SMELOAN HONG KONG LTD v. TODAY'S MASTER LTD t/a MASTER GRAPHIC

DCCJ3376/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3376 OF 2002

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JUDGMENT

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1. The Plaintiff is a finance company and is the assignee of certain accounts receivables assigned by Precision Proofing Company Limited (hereinafter referred to as "Precision") to the Plaintiff in return for credit facilities granted by the Plaintiff to Precision. The Plaintiff by this action claims against the Defendant who was a customer of Precision and who owed trade debts to Precision. The Plaintiff claims against the Defendant in respect of sums owing from invoices submitted by Precision to the Defendant for work done by Precision for the Defendant in the months of September, October and November 2001. The amount claimed with a 45% discount amount to HK$99,459.25.

2. The Defendant disputed the Plaintiff's claim and put the Plaintiff to strict proof.

3. The practice of the Plaintiff was that once the application for the loan which is secured against account receivables has been granted by the Plaintiff, the borrower used the website of the Plaintiff to submit daily sales figures. This allowed the Plaintiff to monitor the borrower's business and credit worthiness on a continuous basis. The borrower would have a home page where they submit information of their business to the Plaintiff.

4. Mr. Chan Kwong Yiu, (hereinafter referred to as "Mr. Chan") the former director and Chairman of Precision gave evidence as a witness for the Plaintiff. He stated that Precision had its work premises in the same building as the Defendant's premises. The Defendant had engaged Precision to make printing samples before printing since in or about 1998. He looked after the account of the Defendant and contacted one Mr. Alan Kong (hereinafter referred to as "Mr. Kong") of the Defendant in relation to these accounts. Either Mr. Kong or Mr. Jackson Leung of the Defendant would call him almost daily to place orders of work to be completed within a day. As their factory operated 24 hours a day, the printing samples would be completed within six or seven hours and delivered to the Defendant then.

5. Mr. Chan stated that as soon as they had delivered the Defendant's orders, he gave details and instructed his subordinate to prepare and issue the invoices for their services to the Defendant. It was not unusual that two or more invoices were issued and sent to the Defendant within a day for different orders placed by the Defendant.

6. Precision then sent a monthly statement to the Defendant listing out all the invoices issued to them within the month for payment.

7. There were three copies of each invoice. The white copy was sent to the Defendant. The red copy with Defendant's acknowledgment of receipt and the yellow copy were both kept in their office. Precision abandoned its office at the beginning of December 2001 as it could not pay the rent. Both the red and yellow copy invoices kept in Precision's office were all lost when the landlord recovered possession of Precision's office.

8. Details of the invoices including those in the subject of this claim were issued by Precision were reported to the Plaintiff under the loan agreement between Precision and the Plaintiff. Details of these invoices were entered in the home page of Precision at the Plaintiff's website by a staff of Precision. Precision was doing business with the Defendant until Precision closed down its business in early December 2001. About one month after Precision closed its business, he had telephoned each of Precision's trade debtors informing them that they needed only to pay Precision's outstanding invoices to the Plaintiff. He could recall that he had related the same message to Mr. Kong of the Defendant. Mr. Kong did not seem to have any objection.

9. As the unpaid invoices of Precision had been lost, the only available evidence related to the work orders done by Precision was the computer entries related to the accounts receivable from the Defendant which are those shown at pages 34 to 39 of the Bundle of Documents.

10. Ms. Chen Hwei Lena, the Senior Vice President of the Plaintiff gave evidence. She stated that after Mr. Chan informed the Plaintiff that Precision would not continue with their business, Mr. Chan asked the Plaintiff to crystallize the accounts receivable and to collect payment directly from the debtors of Precision. The Plaintiff then sent out a letter enclosing the Notice of Assignment of Accounts Receivable, Confirmation of Assignment of Accounts Receivable to all the debtors of Precision including the Defendant. Copies of these are at pages 28 to 30 of the Bundle of Documents. Apart from the Defendant all the other debtors of Precision paid their accounts. Subsequently letters dated 11th January 2002 and 19th February 2002 were sent by the Plaintiff's solicitors requesting payment of outstanding sums as shown in the computer records attached. Again a further letter dated 16th May 2002 was sent to the Defendant by the Plaintiff's solicitors requesting payment shown at pages 33 to 48 of the BD. The Defendant did not respond until their solicitor's letter at page 78 of the BD. In this letter they stated;

"We are instructed that your client's claim is unfounded as the invoices in question did not represent the true picture of the transactions actually conducted between our client and Precision Proofing Company Limited. The amount claimed far exceeds the volume of actual transactions."

11. Mr. Kong of the Defendant gave evidence to state that the final dealings between Precision and the Defendant were those in August 2001. Whilst giving oral evidence he added that the reason why the Defendant discontinued business with Precision was because the Directors of the Defendant felt that the work performance of Precision was not good and the time taken by them to do the work was slow. He stated that this decision was made during a Meeting. Subsequently he changed his evidence and stated that it was at a dinner gathering when this fact was mentioned. The fact that the decision was made by the Directors during a meeting or a dinner gathering and the reasons therefore was not in Mr. Kong's Witness Statement. So the Directors informed him to stop giving orders to Precision.

12. The only issue in the trial is whether the Plaintiff has established the claim against the Defendant in the face of the denial of the Defendant.

13. The onus of proof is on the Plaintiff who has to establish that the Defendant owes the accounts receivable that are entered into the computer records of the Plaintiff.

Credibility of Witnesses

14. I come to the finding that Mr. Chan is a credible witness both from his evidence and from the manner he gave evidence. It is clear, that Mr. Chan has come to give evidence with little to gain from the case stated by him except to substantiate what his company has told the Plaintiff to be the accounts receivable from the Defendant.

15. I found nothing in his evidence that could cause me to doubt his credibility. Despite considering all the submissions of the Defence Counsel on the credibility of Mr. Chan, I accept his evidence that the invoices were lost in the midst of the confusion when the landlord of his office and the suppliers of his company came to the office to seek to recover their debts. Further, the office was re-possessed by the landlord because of arrears of rent. Mr. Chan stated that he had been avoiding the creditors of Precision and was not in a very good state of mind to think clearly. He did not return to the office during the time when the creditors came to the office to chase their debts. This evidence is entirely credible.

16. On the other hand, I did not find Mr. Kong's evidence to be credible. I do not accept his evidence that the Defendant did not give orders to Precision from the month of September onwards. In my view, his evidence that there was a meeting of Directors wherein this matter was discussed and the Directors made the decision was concocted by him in the course of his evidence. He subsequently stated that it was not a meeting but at a dinner when the Directors discussed this. The reason given was that they were not satisfied with the speed with which Precision did the work or with the quality of the work. However, he had said that all along that the quality of the work was about the same. He had said that they gave orders to Precision because Precision was cheap. The Defendant gave work to Precision because their charges were low. Hence there could not have been such a sudden turn-around. I found that Mr. Kong's evidence was unconvincing. Further, the without prejudice letter written by the Defendant's solicitors suggests that work was done by Precision between September to November but the issue only related to the quantity of the work and the amount in the invoices.

Has the Plaintiff Discharged the Onus of Proof

17. The only evidence of accounts receivable is the computer record of the Plaintiff. Mr. Chan gave evidence that the records were entered by the staff of Precision from invoices issued to the Defendant. The data entered into the website relate to the reference number of the client, name of client, number of invoice, date of invoice, amount, balance, date of entry, state of acceptance. However, it is clear, that there are other details in the invoices that have not been entered into the computer record including the item no. of the order, description of the work, quantity of the work and unit price. The staff of Precision that made the entry had not been called to give evidence. As it was not Mr. Chan who made the entries, he could not give evidence of the actual entry of these records into the website in order to verify that these entries were made accurately and in accordance with actual data on the invoices. He could not give evidence that the computer was working normally at the time when the records were made.

18. I agree with the Defendant's Counsel that the computer records of the accounts receivable from the Defendant are documentary hearsay in view of the aforesaid and further, neither Mr. Chan nor Ms. Chen could verify as to the accuracy of the entries in accordance with the invoices. They are double hearsay as the Plaintiff is seeking to prove the truth of the contents of the computer records namely that there were such transactions and that the entries record accurately the details of the transactions.

19. There is no evidence from Ms. Chen of the Plaintiff that whilst the Plaintiff's computer was being used appropriate measures were in force for preventing unauthorized interference with the computer; and the computer was operating properly or, if not, that any respect in which it was not operating properly or was out of operation was not such as to affect the production of the document or the accuracy of its contents.

20. Section 49 of the Evidence Ordinance sets out the considerations relevant to weighing hearsay evidence. One of the considerations state whether it would have been reasonable and practicable for the recorder of the computer data of the invoices to give evidence related to the entry of the records. There is no evidence on such. Another consideration is whether the entries were made contemporaneous to the events. Although the computer records show that the entry records were made within 2-3 days of the date of the invoice, no direct evidence of this was given. It is clear that the statement in the computer records involve multiple hearsay. There is no evidence to show whether the evidence adduced in the computer records is consistent with actual evidence of transactions as there is no evidence of the actual transactions.

21. I agree with the Defendant's Counsel that even though the evidence of Mr. Chan is accepted as credible, yet this does not add to the reliability and accuracy of the entry of the computer records as the staff that made the entries was not called to give evidence as to the accuracy of the entries and for the reasons referred to aforesaid. Further, there is no evidence that the computer of both the Plaintiff and Precision were operating properly and that measures were in force for preventing unauthorized interference with the computer of the Plaintiff and Precision.

22. Even though the letter of the Defendant's solicitor at page 78 of the BD-D would suggest that there would have been transactions conducted between Precision and the Defendant within this period, yet the value of such transactions has been stated to be far less than that claimed. The Plaintiff's evidence is not able to substantiate the accuracy of the computer records that support this claim.

23. Having considered the aforesaid, I find that the Plaintiff has not established the claim and I have to regrettably dismiss the claim. I therefore make the following order:-

Claim be dismissed. I grant an order nisi for costs of the proceedings to the Defendant to be paid by the Plaintiff to be taxed if not agreed with Certificate for Counsel.