FAR EAST PCB LTD. v. FAR EAST LAMINATORS LTD.

CL No. 216 of 1994
No. A852 of 1995

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HEADNOTE

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Existence of agency - particular circumstances - failure to account for monies received from overseas customers - account, declaration and injunction granted.

Cross claim for damages and malicious falsehood refused.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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COMMERCIAL LIST ACTION NO. 216 OF 1994
&
ACTION NO. A852 OF 1995
(Consolidated)

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J U D G M E N T

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1. The proceedings before me which began five days ago are in fact two consolidated actions, such consolidation taking place pursuant to the order on the Hon. Mr. Justice Mayo (as he then was) dated the 21st March 1995. In reality, the actions are mirror-images of each other. The first action, namely No.CL-216 of 1994, is a claim by an entity known as Far East PCB Limited against another Hong Kong company called Far East Laminators Limited. In turn, for reasons which are not clear to me, Far East Laminators chose not to defend and counterclaim in the Commercial List Action, but instead to defend the Commercial List Action and to issue their own proceedings, namely, No.A852 of 1995 against Shougang Concord Technology Holdings Limited (formerly known as Santai Manufacturing Limited) as lst Defendant and Far East PCB Limited as 2nd Defendant. I will not here rehearse the corporate structure; suffice it to say, although for present purposes it does not greatly matter, that Santai Manufacturing Limited is the parent of Far East PCB Limited; I will hereafter refer to Far East PCB as FEPCB. The dispute in reality is between FEPCB on the one hand and Far East Laminators Limited (whom I will call FEL) on the other. I will attach to the pleadings in a moment in order to outline the broad issues.

2. On the first day of the trial, FEPCB appeared before me ready to open the case and were represented by Mr. Clifford Smith of Counsel, instructed by Messrs. Richards Butler. There was no legal representation on behalf of FEL Limited. Instead, FEL appeared, or sought to appear, by Mr. Johnson Yee, a Director, and, I gather, the effective beneficial owner. What had happened was this. FEL had hitherto had solicitors, namely Messrs. K.F. Lau & Louis Chan & Co., but they had come off the record with the permission of the court at some stage around the middle of 1996. Nothing had apparently been done about this, either by the Plaintiff (to whom it was open to take the point that no corporation shall be represented save and except by solicitors) or indeed the Defendant itself, so that when Mr. Yee appeared in court, there had been no application pursuant to Order 5 Rule 6 of the Rules of the Supreme Court whereby an application could be made for leave for FEL to be represented by one of its directors. To cut a long story short, Mr. Yee was apprised of the position by myself, and immediately made what I took to be an application in those terms. I granted the application, and thereafter the case proceeded in as close as possible to normal fashion.

3. But to revert to the pleadings. The broad ambit of the dispute is not particularly complex. In essence, FEPCB's claim was that from about December 1992 FEL had acted as FEPCB's agent for the purpose of obtaining orders for the sale of printed circuit boards (PCBs), which were to be manufactured by FEPCB at its Dongguan factory. FEL had collected money from such sales from customers of FEPCB, but, as clearly emerged in evidence, from about June 1994 FEL had not been accounting to the FEPCB for the monies received consequent upon those sales. The agency was terminated, so said FEPCB, by written notice to FEL dated the 5th October 1994. It was further alleged that in or about November or December 1994 FEL had been contacting customers of FEPCB with a view either to causing the withholding of funds properly due to FEPCB or alternatively causing the diverting of such funds to FEL. A schedule to the Writ itemised the customers who were said to be the relevant customers from whom FEPCB were owed monies.

4. Accordingly, against that relatively simple matrix of facts, the Plaintiff wanted an account, a declaration and an injunction, as appears on the face of the amended Points of Claim. I should mention, also, that at some stage during the course of the dispute, an escrow account was set up in the names of the then joint-solicitors, Messrs. Richards Butler and Messrs. K.F. Lau & Louis Chan & Co., into which certain monies were paid to await the resolution of the present dispute.

5. That, therefore, is the background to the Plaintiff's case, which has generated vast amounts of paper, and which has required the calling of some seven witnesses. Of those seven witnesses, six were witnesses of fact, and one was an expert witness, namely Mr. Robert Radley, the well-known handwriting expert, who testified with regard to the validity of a particular signature on a particular document.

6. FEL's case, as expressed in its Statement of Claim in High Court Action A852 of 1995, and as reflected in its Defence to FEPCB's claim in CL-216 of 1994, was essentially as follows, and in so summarising I must apologise if certain niceties are omitted in favour of descriptive compression. Suffice it to say that FEL had been purchased by Mr. Johnson Yee and his then colleague and co-director, Miss Ann Choy, in June 1990, with a view to specialising in the business of the sale and/or supply of printed circuit boards (PCBs) to overseas customers. Mr. Johnson Yee told me that when he took over the company it was considerably in deficit but that, through the efforts of himself and Miss Choy, he was able to turn it around. However, he looked for capital injection, and pursuant to that desire he approached the Allied Group of Companies, headed at that time by Li Ming Tee, which amongst other subsidiaries had a wholly-owned subsidiary called Printronics Pty. Ltd. in Australia. The Australian company's machines were lying idle and Mr. Yee had a number of ideas, as he has told me, one of which involved the transfer, and thereafter the use, of the Australian machinery to the Dongguan factory in China. Clearly, Mr. Yee had his eye on the burgeoning market for PCBs and, doubtless, on the lower costs of production in China.

7. So much for the background, which is relatively undisputed. FEL's case effectively, and certainly as represented on the pleadings before me in this case, was that in September 1991 Mr. Yee had reached an oral agreement with Mr. Li Ming Tee acting for the Allied Group to the effect that FEL would be responsible for supervising the dismantling and transportation of the machinery from Australia to China, that a factory was to be built in Dongguan, China in order to house this machinery, and that (and most importantly in the present context,) FEL would be granted a 10-year licence for the use of this machinery for the manufacture of PCBs at the site. Other factual matters are said to have taken place: for example, an option (which was never exercised) was to be granted to the Allied Group of Companies to purchase 60 per cent of the shares in FEL, and further it was asserted by Mr. Yee on behalf of FEL that FEL had in fact itself paid a total of approximately HK$2 million from about November 1991 to about April 1992 for the purpose of building or completing the factory which was being erected in Dongguan. I should add at this stage that FEPCB itself was separately established in 1992 at or about the time the machinery from Australia was installed at the Dongguan factory. Two other matters are also relevant. It appears not to be in dispute that, as a matter of fact, the business licence of the factory was obtained by Mr. Johnson Yee in his name, and that his colleague, Miss Ann Choy, successfully applied for and obtained an industrial waste-water licence, this being necessary by reason of the nature of the process involved in the manufacture of PCBs.

8. But I am getting ahead of the story. It is clear on the evidence that Mr. Yee and Miss Choy became employees of the Santai group on 1st December 1991, and thereafter supervised the installation of the machinery in the Dongguan factory. It seems clear to me that in his own mind Mr. Yee never adequately differentiated between his role as an employee, and his idea that in some way he was part and parcel of a joint venture with FEPCB. In any event, the factory was established and it started to manufacture PCBs, which were duly exported to various overseas customers. And it is here that the problems begin. Because there is, or there came to be, a window of time, namely from April 1994 to July 1994, when the practice which had hitherto grown up, namely that customers would be invoiced for the purchase of the PCBs, and the payments would be made to FEL, and that such monies would thereafter be transferred to FEPCB, no longer subsisted. I am satisfied, on the evidence before me, that what happened was that not only were no monies transferred during this period (or, if any were, certainly not the proper amounts), but that FEL had been sending out invoices with instructions to customers that FEL be paid, with FEL thereafter making no consequent remittances to FEPCB. Not unnaturally this caused consternation in FEPCB's Accounts Department, and investigations were duly put in hand. The end result of these investigations, so far as I am able to tell, was that there were negotiations between FEPCB/Shougang and FEL for a financial accommodation between the parties; in this context Mr. Yee told me, which I accept, that he was hoping for a buy-out of his company. This did not occur, and Mr. Yee and Miss Choy left the employ of FEPCB in November 1994.

9. What is pleaded by FEL to have happened is that in the middle of 1994 Miss Choy was ejected from the factory, that Mr. Yee was prevented from entering, and that FEL was prevented from continuing the production and manufacture of PCBs at the site, and more particularly from continuing to use the machinery at the factory for such production. The evidence in this regard, which I accept, is that this machinery was comprised for the most part of the imported Australian machinery, but that there was also a residual portion of machinery which had always been FEL's own machinery, and which has been interfaced with the Australian machinery as part and parcel of the production line.

10. In any event, FEL claimed to have suffered loss and damage for the loss of the use of the factory building at the site for the balance of the 10-year licence period, and for the loss of net profits on orders it claimed were its own for the sale of PCBs.

11. There was a subsidiary claim by FEL, which it appears was based on malicious falsehood, namely, that wrongful and malicious representations had been made to customers of FEL's in order to damage their business by the Plaintiff, through its solicitors Messrs. Richards Butler; I mention it for the sake of completeness only because the claim was never pursued, and, in my judgment, never had any adequate foundation.

12. The crux of the case, therefore, was a determination of the relationship between FEPCB on the one hand and FEL on the other: Was FEL FEPCB's agent as alleged, alternatively did FEL have the right, as asserted by Mr. Yee, to use the machinery in the factory for 10 years in order to manufacture PCBs, which would then be sold as his own property, in return for an annual fee of some HK$200,000?

13. This primary matter, together with peripheral factual disputes, would, I have no doubt, normally have required extensive consideration and specific findings of fact by the trial judge after weighing carefully all the evidence on each specific issue. For reasons which will shortly appear, such an extensive rehearsal of all the evidence is, I think, now unnecessary, although I would indicate that I was in do doubt at all, on the evidence, that in fact FEL was indeed acting as FEPCB's agent, that FEL had for a considerable period of time been obeying its agency obligations in remitting the proceeds of sale to FEPCB, and that in ceasing so to do FEL was really on a frolic of its own, in all probability for ulterior commercial motives, bearing in mind the falling-out between the parties and the financial negotiations between them that were apparently taking place towards the end of 1994. Insofar as it is now important, I also find that the document which was the subject of Mr. Radley's investigations was not in fact the document it purported to be, and had not been signed by Mr. Gus Chow wherein he is recorded as confirming a note of the verbal commitment which Mr. Johnson Yee had allegedly obtained from Mr. Li Ming Tee, namely the use by FEL for a period of 10 years of the equipment which had been sent from Australia in return for an annual usage fee of HK$200,000. I accept Mr. Radley's evidence, which was to the effect that the signature in question at the bottom of this document, purporting to be Mr. Chow's signature, under the name of Printronics China Limited was, as Mr. Radley put it, "a rather crude forgery".

14. In short, the evidence in my view pointed and continued to point irrevocably in favour of FEPCB's case, and against the case apparently being pursued by Mr. Yee on behalf of FEL. There then came the stage when Mr. Yee elected to give evidence after having his rights and the procedure explained to him by myself. Mr. Yee chose, in my view sensibly, to base his evidence upon the witness-statement which had been prepared for him by his previous lawyers, who had of course come off the record some months earlier. This permitted some shape to be given to his testimony in the absence of someone to lead him through it, and of course it provided a focus for him to place his case before the court.

15. There came a point in his evidence, however, which was decisive. Paragraph 27 of his witness-statement, which he was using as his brief, read as follows: "It is denied that FEL was an agent for FEPCB, or that FEL owes FEPCB any money." I asked Mr. Yee if that was true, because it seemed to me that this was the basis upon which the case thus far had been conducted by him on behalf of FEL, and it seemed to me also to be a fundamental building block of that case. Absent the truth of this assertion, much of what was alleged on behalf of FEL simply slipped away. To his credit, Mr. Yee drew back. He told me in terms that paragraph 27 was not correct. He told me in terms that as of September 1994 FEL owed FEPCB money of around HK$3 million. He did not have the precise figure. He did not want to tell me how this statement at paragraph 27 came to be in his witness-statement, and I did not press him on it. Suffice it to say that he did not feel able cross the line, and he made it clear that he felt obliged to tell the truth in accordance with the oath he had taken. At that stage the floodgates opened, so to speak. I asked him to read the balance of his statement to the end, namely from paragraph 28 to paragraph 41. In particular I asked him to focus on the final sentence of paragraph 37 of his witness-statement which reads as follows: "The allegation that FEL paid or received money on behalf of FEPCB is totally incorrect and false".

16. Mr. Yee admitted to me that that this final sentence of paragraph 37 was itself false. Again, he is to be commended for telling the truth under oath, although it is a matter of regret that we had to spend five days until the truth emerged.

17. With these two primary revelations, or admissions, I asked him whether he felt able to sustain his pleaded allegation of the oral agreement entered into with Mr. Lee Ming Tee. After a lengthy period of silence, he indicated that he could not. I also asked him whether he agreed, in light of what he had just told me, that FEPCB was entitled to the account it sought. He did so agree. He likewise agreed that, so far as he was concerned, the plaintiff was entitled to its declaratory relief and he also indicated that he agreed with the injunctive relief sought. Whether he fully understood the legal concepts behind the declaration and injunction is moot; be that as it may, I took his agreement in this regard to be an acceptance of the factual situation underpinning those two forms of relief.

18. In light of these admissions, coming as they did at a late stage of the case, it was abundantly clear that the case as a viable dispute was thus at an end. I have recited the background to the case and the sequence of events as they occurred because, although it seemed to me to be technically open to the court to enter judgment on the basis of admissions, I took the view that that was an inappropriate course to adopt, and that there should be a rehearsal, in broad terms, of the rival contentions in this case, and an indication of the nature of the evidence which had been sought to be led.

19. Accordingly, in light of all the evidence that I have heard, and given the matters which have formed the subject of Mr. Yee's admissions, it is quite clear to me that the plaintiff should have the relief, or substantially the relief, which it seeks. Indeed, to his credit, I think Mr. Yee has now realised, and has indicated, that he understands and accepts that. Accordingly, I make the following orders, having already canvassed with Mr. Smith, in anticipation of this extemporary judgment, the broad form thereof.

20. FEPCB, the Plaintiff in CL-216 of 1994, is to have the following relief:

(1) (i) an account of what is due from FEL to FEPCB in respect of such monies as were received by FEL in payment of invoices issued on or before the 5th of October 1994 by either FEPCB or FEL for and on account of FEPCB;

(ii) an order for payment by FEL to FEPCB of such sum as is found due upon the taking of such account;

(2) A declaration that FEPCB is entitled to be paid all such sums in respect of invoices issued on or before the 5th of October 1994 as may be due from the customers identified in the Schedule to the Writ of Summons in respect of the supply to such customers of printed circuit boards;

(3) An injunction restraining FEL, whether by its directors, officers, subsidiary companies, servants or agents or any of them or otherwise howsoever from making demands or requests in the name of FEL or through solicitors appointed by FEL, whether locally or overseas, to such customers as are itemised in the Schedule to the Writ herein, or from taking any proceedings against such customers for the purpose of compelling such customers to make payments to FEL of the sums referred to in paragraph (2) above;

(4) Payment to Richards Butler on behalf of FEPCB of all monies held in the joint escrow account set up by Messrs. Richards Butler and Messrs. K. F. Lau & Louis Chan in their joint names with Standard Chartered Bank, account No. 447-2-037638-00;

(5) That interest be paid on such sum as is found due to FEPCB upon the taking of such account as aforesaid, such interest on such sum to be paid at the judgment rate for the time being pertaining.

21. I leave to counsel and his solicitors the carriage of this order, which they will doubtless prepare for my scrutiny. I will now hear the parties on costs.

5.00 p.m. - Court adjourns.

4 March 1997.

RULING ON COSTS

22. In the particular circumstances of this case, Mr. Smith asks for an order that costs be paid personally by Mr. Johnson Yee. In support of this submission, he directs my attention to s.52A of the Supreme Court Ordinance, Cap. 4, and to Aiden Shipping Co. Ltd. v. Interbulk Ltd. [1986] 1 AC 965 (HL), in particular certain passages from the speech of Lord Goff as to the meaning to be attributed to the word "party".

23. As a fallback position to his submission as to personal liability, Mr. Smith asks for costs against FEL on a higher scale than the normal party and party basis.

24. Mr. Yee opposed these applications.

25. I have reflected upon Mr. Smith's submissions. I am against him on the issue of personal liability. I have decided, in all the circumstances and in the exercise of my discretion, that the justice of the case is served by ordering costs to be taxed and paid on a common fund basis.

26. Accordingly, the Plaintiff is to have its cost of these actions, such costs, if not agreed, to be taxed and paid by FEL on a common fund basis.

OTHER MATTERS

27. Two other matters have arisen, which were canvassed with Mr. Hughes of Richards Butler and Mr. Johnson Yee at a short further hearing which took place at 4:45 p.m. on 12th March 1997 regarding the precise form of the Order.

(1) Interest

The Order originally canvassed by FEPCB failed to deal fully with the issue of interest. Mr. Hughes asks for interest also to be awarded on such sums as are found to have been received by FEL for and on account of FEPCB from the date of receipt thereof to the date of the account ordered to be taken, the relevant rate of interest on such sums for such periods to be calculated at the rate of 1% over HIBOR.

Mr. Yee did not indicate any objection, and I so order.

(2) Dismissal of FEL's Claim in HCA A852 of 1995

This follows, I think, as a matter of necessary implication from the Judgment delivered, but after raising the matter with Mr. Hughes and Mr. Yee, I consider it appropriate also to formally dismiss FEL's claim against FEPCB and Shougang Concord Technology Holdings Ltd., with costs, to be taxed if not agreed, to be paid by FEL on a common fund basis. Accordingly, I so order.

12th March 1997