CHATEAU LTD. v. BERMAN INTERNATIONAL LTD.

HCA 11642/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 11642 OF 1998

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J U D G M E N T

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1. These proceedings arise out of a claim by the plaintiff for the price of goods supplied under a contract with the defendant in 1997.

2. The plaintiff's case is that, by a written purchase order dated 8 August 1997, signed by both parties, the defendant ordered a number of men's shirts in three lots to be manufactured by the plaintiff, for a total contract price of US$44,285.00, and delivered to the defendant's customer Mansfield Garment Co. Ltd (Mansfield). The delivery dates were 3 September 1997, for 1230 pieces, 25 October 1997, for 1000 pieces, and 25 November 1997, for 600 pieces. The shirts were duly manufactured and delivered to Mansfield. There seems to be no issue on dates of delivery, although on the documents these appear to have been a little later than contracted for.

3. The plaintiff claims that payment was made in respect of the first part of the order, for 1230 pieces, by a cheque from the defendant for the sum of HK$185,178.10, which was left open as to payee, on 1 December 1997, and a receipt issued the same day to the defendant. No further payment has been made in respect of the second and third parts of the order.

4. The defendant's case is that there was no contract with the plaintiff at all and the shirts were manufactured by another company, that the documents produced by the plaintiff are not genuine nor signed by the defendant's representative, and nothing is accordingly owed to the plaintiff.

5. There are three people closely involved in this transaction: Mr Devin Cheung, the director of the plaintiff, Mr Teddy Ho, the director of the defendant, and Ms Pauline Chong, an acquaintance and business associate of them both, who was then merchandising manager for Mansfield. These three were the only witnesses.

6. It is not in dispute that, in about August 1997, the defendant received an order from Mansfield for the garments the subject of this dispute. The defendant not being itself a manufacturer, the order would be sub-contracted by it. The evidence of Mr Cheung and Ms Chong was that it had been agreed between them, Mr Ho and a Mr Andy Lo, the marketing manager of Mansfield, that the plaintiff would be the nominated sub-contractor for this order, and the purchase order, produced by the plaintiff, from Mansfield to the defendant clearly states this. They further went on to explain that the subcontract was on the basis that the defendant would supply the cloth to the plaintiff. However, this apparently did not happen as the plaintiff found that cheaper cloth was available, and, in effect took over the whole of the contract at the price which would have been payable to the defendant, who would receive no benefit at all from the transaction, but would remain as middleman to collect payment from Mansfield and pay the plaintiff. In support of its case, the plaintiff has produced a large number of documents commencing with the purchase order from the defendant, and including delivery notes, shipping documents, export licences and documentary credits. There is ample evidence, in my view, that the goods were indeed manufactured by the plaintiff and delivered to Mansfield.

7. The evidence of Mr Ho, however, is that he had sub-contracted this order to Ms Chong, not the plaintiff. He says he has known her for 6 or 7 years, but he denies knowing that she worked for Mansfield, and thought she worked for another company, although he did not know which, and when he received this order, she persuaded him to place the order with her. He says that she did not want her company to know she was doing business on her own, so their dealings were done orally. Consequently, he says, he has no documentary record of it. There was no evidence as to who was the manufacturer Ms Chong would use, and I find it unusual that Mr Ho did not seem interested to find out, as he would be ultimately responsible for fulfilling the order. He admits that the order was fulfilled, although again he had little information about how delivery was effected, and also admits that he was paid by Mansfield.

8. Mr Ho says that his version of events is supported by the fact that the cheque for payment of the first part of the order, in the sum of $185,178.10, was paid by the defendant into the account of Ms Chong, but says that of this sum, only $85,178.00 was payment for the first part, and $100,000.00 was advance payment in respect of the second and third parts. I regret that I find that explanation not credible. While it is true that the cheque was paid into Ms Chong's account, Mr Cheung says that this was at his request as he owed money to her, and he issued the receipt, which Mr Ho also denies seeing before, after the paying in slip had been faxed to him. While the evidence of the receipt may not be conclusive in itself, the amount paid is significant. On the evidence for the plaintiff that the full amount of the order at US$19.20 per piece for the first 1290 pieces, the number actually supplied, was now payable to them, in the sum of US$24,768.00, the figure paid is equivalent to that sum at the exchange rate Mr Cheung says was used, of HK$7.48 to US$1.00. As against that, if the defendant paid only $85,178.00 for the first part of the order, it would give a profit of nearly 50% for that part only, with a much smaller profit for the rest of the order. There was no good explanation for this, and I find that the plaintiff's account is, on the evidence before me, far more probable.

9. Mr Ho further admitted that he had not paid the balance of what he had received from Mansfield to either the plaintiff nor Ms Chong. On his own evidence this amounted to about $115,000.00. His explanation for this was that he and Ms Chong had had dealings whereby she had given money to him to invest in shares, and a payment to him in July 1997 of $70,000.00 was clearly made. They had then had a dispute over the investments, and he claimed that she owed him money as a result of them, so he had withheld any further payments to her.

10. As with so much else in this case, however, there is no documentary or other evidence of this, and I do not accept that this is likely to have been the situation. I do accept that there is now a dispute between Ms Chong and Mr Ho, as she has commenced proceedings to try to recover the $70,000.00, which she claims was a loan.

11. Having heard the evidence of all three witnesses, I have to say that I prefer that of the plaintiff's where it differs from that of the defendant. It is also supported by a wealth of documentary evidence about which Mr Ho can only say that they are not genuine. In order to accept that assertion, I would have to be satisfied that someone on behalf of the plaintiff had taken the defendant's letterhead from its offices, forged false orders and the signature of Mr Ho to construct a fraudulent claim. Needless to say, the evidence here falls far short of the standard I would require to accept such a claim, which remains, in my view, a bare and unsupported assertion.

12. The sum claimed by the plaintiff in the statement of claim is US$32,095.98 in respect of the second and third parts of the order under invoices sent to the defendant on 18 December 1997 and 18 January 1998, for US$12,096.00 and US$19,999.98 respectively. However, it is clear from the documents, and the evidence given on behalf of the plaintiff, that the second figure is incorrect, in that the price was reduced by half after a shipment of goods was found to be defective and a further shipment effected. Mr Cheung agrees that all he now claims is the sum of US$22,095.99 and it is for this sum I find the defendant liable.

13. There will accordingly be judgment for the plaintiff for the sum of US$22,095.99 or its Hong Kong dollar equivalent at the time of payment, with interest thereon at the rate of 1% over Hong Kong Bank prime rate from the date of writ to the date hereof, and at judgment rate thereafter. There will also be an order for costs to be taxed and paid by the defendant.