CHEUNG FAT CHUEN v. HUNG KAM CHUEN t/a CHUEN KEE VEHICLE SEATING CO.

HCA9987/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9987 OF 1997

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J U D G M E N T

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Introduction

1. After the hearing was completed, the parties were given leave to file written closing submissions. The Plaintiff's supplemental closing submission was received on 22nd December 1998.

The Plaintiff's claim

2. The Plaintiff claims against the Defendant the sum of $274,045 being the service charge which the Plaintiff incurred in making seat frames for tour buses for the Defendant at the Defendant's request. The period when the seat frames were made was from about January 1994 to about October 1996. The defence, as was pleaded in the Statement of Defence, was that in or about April 1995 the Plaintiff and the Defendant orally agreed to jointly rent a plant at premises located in Ta Kwu Ling, New Territories for the use of the business of the Plaintiff and the Defendant and also that the liabilities for the monthly rental and utility charges, including electricity and telephone charges, would be shared between the Plaintiff and the Defendant in equal shares.

3. It was pleaded that the miscellaneous expenses, including expenses for the year end dinner and employees' insurance, would be shared between the Plaintiff and the Defendant in equal shares.

4. The alleged oral agreement was also that the Defendant would deduct from the service charges due and owing to the Plaintiff all the sums that the Plaintiff was liable to pay under the oral agreement. It was alleged that under that oral agreement, the total of the disbursements came to $148,922 which divided by two, would have given the sum of $74,461 which was the Plaintiff's share of the expenses.

5. In addition, it was alleged that the cost of a snake meat feast held in October 1995 came to $3,360 and material cost for antimony sheets came to $1,950, and that under the oral agreement between the Plaintiff and the Defendant, that was the sum which was advanced by the Defendant and could be set off against the service charges owing to the Plaintiff.

6. It was admitted in the Defence that as at 22nd September 1997, the Defendant was indebted to the Plaintiff for the sum of $25,673.95. It was also pleaded in the Defence that on 22nd July 1997, before the issue of the Writ, the Defendant tendered to the Plaintiff a sum of $83,394 in settlement of the Plaintiff's claim, but that the Plaintiff refused to accept the same. It was also pleaded that this tender was an inadvertent miscalculation on the part of the Defendant.

7. In the Plaintiff's Reply, the Plaintiff denied that he ever agreed to jointly rent the plant and equally share the liabilities for the monthly rental and utility charges. The Plaintiff also denied that he agreed to share miscellaneous expenses and employee's insurance. He also denied that the Defendant was entitled to deduct the Plaintiff's share of the outgoings from the sums owing to the Plaintiff.

The Plaintiff's evidence

8. The Plaintiff gave evidence that he started making seat frames for the Defendant around 1992. He said he was the contractor of the Defendant and it was he who paid for the metal materials required to make the seat frames. He produced Exhibit P1 as the book in which he recorded the work that he performed for the Defendant. This book was reproduced as pages 1 to 16 of the bundle of documents. These accounts started from 2nd March 1994 and the Plaintiff's evidence was that the reason for that was that the accounts prior to this day had been settled. He said that he gave this notebook to the Defendant prior to 20th October 1994 and that he referred to this record when he made calculations. The Plaintiff said that in Exhibit P2, the Defendant had written $261,760 which the Plaintiff thought represented the total of the service charges including the material that the Plaintiff bought for the period from 2nd March 1994 to 20th October 1994. Subtracted from that sum was the figure $190,663 which the Plaintiff thought represented the money which had been received by him. The balance was $71,097 which the Plaintiff said was the outstanding money that the Defendant owed him as at 20th October 1994. This sum of $71,097 was reproduced on page 4 of the bundle of documents and was written in that document by the Plaintiff who said that he had got that figure from the calculation sheet kept by the Defendant.

9. The Plaintiff said that some of the characters in Exhibit P1 were the Defendant's and he explained that that came about because he had given Exhibit P1 to the Defendant a few days prior to 21st October 1994 and he gave it to the Defendant again subsequently, namely between the period after 27th November 1995 and before 18th November 1996. He said that he had given the notebook to the Defendant because the Defendant asked for it to make calculations and the Defendant did come up with calculations.

10. Exhibit P3 were four pages of a record prepared by the Defendant and he gave copies of the record to the Plaintiff. On the first page of Exhibit P3 were written the words "previous amount" followed by the figures 71,097. The Plaintiff said this was in the Defendant's writing and that this was related to the previous outstanding amount as stated in the calculation sheet, Exhibit P2. There was also stated on Exhibit P3 a number of items with dates, the name of the account and the amount for each item. The Plaintiff said that he thought that the total of those items was given as $109,800 which was written in the Exhibit, and adding the previous figure of $71,097, the total of $180,897 was also written in Exhibit P3. The total outstanding amount of the first two pages of Exhibit P3 was written down by the Defendant as 97,087. On page 91 of Exhibit P3, the total for that page from 23rd July to 12th August was written down as 108,000; and on page 92, the total of that page was 114,700 which was also written at the bottom of that page; and at page 93, the total of that page 116,020 was written at the top of the page.

11. Page 83 of Exhibit P3 was given to the Plaintiff by the Defendant on 18th January 1996. The Plaintiff said that he then disputed some of the calculations on that page with the Defendant. The Plaintiff said he disputed having received $11,000 on 15th May and $11,000 on 8th June. Also $11,000 in July and $30,000 and $2,700 on 17th August, $28,700 on 8th December and $20,000 on 22nd December. The Plaintiff also disputed $10,175 in respect of a pump and $1,434 plus $1,481 in respect of antimony sheets. The amount written at the bottom of page 83, $71,067, purported to be the amount outstanding but the Plaintiff disputed that. The Plaintiff said that for the period from 21st October 1994 to 18th January 1996, the accurate amount that he received was $474,810 and he wrote that on page 12 in the bundle of documents which was part of Exhibit P1. The Plaintiff confirmed that certain work stated in the entries of Exhibit P1 as work done on a particular day was in fact done. However, the Plaintiff admitted that in his record he had omitted to enter two cheques received by him. One of those two cheques was for the amount of $15,190. The other cheque was for the amount of $20,000.

12. The Plaintiff confirmed that pages 33 to 68 of the bundle of documents were prepared by an accountant, Cheng Yik Kong, and that it was a Miss Yuen in the firm who had prepared those documents. The calculations done by the accountant were based on Exhibit P1 which was the Plaintiff's record. The Plaintiff confirmed that the amount stated on page 33, namely $274,045 was the outstanding debt which was due and payable and which was the amount claimed by him, except for the two cheques mentioned earlier which would reduce the claim to $238,855. In respect of certain cheques made out to the Plaintiff or his wife, the Plaintiff acknowledged that two of those cheques, one for $30,000 and the other for $30,570, were taken into account in Exhibit P1, namely on page 1 the total amount of $60,570 was acknowledged to have been received. The other cheques, the Plaintiff said, were for matters not related to the making of seat frames for the Defendant. In respect of cheques made out by the Defendant to other companies, the Plaintiff said that because he did not have a cheque account, he had asked the Defendant to draw the cheques on his behalf and as soon as the cheques were drawn, the Plaintiff would repay cash to the Defendant.

13. The Plaintiff gave evidence that in April 1995, the Defendant offered him space at his new workshop where the Plaintiff could move to make bus seat frames for the Defendant. The Defendant said that the Plaintiff would not need to pay any rent, electricity and water charges, and the Defendant would be responsible for all business orders and the Plaintiff's responsibility would be for the materials and labour. The Plaintiff gave evidence that he later accepted the Defendant's offer. He gave evidence that on 16th May 1995, he moved to the Defendant's premises and moved out in October 1996. He said that during the period he was on the Defendant's premises, the Defendant never asked him to pay for rent and other expenses and the first time he learnt about it was from his solicitors. The Plaintiff said that on page 83 of the bundle of documents, which was the document prepared by the Defendant, and which set out alleged payments to the Plaintiff, there was no reference whatsoever to the Defendant claiming against the Plaintiff for half of the rent of the premises that the Plaintiff used and for other expenses.

14. The Plaintiff denied in cross-examination that he had doctored the logbook some time between the examination of documents and the making of his first witness statement. The Plaintiff admitted that he and the Defendant shared the same telephone line at the lot. The Plaintiff said that the last time he visited the lot before he moved in was about a week before 16th May 1995. He said that he occupied the lot from 16th May 1995 to 31st October 1996.

Other evidence adduced by the Plaintiff

15. The next witness called by the Plaintiff was Miss Yuen Wing See. She was employed as an accounts clerk by Cheng Yick Kwong, a company of certified accountants. She gave evidence that in July 1997 the Plaintiff provided her with a set of documents for her to work out the account receivable for the period 2nd March 1994 to 16th January 1996. She then prepared the account records and produced them as Exhibit P5. Those records were in her handwriting. She said that when the Plaintiff approached her and asked her to prepare the accounts, he gave her the documents Exhibits P1, P2 and P3. She explained that the first entry amount in Exhibit P5, $6,300, was worked out by using the figure of $46,200 and dividing it by 11 which represented 11 maxicab headrests and the result was $6,300. She had been instructed by the Plaintiff that the figure that she adopted should be those appearing on Exhibit P2, and it was from Exhibit P2 that the figure of $46,200 was taken. Similarly, the figure $25,200 taken from Exhibit P2 was divided by 4 giving the end figure of $6,300. In cross-examination, she confirmed that the figures that she used were not verified against any receipt or any bank statements of the Plaintiff.

16. The last witness called by the Plaintiff was his wife, Chan Yuk Lai. She gave evidence that on 5th February 1996, the Plaintiff requested her to purchase a cashier order for $40,000 in favour of the Defendant. She produced the application to purchase the cashier order and said that she subsequently gave the cashier order to her husband. She said that the amount of $40,000 was not repaid to either her or to her husband. She was not aware of $20,000 being paid into the account of Chuen Kee.

Evidence adduced by the Defendant

The Defendant's evidence

17. The Defendant identified three cheques made payable to the Plaintiff and said that they were wages paid to the Plaintiff. He then identified other cheques made payable to other people and said that they were cheques issued by him at the request of the Plaintiff but for which the Plaintiff never repaid him. He said that he regarded the Plaintiff as a contractor rather than as an employee and that as the contractor, the Plaintiff was responsible for paying for materials. He acknowledged that page 83 of the bundle of documents was written by him and when he was asked why the document did not mention anything about the rental and the electricity charges which the Defendant said the Plaintiff had agreed to pay half of, the Defendant said that the chart was prepared at an early stage and at that stage the rental was not included because at that stage, the landlord Lau had not given him, the Defendant, the total for electricity. He said that Chick Wai Keung and a person surnamed Yip were his customers. On the document, page 83, the Defendant had written certain items which he said were a record of payments made by these two persons to the Plaintiff. He said that he had told Yip that at times when he, the Defendant, was out of Hong Kong, Yip could pay directly to the Plaintiff. He said that the Plaintiff just collected these payments on his behalf because these were payments which were owing to the Defendant and not to the Plaintiff.

18. The Defendant said that he was the Plaintiff's brother-in-law and in April 1995, the Plaintiff was also his sub-contractor. He said that the two of them had jointly rented a place and that shows that their relationship was harmonious. The first visit that they made together to the site which they subsequently rented was in mid-March 1995 and the Defendant said he had gone with the Plaintiff and he proposed to the Plaintiff that they should rent the place jointly. The Plaintiff was agreeable because the garage that he had been working at had to be returned to the landlord. He said that they made a second visit to the site and after the second visit, the Plaintiff told him that the place was suitable and agreed to jointly rent the place. He said the Plaintiff also agreed that he would be responsible for half of the electricity charges. He also agreed that half of the cost of installation of electricity would be borne by him and that he would also pay half of the miscellaneous expenses such as insurance payments. He said on 29th March, the Plaintiff deposited $20,000 into his account because he had requested the Plaintiff to pay that amount because he needed it to buy materials so that his younger brother could install the electricity at the site. He denied that the $20,000 was a loan from the Plaintiff to him. He said that the Plaintiff left the site at the end of October 1996. He then made copies of cheques and made comparisons and then he knew how much money the Plaintiff had received from the Defendant's customers. He said that after calculation, he found that the outstanding fee payable to the Plaintiff was $112,709.90 but he said that that sum did not take into account the Plaintiff's share for rental and utilities. He said that the landlord of the site was Lau Tim Ki. He and Lau had business dealings, so the rent payable to Lau was settled by means of cash and set-off. He said he did not pay Lau regularly and that they settled the accounts once every several months because sometimes Lau would be out of town. He said that the electricity bills were issued to the landlord because the landlord allowed him to share his electric meter as the landlord's residence was just adjoining their workshop and very often Lau would be out of town, so his share of the electricity charges would be minimal and when he was in Hong Kong, he occupied the house by himself. He said that the phone bills in respect of the site were sent to his home address because it was easy for mail to go astray at the workshop. He said that deducting all the figures, the new figure of receipts by the Plaintiff was $16,014.95 because he said he did not wish to pursue the amount of $10,175 which represented half of the price of an air pump. Therefore the Defendant said that the new figure of the amount that he was indebted to the Plaintiff was $26,189.95.

19. Under cross-examination, he said that 2nd March 1994 to 18th October 1994 was the period for which he and the Plaintiff made the first calculation. He said the calculation was made and the Plaintiff agreed with it.

20. Exhibit D4 which was a copy of Exhibit P1 was given to the Defendant by the Plaintiff when the Plaintiff left the workshop in October 1996. The Defendant then added references to Chung Kwong to Exhibit D4.

21. He said that the first calculation of accounts between him and the Plaintiff was in October 1994. He admitted that the Plaintiff's record, Exhibit P1, was shown to him in October 1994 and that he had seen it at least twice prior to coming to Court. This contrasted with what he had said in chief that he had not seen P1 before. He accepted that Exhibit P2 was in his writing and he accepted that the figure written on Exhibit P2, $71,097, was what he owed the Plaintiff as at 20th October 1994 but he said since then money had been collected by the Plaintiff from customers. The second calculation of accounts was some time in January 1996.

22. On page 83 of the bundle of documents, the Defendant agreed that he wrote twice the figures 532,807. This figure also appears on page 18 of Exhibit D4. He was asked if that figure was written by him and he said that he did not think it was and when he was asked whose writing it was, he said it was Cheung's, the Plaintiff's.

23. He said that the lot in Ping Che was 400 sq.ft. and had two storeys.

24. He said that the first settlement of accounts with the landlord when the rental was paid was after half a year or a bit longer after he rented the site. He said he paid the landlord in cash and also by means of setting-off. When asked how much he had paid the landlord, he said he could not remember. He thought that the figure would be several $10,000. He was asked what business he had with the landlord, and he said that since the landlord had a licensed work place, he could take orders from Toyota and he would give the orders to the Defendant. He said that he also made vehicle seats for the landlord. He said that the second time when calculation was made to pay the rental was after February 1996 since Lau was sometimes out of town. Altogether on the two occasions, the Defendant said he paid Lau in the region of $100,000.

Defendant's witness

25. The Defendant called Lau Tim Ki as his witness. Lau gave evidence that he was the landlord of the plot in Ping Che and that from May 1995 to October 1996, he let the lot to the Defendant and the Plaintiff. He said that on an occasion in mid-July 1995, after he came back to Hong Kong from Canada, he noticed that the Plaintiff and the Defendant had already moved into the lot and as he had not received any rent from either of them, he asked the Plaintiff who would pay the rent and the electricity charges. The Plaintiff said he would contribute $3,500, being a half share of the rent and any further sum representing a half share of the electricity charges and these sums would be deducted from the fees that the Plaintiff was entitled to receive from the Defendant and that he (Lau) should ask the Defendant for full payment of the rent and electricity charges. The witness confirmed that he received the total of $15,290 from the Defendant as electricity charges from May 1995 to October 1996.

26. He was cross-examined and he said that the lot was over 40,000 ft. He said that apart from the workshop that he leased to the Defendant, the Defendant did not use other parts of the lot. He was shown Exhibit P6, the photograph of a part of the lot, and he confirmed that that photograph showed an area within the lot. He was asked if the Defendant used that area and he said no. He said that when he first spoke to the Defendant about the lease, he was in Canada and the Defendant had telephoned him from Hong Kong. He told the Defendant that if they wanted to lease the lot, the lease would commence from May 1995 and the rental would be $7,000 per month. The rental would not include electricity and other miscellaneous outgoings. The witness then volunteered, without being asked any questions, "two of them should share those expenses".

27. He said that he did not really remember the date when the Defendant first paid rental to him. He said the Defendant paid rent to him by means of setting-off accounts since he placed business orders with the Defendant. He could not remember how many times the Defendant paid rent to him and all he was able to say was the Defendant did pay. He said he and the Defendant were close friends and he had business dealings with him and they settled accounts from time to time. He said he placed orders on vehicle seats with the Defendant in relation to Crown maxicabs. He could only remember that the Defendant had settled all the payments of rental and he said he could not remember either the exact figure or a rough figure of the amount that he owed the Defendant which was set off against the rent.

28. He was shown a document at page 142 of the bundle of documents and he was asked why that on document he had written that $7,000 was a "service charge". The witness replied that the reason for calling the rental as service charge was because he had said that he would not issue a rent receipt and if he had used the word "rental", he would need to issue a rent receipt.

The pleadings

29. When the Plaintiff gave evidence, he mentioned that $20,000 paid into the account of the Defendant's company on 29th March 1995 was in fact a loan from him to the Defendant. His evidence was that this $20,000 loan, together with the outstanding service charges, made up the total of the amount that he was claiming, namely, $238,855. This $20,000 loan was not pleaded in the Statement of Claim but in the closing submissions of the Plaintiff, leave is sought to amend paragraph 5 to read as follows :-

"The Defendant has failed to pay to the Plaintiff HK$218,855 or any part thereof, and there is due and owing to the Plaintiff the said sum of HK$218,855 being service charges for seat frames as mentioned in paragraph 3 hereinbefore. In addition on 29th March 1995, the Plaintiff lent to the Defendant a sum of HK$20,000 repayable on demand."

The Plaintiff also seeks leave to amend the figure HK$274,045 where it appears in paragraphs 6 and 7 and the prayer to the Statement of Claim by substituting therefor the figure HK$238,855.

30. The Defendant in his final address has submitted that this claim for $20,000 should be dismissed because it was not pleaded. The Defendant has not alleged that this new claim has in any way prejudiced him, and has prevented him from calling evidence which he otherwise might have called. Indeed it would be difficult for the Defendant to allege that this new claim has taken him by surprise because in the Plaintiff's witness statement, there is reference to this alleged loan. In the circumstances, I would allow the Plaintiff leave to amend the Statement of Claim as sought.

31. In the Defendant's final submission, he has annexed a chart showing the figures in dispute which were calculated by the Defendant. This chart shows that according to the Defendant, the service charges that the Plaintiff was entitled to receive for the period from 2nd March 1994 to 16th October 1996, totalled $1,221,700. The Defendant said that there were cheques received by the Plaintiff during this period which totalled $1,108,910.10 and it is submitted that from the service charges should be deducted the total amount of cheques received, leaving a balance of $112,709.90. Then it is submitted that from that sum should be deducted another total of $86,519.95 which represented the total of sums which the Defendant alleged the Plaintiff should have paid under the oral agreement pleaded in the Defence. Deducting this sum of $86,519.95 from the previous total of $112,709.90, there is left the total of $26,189.95 which is the amount which the Defendant, in his evidence, admitted was the amount that he still owed the Plaintiff. The cheques mentioned in the chart as cheques received by the Plaintiff from the period 2nd March 1994 to 16th October 1996, totalling $1,108,990.10, were not pleaded in the Statement of Defence, nor were all these cheques put to the Plaintiff when he gave evidence so as to see what the Plaintiff's answer was to this allegation.

Assessment of the evidence

32. I accept the Plaintiff's evidence that the total of the outstanding service charges due to him by the Defendant was $218,855 and that there was no oral agreement between him and the Defendant that he would be responsible for paying half of the rental and the electricity and telephone charges in respect of the work place that he occupied and which was the lot owned by the landlord Lau. I also accept his evidence that there was never any agreement that he should pay half the costs of the annual dinner and the premium for the employees' compensation insurance. I do not accept the Defendant's evidence on this aspect of the case, nor do I accept the Defendant's evidence that he had advanced two sums to the Plaintiff in the amounts of $3,360 and $1,434 which were pleaded in the Defence as the cost of a snake meat feast and material cost for antimony sheets. The reasons why I have not accepted the Defendant's evidence are, inter alia :-

1. In the document at page 83 of the Bundle of Documents which was prepared by the Defendant on or about 18th January 1996, there is no reference whatsoever to the alleged agreement between the parties for the Plaintiff to share half of the monthly rent, electricity charges and telephone charges. The alleged oral agreement for payment of the sums was made some time in April or May 1995, and yet, assuming it was in May 1995, some eight months later when this document was created, there is no reference to the alleged agreement.

2. The Defendant's evidence about whether he had used areas other than that leased to him by the landlord was contradicted by the landlord's evidence that the Defendant never used other areas within the landlord's lot.

3. The Defendant's denial when he gave evidence that he had never before seen the Plaintiff's record book, Exhibit P1, was unbelievable in view of the similarities between page 17 of Exhibit P1 and the ninth page of Exhibit D4, which was a copy of Exhibit P1 and which was given to the Defendant by the Plaintiff in or about October 1996.

4. The Defendant's denial in his evidence that the figure $532,807 appearing at the right hand side of page 18 of Exhibit P1 was his handwriting is also incredible in view of the similarity between the writing of those figures and that of the same figures appearing in the second column and the fourth column of page 83 of the Bundle of Documents which was admitted by the Defendant himself to have been written by him.

5. The alleged tenancy of the lot owned by Lau was not documented at all, yet at page 142 of the Bundle of Documents, which was a document created by the landlord after the event, the $7,000 per month is referred to as "a service charge".

33. I also do not accept the evidence of the Defendant's witness, Mr Lau Tim Ki, the landlord of the plot of land in Ping Che. He admitted that he was a long term friend of the Defendant's and his evidence seemed to me to have been too contrived and was given clearly with the view of trying to assist the Defendant in his case. I have found Lau's evidence that when he returned to Hong Kong from Canada in mid-July 1995 and found that the Plaintiff and the Defendant had already moved into the lot, he had a conversation with the Plaintiff who then said to him that he, the Plaintiff, would pay half of the rent and the electricity charges to have been contrived. Another example is when the witness volunteered, without being asked any questions, the evidence that "the two of them should share those expenses". I also find his evidence about how he received payment of rental from the Defendant to have been too evasive and lacking in details.

34. Since I have accepted the evidence of the Plaintiff, including that part of his evidence to the effect that whenever cheques were issued on his behalf by the Defendant, he paid the Defendant the sums involved in cash immediately and also his evidence that he never received some of the alleged payments from the two customers of the Defendant, namely Chick Wai Keung and one Yip, and since I have rejected the evidence of the Defendant, including his evidence that there were all these cheques which the Plaintiff received during the material period, it follows that there should be judgment for the Plaintiff in the sum claimed of $238,855 together with interest at the rate of 1% above prime from May 1995 to date of judgment and thereafter at judgment rate until date of payment. There will also be judgment for the Plaintiff for the costs of the action which are to be taxed if not agreed.