INTERNATIONAL FUR COMPANY LIMITED v. HIBIYA TSUSHO KABUSHIKI-KAISH

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. The Plaintiff and the Defendant are engaged in the fur trade, and between 1983 and 1985 entered into a number of dealings and transactions with each other. In 1985, they fell out over the state of the account between them : hence this action.

2. At the beginning of the trial, it appeared that the parties were in dispute about a number of these transactions although (since the pleadings were a shambles) it was not at all clear which; by the end of the trial, it was (fortunately) possible to identify which transactions were still the subject of controversy.

3. At that stage it appeared that only three transactions were the subject of a claim made by the Plaintiff and still contested by the Defendant.

4. The first and second of these transactions are the subject of the Plaintiff's invoices 83/135 and 83/137 (dated 28th August 1983 and 25th August 1983 respectively).

5. Under invoice 83/135, the Plaintiff claims to be entitled to be paid US$9,600 for 40 fur garments sold and delivered by the Plaintiff to the Defendant. The Defendant denies liability, saying that the garments were never delivered. The Plaintiff is unable to produce any documentary evidence of the delivery. But one William Fong Kwok-fei ("Mr. Fong"), the Plaintiff's managing director, gave evidence for the Plaintiff that he and a colleague of his (a Mr. Yu) delivered the garments personally to the Defendant. They had, he said, been ordered by the Hong Kong Branch Office Manager of the Defendant, one Mr. Kageyama, by word of mouth. Although there is no documentary evidence about this, I see no good reason to reject the evidence of Mr. Fong. Mr. Kageyama did not give evidence. I accept Mr. Fong's evidence; and I find the Defendant liable to pay to the Plaintiff US$9,600 in respect of this transaction.

6. Under invoice 83/137, the Plaintiff claims, to be entitled to be paid US$270 for one fur garment sold and delivered by the Plaintiff to the Defendant. Again, the Defendant denies liability, saying that the garment was never delivered. Again, there is no documentary evidence of delivery, but Mr. Fong says that Mr. Kageyama ordered this garment and that he (Mr. Fong) personally delivered. this garment to the Defendant. Again, I accept his evidence and I find, the Defendant liable to pay to the Plaintiff US$270 in respect of this transaction.

7. The only other claim made by the Plaintiff against the Defendant in this action which the Defendant disputes is a claim that some skins of the Defendant in the possession of the Plaintiff are the subject of a "pledge" in favour of the Defendant. This was not a claim made in the Statement of Claim; it emerges only from the Plaintiff's Reply to the Defendant's Defence and Counterclaim.

8. I have considered three different versions of the events said to give rise to this alleged "pledge". The first version is to be found in a letter dated 1st August 1985 from the Plaintiff's solicitors to the Defendant's solicitors. The second version is to be found in the Plaintiff's Reply and Defence to Counterclaim, dated 20th June 1986. The third version is to be found in the oral evidence of Mr. Fong given at the trial.

9. In the letter dated 1st August 1985, the Plaintiff stated its position as follows :

"In view of the outstanding amount due by your client, our client of course has an inherent right of lien over the skins in our client's possession until your client settles all the outstanding amount. Furthermore, we are instructed that during a meeting between a Mr. Kageyama of your client and Mr. William Fong and others of our client some time in or about March 1984, it was agreed by the said Mr. Kageyama on behalf of your client that our client may sell the skins in our client's hand for settling the outstanding CMT charges. In or about January 1985 during a meeting between a Mr. Zee of your client and Mr. William Fong of our client, when Mr. Fong chased up for payment of all money due by your client, the said Mr. Zee tried to comfort Mr. Fong by saying words to the effect that the skins in our client's possession were money and available to be security for payment of all outstanding money due to our client."

In the Plaintiff's Reply and Defence to Counterclaim, it put the matter in this way:

10. In Mr. Fong's oral evidence, he said that the suggestion of a "pledge" came from Mr. Kageyama at the Defendant's premises at Kimberly House, Kowloon, during a conversation in which Mr. Fong expressed concern about the amount of money owed by the Defendant to the Plaintiff. The two of them spoke in Japanese. The material word used by Mr. Kageyama in this connection, said Mr. Fong, meant "pledge" or "security". In written form it is similar to the Chinese word meaning "guarantee". He said that in January 1985 "Mr. Zee offered to have the skins sold, but I did not accept that offer." In re-examination (at 12:15 p.m. on 8th February 1988) Mr. Fong said "the only benefit I got was that I got a right to retain the skins until I was paid".

11. The Plaintiff at the trial relied on this evidence for the alleged "pledge". It did not rely on what is said to have been said by Mr. Zee as itself creating any "pledge" or for that matter anything else, but solely as evidence confirmatory of what Mr. Fong said that Mr. Kageyama had said. Mr. Zee did give evidence; he denied having said what Mr. Fong said that he said and pointed out that, in any event, he did not have authority to say it. I accept Mr. Zee's evidence, although I am prepared also to accept that Mr. Zee may well have made some reference, in a conversation with Mr. Fong, to the advantage to the Plaintiff as a creditor of the Defendant in holding skins of the Defendant in its possession.

12. There is no other evidence of the "pledge". Mr. Fong never confirmed the "pledge" in writing. The terms of the "pledge", and the subject matter, are far from clear. Did it extend only to the skins in hand at the date of the March 1984 meeting to secure payment of "the outstanding C.M.T. charges" (as the letter of 1st August 1985 appears to suggest)? Or did it extend to all skins of the Defendant come to the hands of the Plaintiff as well after as before the date of the meeting in March 1984? Did it secure payment only of C.M.T. charges, or payment of all sums due from the Defendant to the Plaintiff? Was it security for a loan made by the Plaintiff to the Defendant (as Mr. Fong at one stage suggested)? Was it intended that the Plaintiff should merely have a right to retain the skins until it was paid, or was it intended that the Plaintiff should have a right to sell the skins in default of payment (If the former, than the Plaintiff got only a lien, at best, and not a pledge.) In my judgment, the Plaintiff has on the evidence failed to prove the alleged "pledge". The "pledge" can only arise out of some contract; and the evidence required to prove that contract must be clear and unambiguous both as to the creation of the contract and as to its terms. The evidence before me on this question of " "pledge" is neither. On the contrary, it is full of contradictions. I accept that something along the lines suggested was said by Mr. Kageyama (and, for that matter, by Mr. Zee) to Mr. Fong; but the evidence as to what was said is not in my opinion sufficiently clear and cogent to justify the Court in holding that the Plaintiff has made out its case. It claims to be entitled to a valuable security by way of pledge for a very substantial sum of money against skins which, it is common ground, were originally delivered by the Defendant to the Plaintiff simply as bailee, and the evidence of a change in the character of the Plaintiff's possession is entirely lacking in the necessary precision which, for this purpose, the Court must, in my judgment, require.

13. I now turn to consider another series of transactions between the Plaintiff and the Defendant, this time the subject of claims made by the Defendant against the Plaintiff. The common feature of these transactions is that in each case it is the Defendant who seeks to re-open the transaction, claiming that the goods involved, although paid for by the Defendant, were never in fact delivered by the Plaintiff to the Defendant. The Defendant is in difficulties here, for, not only has it paid for the goods, it has in each case given a receipt for them, and it has had to try and persuade me that these matters are overborne by other considerations.

14. Some of these transactions were sales of skins by the Plaintiff to the Defendant; some were sales of garments; and the rest were cases in which skins of the Defendant had been made up by the Plaintiff to the order of the Defendant ("C.M.T.").

15. I set out these disputed transactions in tabular form below.

	Date	Invoic No.	Transaction	Amount
	23.9.83	83/172	Sale (garments)	USD434,240
	23.9.83	83/173	C.M.T.	USD104,280
	23.9.83	83/174	Sale (skins)	USD261,139
	11.11.83	83/106	Sale (garments)	USD240,880
	11.11.83	83/107	C.M.T.	USD266,000
	12.12.83	83/109	Sale (garments)	USD256,850
	15.12.83	83/257	Sale (garments)	USD201,080
	13.1.84	83/111	Sale (skins)	USD206,827
	21.1.84	83/0001	Sale (skins)	USD355,989
	14.3.84	83/112	Sale (skins)	USD200,010
	3.4.84	83/116	Sale (skins)	USD193,500
	24.4.84	84/001	Sale (skins)	USD950,000
	2.5.84	84/003	Sale (skins)	HKD1,563,000
	28.5.84	84/043	C.M.T.	HKD1,521,120
	11.6.84	84/052	Sale (skins)	HKD1,834,900
	6.11.84	84/185	Sale (garments)	HKD865,000
	29.11.84	84/10/12	C.M.T.	HKD933,000

16. Some of these transactions were in fact transactions between the Defendant and an associated company of the Plaintiff, Bright Sail Co. Limited, but it was common ground that for the purposes of these proceedings no distinction was to be drawn between the two companies.

17. The Defendant took a number of points about these transactions, mainly based on its own records or the lack of them. Where it disputed sales of garments, it pointed to the want of the appropriate entry in its garment stock ledger. Where it disputed sales of skins, it pointed to the want of the appropriate entry in its skin stock ledger; and, where entries have been made of the transaction in its purchase ledger, it pointed to the subsequent concellation of that entry in that ledger. And the Defendant pointed to oddities about the Plaintiff's records (many of which have been lost or destroyed) as well. It remarked on the want of delivery notes and (in some cases) packing lists. It pointed to some discrepancies in the Plaintiff's own skin consumption records. It pointed to the remarks, on some of the documents, as to the number of cartons in which the goods were said to have been packed, contending (in my judgment, correctly) that in some instances it would have been difficult or even impossible to pack so much into so few cartons.

18. I admit that all this has left me harbouring some doubts about these transactions. So does the fact that, for reasons which never became clear to me, the parties appear to have used as a means of payment for these local transactions bankers' documentary credits in my view only appropriate for use in international trade. But the question is whether the Defendant, which accepts that in the face of its own signed receipts it bears the evidential burden of proof on the issue, has satisfied me, on a balance of probabilities, that the goods which it says were not delivered were in fact not delivered. Faced with the fact that, in every single instance, the Plaintiff was able to tender in evidence a receipt for the goods, duly signed on behalf of the Defendant, I find myself constrained to answer this question in the negative. Such oral evidence as there was was tendered by the Plaintiff, and supported its case. No oral evidence was tendered by the Defendant which lent any support at all to the Defendant's case beyond what appeared on the face of the documents. For these reasons, I find against the Defendant in respect of all its claims relating to the disputed transactions tabulated above.

19. For the sake of completeness, I should add that the Defendant further disputed two other transactions, which were sales of skins by the Defendant to Hollywood Fur Company. The dates of these transactions were 20th April 1983 and 16th May 1983; the Defendant's invoice numbers were 5 - 118/83A and 5 - 118/83B; and the sums involved were DM25,000 and DM24,500 respectively. But the Defendant at the end of the trial accepted that it could not succeed in its claim that the Plaintiff owed the Defendant these sums, and I say no more about these transactions save that in relation to these claims too I find against the Defendant.

20. I will direct junior counsel for the Plaintiff to prepare a minute of the order necessary to give effect to this judgment, and agree the minute with junior counsel for the Defendant.

21. Since I have found against the Plaintiff on the "pledge" issue, the order must include an inquiry as to what skins of the Defendant have been wrongly detained by the Plaintiff; and an inquiry what damage the Defendant has suffered by reason of such wrongful detention. The amount found to be due to the Defendant on the inquiry must be set against whatever is found to be due by the Defendant to the Plaintiff (after taking account of the claims of the Plaintiff against the Defendant either conceded by the Defendant or decided by the Court in favour of the Plaintiff) and the balance certified. There must be an order for payment of the balance so certified to the party to whom it is payable. I will adjourn further consideration of the action to a date and time to be fixed when I will further consider (if necessary) the form of the order to be made and any question that may arise as to the costs of the action and counterclaim down to the date of the order.