KWONG WING TAI GARMENT FACTORY LIMITED v. GEORGE SHEH (a male) AND ANOTHER

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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JUDGMENT

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1. The Plaintiffs claim is for US$62,010-00 which it says is the purchase price of garments it sold and delivered to the 1st Defendant, and in respect of which the lst Defendant drew two cheques in its favour which were dishonoured.

2. The 1st Defendant denies that the garments were sold and delivered to him. He admits that the cheques were drawn by him but claims they were presented in breach of an agreement between him and the Plaintiff, whereby they were only to be used as security to borrow money.

3. The 2nd Defendant was by consent dismissed from these proceedings.

4. The material events took place no less than 10 years or so ago. The 1st Defendant was then trading in Taiwan through Atlas Inc., a firm of which he was the proprietor. Through Atlas he acted as agent for overseas buyers, particularly American buyers of garments. In that capacity he had dealings with a firm in New York called Pessano, of which the president was one Barry Pessar. Pessano imported garments manufactured in Taiwan into the United States, and Atlas acted as its trading agent. The business started in 1973, and gradually increased. Pessar, however, was not very good at paying his bills and by the end of 1975 had defaulted in payments due to several manufacturers in Taiwan. By that time he was trading under the name of Travis, another of several changes of name in which he indulged.

5. He had also defaulted in paying at least one Hong Kong firm known as Colony Fashions. In consequence Co1ony Fashions refused to have further dealings with him. Also in consequence, the Plaintiff was left with a very large quantity of garments on its hands, which it had manufactured for Travis under order Nos. 1414 and 1415, placed through Colony Fashions. The garments were not shipped because Travis failed to open a letter of credit that was a requirement of those orders.

6. In October 1975 a meeting was held at the Hilton Hotel. It was attended by the following persons: Andy Chan, a director and general manager of the Plaintiff; Yu Kwong the Chairman of the Plaintiff; Anthony Lo, a former employee of Colony Fashions; the 1st Defendant; and one of the owners of Travis, either Pessar or Rosner. All that is undisputed.

7. I proceed now to the divergent versions of the parties. The Plaintiff's case, which emerged from the evidence of Andy Chan, and to a much lesser extent from that of Yu Kwong, is that Anthony Lo set up the Hilton meeting. It was for the purpose of introducing the Plaintiff's representatives to the 1st Defendant, who it was said, wanted to bring along a customer from the United States to do business with the Plaintiff.

8. Andy Chan says he was shown some samples of female garments. He told the 1st Defendant his was a small factory incapable of doing business directly with overseas buyers, stressing that he knew nothing of the overseas buyer concerned. The 1st Defendant, he says, assured him that it was the 1st Defendant himself who wanted to do business with the Plaintiff. The 1st Defendant said his father-in-law was the owner of the Nan Ya Company (the 2nd Defendant). He would cause Anthony Lo to work in Nan Ya and Anthony Lo would then contract with the Plaintiff. The 1st Defendant would also cause one Thomas Lee to be similarly employed.

9. It is common ground that about mid-November, Anthony Lo, Thomas Lee, Barry Pessar and Jimmy Chan, a senior employee of Atlas who had flown from Taiwan with Pessar for that purpose, went to the Plaintiff's factory. They discussed the samples, and also quantities and prices. They found the latter satisfactory and left saying they would work out their requirements and would led Andy Chan know. Andy Chan says he understood that Anthony Lo and Jimmy Chan were dealing on behalf of Nan Ya, the company nominated by the 1st Defendant. General agreement was reached; it provided for the opening of a letter of credit by Nan Ya before the end of January 1976. Quantities and the form of contract were left for later.

10. Subsequently, Andy Chan says, he was handed three provisional orders written on Travis order forms. His signature appears on those forms. As an aside I should mention that having first said he was handed the orders by Anthony and Jimmy at the Nan Ya premises and that he signed them at the 1st Defendant's request, he subsequently admitted that he could not recall the circumstances in which he received the orders, and also that he signed the orders not at the request of the 1st Defendant, but of the 1st Defendant's customer.

11. To continue, Andy Chan subsequently received formal order numbers 0007, 0008 and 0009 from Nan Ya. The orders were typed on Nan Ya order forms and stated that Nan Ya Hong Kong as agent for the overseas buyer confirmed the orders which were then detailed. The overseas buyer was not named but there are references to Travis in the labels and accessories detailed. It is also common ground that the formal orders relate to the earlier provisional orders on the Travis forms. However Andy Chan says the references to the overseas buyer are to the 1st Defendant as he, Andy Chan, was selling to the 1st Defendant. The formal orders provided for shipment by February, March and April 1976, respectively, and for payment by irrevocable letter of credit.

12. When the plaintiff received the formal orders from Nan Ya, it ordered material and commenced to manufacture about the end of December 1975, when it received the material. As a result of discussions between Andy Chan on the one hand and Jimmy Chan and Anthony Lo on the other, the former expected the letter of credit to be opened by Nan Ya by the end of January; in fact it was never opened. Andy Chan spoke first to Anthony Lo, then to the proprietor of Nan ya, the 1st Defendant's father-in-law, and finally by long distance telephone call to the 1st Defendant. Telexes flew about. As far as the Defendants were concerned it seemed that the letter of credit was to originate from Travis in New York, which by February or March 1976 had become Asian Knight Inc. Jimmy Chan was sent to New York by the 1st Defendant to see what he could do to facilitate payment, not only in respect of the Plaintiff's orders, but also in respect of the amounts due in Taiwan. The telexes grew in volume. Whereas Pessar was inclined to simply ignore messages, Jimmy Chan was commendably conscientious. The Plaintiff was not prepared to ship the goods without payment or satisfactory arrangements therefor. Travis / Asian Knight were apparently not able to provide the funds until they sold the goods. On 15th March 1976, Jimmy from New York phoned Anthony in Hong Kong and suggested that a way out of the impasse might be either payment 30 days after the merchandise arrived, in New York or to give the manufacturer 60 day post-dated cheques from Nan Ya. Anthony passed on the message to the 1st Defendant in Taiwan. The 1st Defendant as the nearest to Hong Kong, was also urged by Pessar to go to Hong Kong to do what he could ship the goods.

13. So the 1st Defendant came to Hong Kong on 22nd March, 1976. There was a meeting held that day in the offices of Dart Express, a firm of cargo forwarders which had been used by Pessar, and which was owed money by him. It was attended by Andy Chan, Yu Kwong, one Joseph Chong of Dart Express, Anthony Lo, the 1st Defendant, and a Miss Lai representing the Kai Sun Factory which had been placed in a similar position to that of the Plaintiff. The 1st Defendant proposed that payment be effected by post-dated cheques drawn by him payable 45 days after delivery of the goods. Yu Kwong and Miss Lai rejected the proposal and the meeting came to an early end. Andy Chan and Yu Kwong then left.

14. On the following day Andy Chan was asked by Anthony Lo to go to the Nan Ya offices with Yu Kwong as there was to be a telephone conversation with the 1st Defendant at 4.30 that afternoon, about shipping the goods. The two went. At about 4.30 Anthony Lo made a telephone call to the 1st Defendant who was by then back in Taiwan. After some discussion between them, the telephone was passed to Andy Chan. The 1st Defendant proposed to him that payment be made by cheque payable 65 days after delivery and also that there should be a 10% discount. These terms were considerably worse than those proposed the day before. Andy Chan put them to Yu Kwong who, having pondered the matter the previous night, decided to take the bitter decision to accept, but on condition the cheque was received before delivery of the goods. Andy Chan relayed this to the 1st Defendant.

15. Subsequently Andy Chan received two cheques from the 1st Defendant for a total of US$62,010-00 and the goods were released for shipment to New York. Shortly before the cheques matured, the Plaintiff sent them to its bank for collection. They were dishonoured and later returned to the Plaintiff. Andy Chan made numerous telephone calls to 1st Defendant to no avail. In fact he was advised by the 1st Defendant to chase Pessar. He did so, not only making demands to him, but also to Anthony Lo and the 1st Defendant's father-in-law. An attempt was made to sue the 1st Defendant in Taiwan but it apparently failed because the Plaintiff was not accorded legal recognition. In 1981 the Plaintiff discovered that the 1st Defendant had moved to Hong Kong and renewed its demands. These were rejected by the 1st Defendant and so the Plaintiff commenced this action.

16. That stated very simply is the Plaintiff's case, omitting a mass of detail that is not of assistance in determining the two issues that have to be resolved.

17. Proceeding then to the 1st Defendant's case, he totally denies any agreement with the P1aintiff whereby he would purchase the goods. He says that although he trave11ed with Pessar and stayed at the Hilton Hotel he came on his own business and just happened to be present at the mid-October meeting. He was requested by Pessar to help solve the problems relating to orders 1414 and 1415. He tried to assist by approaching the Nan Ya Trading Company (the 2nd Defendant) which was owned by his father-in-law and also by approaching Tiger International, a company of which the managing director was a close friend. His object was to try and get the order 1414 and 1415 goods disposed of so that the profits thereby generated could help to pay off the Taiwan debts, and also to maintain good relations with Travis. No matter other than disposal of those goods was discussed. Later he returned to Taiwan.

18. In November that year Pessar again visited Taiwan and then went on to Hong Kong and Korea. Jimmy Chan accompanied him to Hong Kong acting as his assistant. Jimmy was good at drawing and it was hoped he could help in designing. Besides, it was thought he could learn of styles that might be acceptable in Taiwan, and also advise Pessar which styles might with advantage be manufactured in Taiwan. The 1st Defendant did not accompany Pessar and Jimmy Chan to Hong Kong.

19. Jimmy Chan confirms that he and Pessar attended the November meeting at the Plaintiff's factory, that he wrote the manuscript orders on Travis forms and that Pessar amended and signed them. He was not in Hong Kong when Nan Ya sent the typed confirmation orders. His understanding of the arrangement was that Nan Ya was the agent of Travis and that upon receiving a letter of credit from Pessar, Nan Ya would, back to back, open another letter of credit in favour of the Plaintiff; and that the 1st Defendant was not a party or directly involved.

20. From a telex sent to Pessar by Anthony Lo on 14th January 1976 it is clear that by then the Plaintiff was already pressing for immediate opening of a letter of credit. Other telexes were exchanged urging early opening of a letter of credit. Pessar was pressed by both the Plaintiff and the 1st Defendant. The 1st Defendant confirms that in February Jimmy Chan went to New York. He remained there for about 8 to 9 months, and actually stayed with Pessar for about a month.

21. By March some of the goods were ready for shipment, but the Plaintiff was not willing to release them except under a letter of credit. Travis hoped they would instead be allowed D/A or D/P terms. The 1st Defendant also went to New York though not solely on account of the Plaintiff's orders; there were payments due to others, particularly in Taiwan. He explored the possibility of other dealers or retailers taking over the goods manufactured by the Plaintiff. By the 22nd March he was back in Taiwan. Jimmy Chan telephoned him from New York and told him Pessar hoped he would go to Hong Kong and discuss the problems.

22. So he went and had a meeting on the 22nd March at the offices of Dart Express with Andy Chan, Yu Kwong and someone from Kai Sun Factory. He had got Anthony Lo to arrange the meeting. The Plaintiff and Kai Sun hoped the goods they had manufactured could be shipped and that Joseph Cheng of Dart Express would act as guarantor. Joseph Cheng refused as Pessar had not paid Dart for goods already shipped. So according to the 1st Defendant, Andy Chan suggested that a telephone call be made to Pessar to find out what sort of security he could have if the goods were shipped. Joseph made the call and spoke first. Then the phone was passed to Andy Chan and the 1st Defendant heard Andy say at first that D/A terms were not acceptable but a little later that he would accept such terms on a 15 day period, which was rejected by Pessar. Andy Chan then passed the phone to the 1st Defendant to see if he could persuade Pessar to accept a fifteen day period.

23. The 1st Defendant tried but was told by Pessar that he could not himself obtain payment for the goods in so short a time and would need 55 days. Pessar added that that was a good time to dispose of the goods and that they should be rushed to him by air otherwise he might not be able to dispose of them. Because of the increased cost of freighting by air, he asked for a 10% discount on the goods. This the 1st Defendant relayed to Andy Chan and Yu Kwong. Those two discussed it between themselves and agreed to give 45 days, but were not able to agree to the 10% discount, which they said they would consider.

24. Pessar in turn asked the 1st Defendant to impress upon Andy Chan and Yu Kwong that the air freight charges would be a heavy expense. Eventually Andy Chan and Yu Kwong agreed to reduce the price by 10%.

25. The lst Defendant also says that at that time it was not known when the goods could be shipped as they had yet to be packed, and Pessar urged that this be speeded up. Yu Kwong suggested to Andy Chan that he should ask Pessar to draw a 45 day post-dated cheque instead of 45 day D/A terms, and eventually Pessar agreed to that. He told the 1st Defendant that he could not obtain the money from department stores within 30 days. He asked the 1st Defendant to advise him when the Plaintiff had shipped the goods and said he would then send his cheque. He then rang off. Before he rang off he told the 1st Defendant that the goods should be shipped to Asian Knight as the company's name had changed.

26. The lst Defendant says that while Pessar was still on the phone, he clearly explained to Andy Chan and Yu Kwong that Pessar would mail 45 day post-dated cheques after shipment of the goods, and that they both agreed and accepted this.

27. After the telephone call ended, according to the 1st Defendant, Andy Chan and Yu Kwong spoke to him and told him they had some financial problems. , They had to pay staff salaries and also pay for material. They asked him to help. They added that it would take a week for the cheque to reach them from the time it was mailed and asked him if he had any US dollar cheques. He told them he had. They told him they had a good relationship with the Hang Seng Bank and if there was a foreign cheque, they could make use of it as security for a loan. The 1st Defendant said he was reluctant to do so as the matter had nothing to do with him. But Andy repeatedly requested him to appreciate his difficulties. He replied that he did not have so much in his bank account. But Andy said the cheque would be used as surety for a loan and be redeemed with the cheque sent by passar. In the prevailing circumstances the 1st Defendant says he believed Pessar would send his cheque. To assist the Plaintiff and in the belief that Andy Chan would give him Pessar's cheque, back to back, with an endorsement on the reverse to enable him to pay the cheque into his own account, he promised to let the Plaintiff have a cheque. He did not have his cheque book with him so he told Andy Chan and Yu Kwong to notify him when the goods were shipped and he would let them have the cheque. He returned to Taiwan the following day, the 23rd March.

28. On that day, back in Taiwan, he received a telex from Anthony Lo informing him of the US dollar amounts in respect of various styles of garments to be shipped by the Plaintiff and the Kai Sun Factory, that the makers were not prepared to accept certain deductions, and that in regard to the terms of payment, Anthony would phone him at 4.30 that afternoon.

29. The 1st Defendant says that when he telephoned, Anthony Lo explained that Andy Chan and Yu Kwong were with him in the offices of Nan Ya and wanted to discuss the 10% discount agreed the day before. Of the four styles they had agreed to reduce by 10%, they now wanted in respect of two of those to allow only 9%. The 1st Defendant said it would be difficult to be a mediator but he would try. Then Andy Chan discussed with Yu Kwong and said it would be best if Pessar agreed, but even if he did not he, Andy Chan, would still ship the goods as soon as possible. He requested the 1st Defendant to send his cheque as soon as possible. After that, about the same time, Anthony Lo telephoned him with the information that the first lot of goods had been packed and the amount was US$48,060. The 1st Defendant sent a cheque for that amount.

30. On 7th April he was asked for a further cheque of US$13,950 in respect of another shipment, and he sent that too. Two weeks later Anthony Chan complained to him that Pessar's cheque had not arrived.So he contacted Pessar who told him a sale had fallen through and consequently his cheque would be delayed. The 1st Defendant was very angry and pointed out that if Pessar did not send a cheque there would be no funds to make payment of his, the 1st Defendant's, cheques. Pessar said he would try and sent his cheque before the 1st Defendant's cheques matured. The 1st Defendant informed Andy Chan about this and both of them continued to press Pessar without success.

31. The 1st Defendant says he did not expect the Plaintiff to present his cheques as there was some agreement between them. But nevertheless the Plaintiff quite unexpectedly did so on maturity without telling him. He learnt of this from his own bank and immediately called Andy Chan and reminded him of their arrangement. Andy Chan said he was not aware of the matter and the Plaintiff's bank was responsible. Thereafter both Andy Chan and the 1st Defendant made efforts to get Pessar to pay and tried themse1ves to dispose of the goods to others. That, again omitting unnecessary detail, is the 1st Defendant's version.

32. The first issue that has to be addressed is whether the goods were sold and delivered to the 1st Defendant as claimed by the Plaintiff. The onus of establishing this lies, of course, upon the Plaintiff. The evidence in support consists almost entirely of Andy Chan's testimony that at the Hilton meeting in mid-October 1975, the Defendant said he would be the buyer. The other evidence in support is the 1st Defendant's heavy involvement in trying to get Pessar to provide the money for the goods, including several, telexes that suggest the 1st Defendant was being looked to for payment.

33. Having closely observed Andy Chan's demeanour during the several days that his evidence occupied and having considered his evidence, I do not think it can be relied upon to establish that the 1st Defendant did agree that he, and not the overseas buyer wou1d purchase the garments to be manufactured by the P1aintiff. Andy Chan is obviously deeply aggrieved that having put in the material and work in manufacturing the garments and having sent them off, he has not been paid. His paramount concern is to get paid and, not to put too fine a point upon it, that concern seemed to me to override as far as he was concerned, questions of who rightly should pay and how. Now that there seems to be no recourse to Pessar, he clearly holds the 1st Defendant totally responsible. To ensure that responsibility is not evaded he is in my view prepared to embellish his evidence. For instance he testified that he signed the Travis provisional order form because the 1st Defendant asked him to do so and he had to comply. When it was made clear to him that the 1st Defendant could not possibly have done so, he said it was the 1st Defendant's customer who did so. There were numerous very straight forward questions that he could have answered quite simply; instead he repeatedly launched forth upon lengthy and involved explanations and arguments. On matters material to the Plaintiff's case his recollection seemed to me to be far too positive and precise given the 10 years that have elapsed; but upon some potentially damaging matters, his recollection was not so clear.

34. The provisional and confirmation orders clearly show either Travis, or Nan Ya as agent for Travis, to be the buyer. If in fact the goods were to be sold and delivered to the 1st Defendant, it is remarkable that no reference whatsoever to this appears in those documents, nor in the Plaintiff's acceptance or confirmation of the relevant orders.

35. Jimmy Chan conceded that in dealing with Pessar, Nan Ya looked to the 1st Defendant to make decisions, but that in my view does not mean the 1st Defendant was the buyer.

36. Anthony Lo, who was at the heart of the matter, should had been able to shed considerable light on what actually transpired. He was regrettably not called. However, it is common ground that he was present during part of the hearing, could have been called and had in fact been in touch with and given proofs of evidence to both parties. In the circumstances I do not consider it appropriate to draw any inferences from the failure of either side to call him.

37. Finally some of the telexes suggested that the 1st Defendant was looked to for payment but as many indicated that Pessar was to pay. In all the circumstances, at best, the relevant effect of the telexes is ambiguous.

38. In consequence I have no hesitation in finding that the Plaintiff has failed to establish on the balance of probabilities that the 1st Defendant was 'the buyer, or the goods were so1d and delivered to him.

39. But the other issue, raised by the Plaintiff's principal ground i.e. that the 1st Defendant is liable in respect of the dishonoured cheques, is a very different matter. To begin with, having conceded that he signed the cheques and sent them to the Plaintiff, the onus is upon the 1st Defendant to establish the existence of the arrangement or agreement that he alleges, as much as it is upon him to show there was no consideration for the cheques.

40. On the 1st Defendant's version of the events, no credible explanation emerges as to why he should have been prepared to draw the two cheques. His overall involvement he says, was to help the manu facturers in Taiwan and in Hong Kong too, to recover their dues from Pessar. In the process he would no doubt have recovered the commission due to him. But against that, he had ample experience of how little reliance could be placed upon Pessar to pay and particularly to pay on time. In relation to the transaction concerned, he says he believed Pessar's claim that he would soon be in funds from another transaction. One is tempted to observe that if the 1st Defendant was as convinced as he suggests that Pessar would be in funds from a very promising transaction and would therefore honour his commitment to pay by cheque the 1st Defendant may well have thrown caution to the winds and furnished his own cheques to ensure that the goods were shipped, without making any reservations as to the use of those cheques. But to return to his explanation, he added that having been a manufacturer himself he appreciated the Plaintiff's position, and that his relationship or friendship with Andy Chan was not bad.

41. I find that explanation wholly unconvincing. It was not helped by the 1st Defendant's demeanour in the witness box. Likewise, I was not favourab1y impressed by the implications of his solicitor's affidavit in support of an application to cease to act when the 1st Defendant could not be contacted through his stated address, and the 1st Defendant's explanation in cross-examination. In the absence of supporting evidence, he would have had to have been a highly credible witness for his implausible story to be accepted. However, I cannot say I did find him or his evidence credible.

42. His version of the arrangement or agreement with the Plaintiff was somewhat confused. It was alleged in his Defence that it was agreed that the cheques would be deposited with the Plaintiff to enable the Plaintiff to use them as security for borrowing money and that they would hot be presented for payment; also chat the cheques were supplied to the Plaintiff's for no consideration pending receipt of post-dated cheques from Travis or Asian Knight. And indeed, he confirmed the latter in his evidence, saying that the cheques were to be redeemed by the Travis / Asian Knight cheques. But in his evidence he went on to suggest that even if his cheques were not so redeemed, he believed he would be given the Travis / Asian Knight cheques with endorsements so that he could pay them into his own account, thereby enabling his cheques to be met. Two weeks after he sent his cheques to the Plaintiff, when Andy Chan informed him that Pessar's cheques had hot been received, he says that he was angry and complained to Pessar that if Pessar did not send his cheque, there would be no funds to meet the 1st Defendant's cheques. He did not suggest that that was a charade on his part to put pressure on Pessar; nor do I believe that was so. All this casts serious doubt upon the existence of the alleged agreement not to present the cheque.

43. It is equally improbable that the Plaintiff would have entered into an agreement that would place it effectively at Pessar's mercy. It had a1ready been once bitten by Pessar. The evidence establishes that the Plaintiff was reluctant to rely upon Pessar for payment and pressed for an irrevocable letter of credit or even a guarantor. Furthermore the Plaintiff's claim that it refused to release the goods from Hong Kong until the 1st Defendant's cheque was received, was not in my view refuted. From documentary evidence it is clear that the Plaintiff did have credit facilities at the material time and that the cheques were sent to its bank not as security but for collection.

44. Furthermore the lst Defendant's version of the meeting of 22nd March and of the telephone call of the 23rd March is highly improbable. For example, it seems remarkable that having agreed to a 10% discount on the 22nd March, the Plaintiff should then 24 hours later seek to reopen the matter only to claim a 1% reduction of the discount on two of the four styles concerned.

45. I have given the welter of te1exes very careful consideration. As I have said I do not find them particularly helpful. Their implications, that one or other of the 1st Defendant or Pessar or both would be looked to for payment or was responsible are ambiguous, particularly when viewed against the evidence as a whole. Even Jimmy Chan who was so close1y concerned in the actual events concluded that the 1st Defendant was acting as a guarantor to help both parties. What is clear from the telexes, as indeed from the other evidence, is that the 1st Defendant was very closely involved with Pessar. That close relationship is of obvious significance.

46. The telexes, coupled with a partial admission made by Andy Chan, do indicate that Pessar did send 2 cheques to Hong Kong. But any support they lend to the 1st Defendant's version, is countered by the Plaintiff's refusal, which the telexes also establish, to accept the cheques without some sort of guarantee.

47. The 1st Defendant says he complained to Andy Chan over the telephone about presentation of the cheques, which took place in June 1976. Whether or not he did so, what is clear is that he did not complain in writing until his telex of 30th December 1976 sent in response to the Plaintiff's threat to take legal action. And in that telex he did not protest about a breach of the alleged agreement, but merely said he had signed the cheques just to show good faith.

48. I do not accept the 1st Defendant's evidence of the alleged agreement not to present the cheques. I find that on the balance of probabilities the 1st Defendant has failed to establish any agreement whereby the cheques were not to be presented for payment. I also find that he has failed to displace the presumption of value under s. 30(1) of the Bills of Exchange Ordinance (Cap. 19). On the contrary it seems to me probable that the Plaintiff released the goods concerned for shipment overseas in consideration of the 1st Defendant's cheques. There will accordingly be judgment for the Plaintiff in the sum of US$62,010.00 together with interest at prime plus 1%, from 1st June 1976 in respect of the sum of US$48,060 and from 12th June 1976 in respect of the sum of US$13,950, until the date of this judgment. Plaintiff's costs to be paid by the 1st Defendant.