, more particularly, I entertain very considerable doubt that they were detained by reason of any breach of duties which the plaintiff had been engaged to perform or that, in any event, the defendant suffered the loss he claims, or that the plaintiff agreed to perform tasks for the defendant which he was shown not properly to have performed. I entertain these story doubts for the following main reasons :

(1) The fumigation certificate allegedly issued in the PRC is itself highly suspect, containing as it does reference to the number of a container which only came into being for the purpose of these particular goods after the goods had arrived in Hong Kong. It was, in other words, the number of a container used for the export of the goods from Hong Kong and not for the export of the goods from the Mainland. No explanation has been given by the defendant for this decided oddity.

(2) It is noteworthy that no letter was ever written to the plaintiff by the defendant demanding compensation for the loss allegedly incurred - neither at the outset, in May 1993; nor in response to demands by the plaintiff for payment of his services. The fumigation certificate was not forwarded to the plaintiff; nor was the letter of demand from Master Metal dated May 1993, which the defendant says he received that month, forwarded to the plaintiff; and when the invoices were sent by the plaintiff to the defendant in 1994, nothing at all was said in reply : no denial that the monies were due; no written demand for compensation for the loss allegedly suffered by reason of the suggested detention; no document shown at the 1993 meetings, or sent thereafter, supporting the alleged detention or loss. Then there is the suspect fumigation certificate. And no documentary evidence is produced, even now to this court, of the expenses incurred by any of the Taiwanese parties, nor of the alleged payment by the defendant, or on his behalf, to those whom such loss was allegedly occasioned. Nor was the calibre of the defendant's oral testimony such as to persuade me that his account was accurate.

30. As to the ambit of the plaintiff's task under the agreement, I accept the evidence of Mr Lee that when the goods came into Hong Kong they had these labels "Made in Thailand", and that he had been asked, as but an adjunct to his job, to transfer information from the labels onto the boxes themselves. Mr Tai accepted as much. But Mr Tai has not satisfied me that there was more that Mr Lee was to do. It may be that there was, but, given the unsatisfactory quality of the defence evidence, the factors and lacunae to which I have referred, I am not satisfied of it, even on a balance of probabilities. I note too that China North was asked, according to Mr Tai, to ensure that there were no tell-tale signs left on the boxes - such responsibility was clearly theirs; though I can see that it is possible that Mr Tai would have wanted a further check in Hong Kong.

31. Much has been made of the fact that in the original Reply filed by the plaintiff in these proceedings, it was asserted by way of defence to the counterclaim that the plaintiff had indeed removed all the labels and stickers, shipping marks, signs and indicators which showed the country of origin of the goods, and it was admitted that he had agreed to do so. By an amendment made considerably later, that admission and averment was diluted so that the newly pleaded case was that the defendant did not mention to the plaintiff anything about shipping marks, signs or indicators, but that what the plaintiff did remove were labels and stickers. The point is obviously an important one on the question of credibility of the plaintiff, and also in the context of the illegality issue. But, in the event, I do not think that too much significance should be placed on this point arising from the pleadings. On the basis of the evidence now put forward by the plaintiff, it was the case that he was asked to remove labels; and it is the case that he in fact did so; and it is the case that the labels he removed showed the goods to have originated elsewhere than the Mainland. There is implicit in the attack on this apparent change in the pleadings the suggestion that the plaintiff changed his story once he realized that the question of illegality might be raised. But I have no evidence before me to show that there was any sudden realization that it might be raised. It was an issue raised for the first time on the first day of this trial, and raised by this court. Moreover, had the plaintiff wanted to avoid any suggestion of complicity in the deception about the place of origin, one would not have expected him to come up with the "Made in Thailand" story at all; let alone produce the labels themselves which support his story. It is clear to me that Madam Fei and Mr Lee have their well defined roles within their business : he is the one who obtains the contracts and performs them; and she looks after the paper work and the business side of things. So she chased for payment, and it was she who instructed solicitors and gave them instructions as to what had happened. I have heard their explanations about the change to the pleadings. The effect of their evidence was, put broadly, that it was she who instructed the solicitors initially, and after the Defence was seen he thought that the only issue was whether he had or had not removed the "Made in Thailand" labels. That was what the reference to labels and stickers and markings and so on meant to him, and it was a fact that he had been asked to remove labels and had done so; he told his wife and she instructed solicitors, and it was only later that he appreciated, or thought, that the matter was much more simple than in the pleadings, and the pleading was changed. I accept their evidence, and I see nothing sinister in the change of the pleaded case.

32. In the circumstances, the counterclaim is based on evidence which is not, in material respects, credible, and the counterclaim is dismissed.

Illegality

I return, therefore, to the question whether the plaintiff ought to be deprived of judgment on the basis of illegality.

"... No Court ought to enforce an illegal contract or allow itself to be made the instrument of enforcing obligations alleged to arise out of a contract ... which is illegal, if the illegality is duly brought to the notice of the Court, and if the person invoking the aid of the Court is himself implicated in the illegality."

(See Scott v. Brown, Doering McNab & Co. [1892] 2 QB 724, 728.)

33. None of the pleadings in this case contends that the suggested obligations of either party are unenforceable by reason of illegality. Illegality was an issue raised by this court on the basis of the facts asserted by the Defence and Counterclaim by which it appeared to me to be suggested that the plaintiff was engaged to assist the defendant for the purpose of furthering an improper act, namely, to deceive the Taiwanese authorities into believing that the goods were made in Thailand. That the defendant was knowingly engaged in some such deception is clear enough, as shown, for example, by the bill of lading which he presented or prepared. The question which now arises is whether the plaintiff was knowingly party to an act, such that this court will not enforce the contract made between the plaintiff and the defendant by which the plaintiff undertook to unload, transport, and re-load the goods in dispute.

"A contract is illegal if it involves doing something illegal or contrary to public policy or if the intention of the parties in making the contract is thereby to promote something which is illegal or contrary to public policy."

(See Sutton and Shannon on Contracts, 7th Ed., page 259.)

"... It must, however, be remembered that where a contract is ex facie legal and proper, and only one of the parties intends to put it to improper or fraudulent use, the other party, if innocent of the fraud, can enforce the contract."

(Page 263, supra.)

34. It is not sufficient to show that the party seeking to enforce the contract (on its face lawful), suspected the illegality. Knowledge must be established. If a contract is contrary to public policy, it is also deemed illegal for current purposes; and a contract which involves an illegal act against the laws of a friendly country is a contract contrary to public policy.

"... Where a contract is ex facie illegal, the court will not enforce it, whether the illegality is pleaded or not; secondly, where the contract is not ex facie illegal, evidence of extraneous circumstances tending to show that it has an illegal object should not be admitted unless the circumstances relied on are pleaded; thirdly, where unpleaded facts, which, taken by themselves, show an illegal object, have been put in evidence ... the court should not act on them unless it is satisfied that the whole of the relevant circumstances are before it; but fourthly, where the court is satisfied that all the relevant facts are before it and it can clearly see from them that the contract had an illegal object, it may not enforce the contract, whether the facts were pleaded or not."

(See Chitty on Contracts, Vol.1, para.17-196.)

35. I am not satisfied that the plaintiff was contracted to look for and remove any sign that showed from where the goods had travelled. The contract established is that he was to transport, unload and reload goods, and write on the crates whatever information happened to be on labels attached to the crates. That the defendant and Master Metal were engaged upon some deceptive course in their dealings with the Taiwanese authorities seems clear, but I do not think that I am in possession of all the relevant information upon which to conclude that the plaintiff was knowingly party to the furtherance of an illegal purpose. I think that a court, especially where it takes up of its own motion the issue of illegality, does not start from a presumption of illegality or of knowledge by a party of that illegality. Before this plaintiff may, on this ground, be deprived of the fruits of his labours, this court would, in my view, have to be well satisfied of all the relevant facts, and that those facts established knowing complicity is illegality by him. I have a suspicion that the goods did not originate in Thailand, and that the plaintiff knew as much when he made the markings on the boxes. Indeed he himself confessed that he held some suspicion, but he says that he could not know, citing the fact that the goods marked "Made in Thailand" had cleared Chinese customs. I do not know what the regulations then were, either in the Mainland or in Taiwan - whether, for example, there was an absolute prohibition on goods flowing from one territory to the other, even if the goods had originated in Thailand but were processed on the Mainland. I do not know for a fact that these particular goods were not processed on the Mainland having originated somewhere else. I do not know what declarations were made to the Mainland customs authorities, or to the Hong Kong customs authorities, nor whether in fact the "Made in Thailand" labels would have been, or were, seen by the Chinese customs authorities. In these circumstances, I am not in a position to say that the plaintiff should, on the grounds of illegality and knowledge of that illegality, be deprived of the sums due for the work which he clearly performed.

CONCLUSION

36. There will be judgment for the plaintiff. The defendant is ordered to pay the plaintiff $77,800 on the claim, with interest on that sum at the rate of prime plus 2% from the date of the writ to the date of judgment, and thereafter at the judgment rate until the date of payment; and I shall order that the counterclaim be dismissed. There will be a costs order nisi that the defendant shall pay the plaintiff his costs of the claim and counterclaim, to be taxed if not agreed.