JAMES WONG & CO., LTD. v. TONG TAI YUN AND OTHERS

DCCJ 343/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 343 OF 2001

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JUDGMENT

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1. In this action, the Plaintiff sues for the outstanding price of goods sold and delivered, so it says, to a firm Wing Yuen Civil & Building Co. ("Wing Yuen") of which the Defendants were partners at all material times. After the commencement of proceedings, the Plaintiff reached a settlement with the 2nd Defendant who agreed to pay and accordingly paid $45,000 to the Plaintiff towards the Plaintiff's claim. Accordingly, the Plaintiff now only claims a sum of $194,359.79. Further, a default judgment has already been obtained by the Plaintiff against the 3rd and 5th Defendants but the judgment remains unsatisfied. The 1st Defendant was adjudicated bankrupt in 1998 and the claim against him has accordingly been stayed. So in other words, this trial is only concerned with the claim against the 4th and 6th Defendants.

2. The Plaintiff is and was at all material times a building material supplier approved by the government for the supply of building materials directly to the government. Further in respect of various special building materials which are approved by the government for use in government jobs by its contractors, the Plaintiff is the exclusive supplier. The goods in question, all approved special building materials supplied by the Plaintiff, were supplied in relation to three government public toilet refurbishment jobs awarded to a main contractor, Tai Hing (Engineers and Builders) Limited ("Tai Hing") in 1995. Wing Yuen was Tai Hing's subcontractor in relation to the jobs. The goods were supplied by the Plaintiff under five different contracts. In each contract, Tai Hing was named as the buyer of the goods in the body of the contract, but the contract was signed by Wing Yuen as the buyer.

3. In this action, the Plaintiff says Wing Yuen was the buyer of the goods. Alternatively, if Tai Hing was the real buyer, by signing the contracts as the buyer in an unqualified manner, Wing Yuen was an agent of Tai Hing contracting with personal liability under the contracts. The 4th and 6th Defendants argue otherwise. They say Tai Hing was the buyer of the goods, and Wing Yuen was not an agent or at least not an agent contracting with personal liability.

4. A Mr. Wong Pok Chee, a former employee of Tai Hing the business of which collapsed in around 1997, gave evidence on behalf of the Plaintiff. He used to be a group representative of Tai Hing in respect of all refurbishment works from the government. He was the contact man between Tai Hing, the government, the special building material suppliers, and the subcontractors of Tai Hing. According to him, when Tai Hing was given a job by the government, a subcontractor would be given by Tai Hing the job. The subcontract, like the main contract with the government, was one for both work and materials. For special materials, they were chosen by the government and had to be purchased from the relevant suppliers of the approved special materials. For the ordinary materials, the subcontractor would be responsible for buying them as part of its subcontract work. In relation to the buying of special materials, the supplier's contract would name Tai Hing as the buyer and be sent to Tai Hing. Tai Hing would then ask the subcontractor to sign the contract as the buyer. Mr. Wong explained that in fact the subcontractor was buying from the material supplier and therefore it was asked to sign the contract as the buyer. Both the deposits and remaining price had to be paid by the subcontractor to the supplier. Occasionally if the subcontractor had a cash flow problem and could not pay, Tai Hing would pay first the supplier and deduct the money from the subcontract sum due to the subcontractor later.

5. Mr. Wong further explained that it was the government's requirement that the contract as well as the invoice and delivery note should name the main contractor, i.e. Tai Hing, as the buyer. Otherwise the government would not make payment for the goods purchased. Mr. Wong explained that in making payment for the special materials so purchased, the government would pay Tai Hing an extra 15 percent of the contract price of the materials as Tai Hing's administration cost, which Tai Hing would share with its subcontractor according to their agreement. Mr. Wong said the same procedure was followed in relation to the goods supplied by the Plaintiff to Wing Yuen, the subject of the present litigation.

6. The Plaintiff also called a Mr. Patrick Wong, a sales representative in the employ of the Plaintiff, to give evidence. He was the salesperson in charge of the five contracts for the supply of building materials in the present case. Although he apparently got slightly confused during cross-examination, the material part of his evidence was tolerably clear. According to Mr. Wong, his company was supplying the goods as chosen by the government to the subcontractor designated by Tai Hing to do the jobs, namely, Wing Yuen. But instead of naming Wing Yuen as the buyer in the contracts, he followed what everybody, i.e. Tai Hing, Wing Yuen and the people in the Architectural Services Department ("ASD"), told him to do. He was told that in order to facilitate government approval for payment of the building materials so supplied, Tai Hing, the main contractor, should be named in the body of the contracts as well as the invoices and delivery notes as the buyer of the goods. Furthermore, Wing Yuen, the subcontractor actually doing the job, should sign the contracts as the buyer. He could not explain in any further detail why this arrangement or practice should be adopted. He did not know. He maintained that the goods were delivered to Wing Yuen at the site for work. He said Wing Yuen paid the deposits and he expected Wing Yuen to pay the balance as well.

7. Mr. James Wong is and was at all material times a director of the Plaintiff. He was in the trade since 1971 and started his own business (i.e. the Plaintiff) in 1984. He signed all the five contracts involved in the present dispute. According to him, very often a main contractor like Tai Hing would subcontract its work obtained from the government to a subcontractor. In that case, in respect of the purchase of special materials sold by his company, the contract would name Tai Hing as the buyer but the subcontractor who according to him would be responsible for payment of the purchase price would sign it. In the present case, the same procedure was followed. Wing Yuen signed the five contracts, and Wing Yuen paid the deposits. According to his understanding, the subcontract between Tai Hing and Wing Yuen should have been one for both labour and materials, for otherwise if Tai Hing were responsible for buying the materials, it need not have required Wing Yuen to sign the contracts.

8. Mr. James Wong was able to throw further light on why Tai Hing was named as the buyer in the contracts. He explained that the special materials were chosen by the government because the government was satisfied with their quality and so forth. It wanted to make sure that the special materials were used by the main contractor or its subcontractor in the project. So it required the supply contract to name the main contractor with whom alone the government had a contractual relationship as the buyer. For the same reason, it required the relevant invoices and delivery notes to be addressed to the main contractor. Although the government never told the Plaintiff with whom it should or could contract in selling the materials, the government's goal was effectively achieved by the government's practice of only authorising payment to the main contractor against production of contracts, invoices and delivery notes addressed to the main contractor. In other words, the government would not make payment against a contract or invoice naming only a subcontractor as the buyer.

9. But from the angle of the Plaintiff, so Mr. James Wong explained, what was important was not who was named as the buyer in the contract but rather who actually signed the contract as the buyer (and whether the deposit was paid.) And apparently the government was simply not concerned about who signed the contract so long as the main contractor was named as the buyer. To Mr. James Wong, whoever signed the contract was the real buyer of the goods and responsible to the Plaintiff for the payment of the purchase price.

10. In the present case, as Wing Yuen signed the five contracts, so Wing Yuen instead of Tai Hing was responsible for payment of the purchase prices. Mr. Wong added that the five contracts with Wing Yuen were the only contracts the Plaintiff had with Wing Yuen, but the Plaintiff had dealt with other subcontractors of Tai Hing before in the same way. In all those other cases, the contracts named Tai Hing as the buyer but were all signed by Tai Hing's subcontractors who paid the Plaintiff the deposits and balance purchase prices, all in accordance with Mr. Wong's understanding of the government requirement and the practice that grew up as a result, as outlined above. In the present case, in accordance with Mr. Wong's understanding, the Plaintiff never asked Tai Hing to make payment of the outstanding purchase prices but only looked and still looks to Wing Yuen for payment.

11. The 4th and 6th Defendants did not call any evidence, although witness statements of the 1st and 4th Defendants had been filed and exchanged. In those circumstances, the witness statements do not form part of the evidence adduced before the court at this trial. Further, the affirmation of the 4th Defendant filed for the purpose of opposing an earlier application for summary judgment by the Plaintiff does not form part of the evidence either.

12. In my judgment, the picture emerging from the evidence is reasonably clear. For a particular government job, the government would choose special building materials for use by its main contractor in the job. No doubt in so doing the government would must have considered that the building materials so chosen as being satisfactory in terms of quality and so forth, and would want them to be used in the government project. In order to ensure that the materials so chosen were actually used by the main contractor, the government, in processing claims by the main contractor for work done and materials supplied in relation to the job, would only process contracts and other related documents relating to the supply of the special building materials that were addressed to the main contractor as the buyer. It would not process documents bearing the name of the subcontractor who purchased the materials from the supplier as the buyer. In this way, the government could effectively ensure that the special building materials it wanted had actually been purchased and used for the job in question, and it need not concern itself with finding out whether a particular subcontractor whose name appeared in a particular supply contract as the buyer was in fact a subcontractor of the government job or whether the subcontractor had actually used the special building materials purchased under the particular supply contract for the government job in question.

13. But the evidence also shows, and I also find, that the government was not concerned about whether the supply contract which named the main contractor as the buyer of the special building materials was signed by the main contractor or by a subcontractor. In fact, the evidence of Mr. Patrick Wong of the Plaintiff suggests, and I also accept, that people in the ASD actually told the contractors and suppliers that if the job was actually done by a subcontractor the subcontractor should sign the supply contract as buyer. This is understandable. The only concern of the government was that the special building materials were actually used for the government job. The above practice effectively required the contract of supply to name the main contractor as the buyer. That was sufficient to achieve the government's goal. The government did not go so far as to require the supplier to only contract with the main contractor but not anyone else. Therefore the government allowed the supply contract to be signed by the subcontractor who was actually the contractor doing the job and using the building materials on site. Accordingly, the practice has grown up amongst suppliers like the Plaintiff and contractors like Tai Hing and Wing Yuen that the supply contract would name the main contractor as the buyer but the contract would actually be signed by the subcontractor.

14. In my judgment, this picture appears reasonably clear from the evidence given by the various witnesses called by the Plaintiff. Having closely observed their demeanour in the witness box and considered their evidence together with the documentary evidence presented before me, and bearing in mind that the defence has not called any evidence whether from the partners of or those formerly working for Wing Yuen, the government or anyone else in the trade to contradict their evidence, I am fully satisfied that all the witnesses were honest and truthful witnesses, and all of them sought to give truthful and correct answers before the court.

15. Further, I also accept the evidence given by the witnesses that the subcontract between Tai Hing and Wing Yuen was one for both labour and materials, like the main contract between the government and Tai Hing. In particular, I have no reason to doubt the evidence in this regard given by Mr. Wong Pok Chee, the former group representative of Tai Hing, who was in the best position to know. According to Mr. Wong, the subcontractor was responsible for doing everything on site, whereas Tai Hing as the main contractor only performed the role of a coordinator but did not do any actual work, i.e. whether in terms of the buying of building materials or the provision of labour. So for ordinary building materials not chosen by the government, it was the responsibility of the subcontractor to buy the materials for use on site. For special building materials chosen by the government, the main contractor would get involved to the extent of arranging for their purchase from the supplier in question together with the subcontractor under the practice described above. According to Mr. Wong, the government was fully aware of that and actually paid the main contractor a 15 percent "administration fee" based on the price of the special building materials for its role in purchasing or arranging for the purchase of the special building materials. I accept in entirety the evidence of Mr. Wong in this regard.

16. Against all these, I now consider the relationships between the parties under the five contracts in question. There can be no doubt that the five written contracts constituted the contracts in question. They were obviously intended to be contractual documents. They contained elaborate terms to govern the relationship of the buyer and seller. They were signed and in fact each of the contracts expressly provided that if no confirmation of the contract (which I find to mean the countersigning of the contract by the buyer) was received by the Plaintiff (who had signed the contract before sending it over to the other side for signature) within seven days the contract would be treated as null and void. In this regard, I reject the argument of Mr. Lee, counsel for the 4th and 6th Defendants, that the contract was concluded orally at an earlier stage when the price of the goods were agreed between Mr. Wong Pok Chee and Mr. Patrick Wong.

17. In each of the five written contracts in this case, the goods were described as having been sold by the Plaintiff to Tai Hing who was referred to as the buyer in the contract. At the bottom of the contract on the front page, a director of the Plaintiff (Mr. James Wong) signed the contract "for and on behalf of" the Plaintiff. Next to his signature, the chop of Wing Yuen was placed on the space for the signature of the buyer and the 5th Defendant signed the contract as the authorised signatory of Wing Yuen.

18. By merely looking at the contract itself, one would reasonably be in doubt as to who was actually the buyer of the goods. It could be Tai Hing, signing the contract through the agency of Wing Yuen. It could be the other way round, i.e. Wing Yuen was buying the goods through the agency of Tai Hing. A third possible reading is that both were jointly buying the goods.

19. In this sort of situations, in my judgment, I do not think the parol evidence rule prohibits the court from looking at extrinsic evidence to find out the true position. Such evidence relates to the factum of the written contract, and in my judgment in the present case the personality of the contracting party (i.e. the buyer) was not of sufficient importance to render it a term of the contract: See the discussion on this topic in Chitty on Contracts (28th ed.) Vol. 1 para. 12-112. In particular, this is so when in this case we have two entities being described as the buyer in the same contract. In my judgment, in such a situation, extrinsic evidence must be receivable to determine the true position.

20. Considering the five contracts against the background of this case as described in some detail by me above, it is clear that the contracts were prepared in the way they were prepared in accordance with the practice of buying special building materials that had grown up as a result of the practice of the government to only process contracts and related documents for the supply of special building materials that were addressed to the main contractor as the buyer. In my judgment, had it not been for the government's requirement, the supply contract would no doubt have named the subcontractor who had contracted to provide both labour and materials under the subcontract as the buyer of the building materials, and no doubt the subcontractor would equally have signed the supply contract. In fact, this was what would happen when ordinary building materials were purchased. In my judgment the position did not change because of the government's requirement. Although the main contractor was named as the buyer in the supply contract for the special building materials, the same was still signed by the subcontractor. The naming of the main contractor as the buyer in the body of the contract was done just to satisfy the requirement of the government. Beyond that, in my judgment, it was intended to serve no other purpose. It was never intended to alter the identity of the party actually buying the special building materials from the supplier, who remained the subcontractor who signed the supply contract.

21. Had it been intended that the main contractor would be the buyer of the goods, there would have been no need to require the subcontractor to sign the contract. And of course, in the present case Wing Yuen not only signed the contracts as the buyer, it signed without any qualification of its liability as "the buyer" under the contracts. As I said, the government did not require the supplier to contract with the main contractor only, and I see no reason why the supplier could not be or was not contracting with the subcontractor. From the point of view of Tai Hing, there was no reason why it would have wanted to buy the building materials. After all, Wing Yuen was its subcontractor for both labour and materials. Tai Hing had no reason to buy the special building materials itself. The evidence did not suggest that in arranging for the supply of the special building materials for the use of Wing Yuen, Tai Hing would earn any profit out of it from Wing Yuen. Occasionally Tai Hing would pay for the price first and deduct the price from the subcontract money due to the subcontractor subsequently. But nothing extra would be deducted. The 15 percent administration fee paid by the government was payable regardless of whether the main contractor was buying the special building materials itself or for its subcontractor.

22. As far as the subcontractor was concerned, its subcontract included both labour and materials, and so it would be very natural for the subcontractor to contract for the purchase of the special building materials.

23. The role played by the subcontractor in the negotiations of the price of the building materials was not very clear from the evidence. But I accept the evidence of Mr. Wong Pok Chee and Mr. Patrick Wong that the subcontractor did participate to some extent in the negotiations of the price, and to a greater extent in the discussions relating to the time, schedule and location of delivery. In my view, all these do not quite matter. Even if (which was not the case) everything was arranged for by Tai Hing, that would not prevent Wing Yuen from being the principal buyer of the goods (through the agency of Tai Hing).

24. It would appear from the evidence that the parties also understood their inter-relationship that way. The deposits were paid by the subcontractors, not the main contractor. So were the balance purchase prices. (In the present case, the deposits were not paid by Tai Hing.) The subject building materials were delivered to the site and handled by Wing Yuen's workers. When the balance purchase prices were not paid, the Plaintiff chased Wing Yuen instead of Tai Hing for payment. Subsequently lawyers were hired to write a demand letter to Wing Yuen not Tai Hing for payment, although Tai Hing was still in business at that time. And of course eventually it was Wing Yuen's partners instead of Tai Hing who were sued in this action. As mentioned earlier, the 2nd Defendant consented to judgment, and the 3rd and 5th Defendants did not contest the claim. At this trial, neither the 1st nor 4th Defendant went to the witness box to challenge the case of the Plaintiff.

25. Therefore in my judgment, under the five contracts in question, Wing Yuen was the buyer of the building materials. The name of Tai Hing only appeared in the contracts to satisfy the requirement of the government and for no other purpose. Tai Hing was not intended to be a contracting party to the transactions or have any contractual responsibility thereunder. Wing Yuen, and therefore its partners including the 4th and 6th Defendants, were and are responsible for the payment of the outstanding prices.

26. I therefore give judgment to the Plaintiff against the 4th and 6th Defendants for the amount claimed, i.e.$194,359.79.

27. As regards interest, the contracts specifically provided on the front page that 1.8% monthly interest would be charged on the outstanding prices. Condition 8 of the standard Conditions of Sale printed on the back of the standard form contracts provided that monthly interest at the rate of 1.5% would be charged. Having heard the evidence of Mr. James Wong in this regard, I have no doubt that the specific term relating to interest typed on the front page of each of the contracts prevails over the standard condition 8 printed on the back. I see no reason why interest should not be awarded in accordance with what has been agreed under the contracts. I therefore award simple interest on the judgment sum at the rate of 1.8% per calendar month from the date of the demand letter written by the Plaintiff's solicitors to Wing Yuen, i.e. 20th September 1997, to the date of full payment.

28. I also make an order nisi that the 4th and 6th Defendants do pay the costs of this action to the Plaintiff to be taxed if not agreed. Unless any party applies to vary this order nisi within 14 days from the date of this judgment, the same will become absolute upon the expiry of the 14-day period.