BOWLSTAR (HK) LTD v. HO KWAI PO AND ANOTHER t/a CONCORD ENTERPRISES

CACV 156/2006 and 157/2006
(Heard-together)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 156 OF 2006

(ON APPEAL FROM HCA NO. 4703 OF 2003)

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BETWEEN

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 157 OF 2006

(ON APPEAL FROM HCA NO. 4704 OF 2003)

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J U D G M E N T

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Hon Cheung JA :

The action

1. The plaintiffs in these two consolidated actions sued the defendant for damages for breach of contract.  The plaintiffs claimed to be buyers of selenium metal powder (‘the goods’) of which the defendant was the seller.  The defendant had failed to deliver the goods to the plaintiffs. 

2. The defendant consisted of two partners trading under the name of Concord Enterprises (‘Concord’).  They denied that Concord was the seller of the goods.  They claimed that the goods were to be sold by a company in Germany namely, Concret Orgachem GMBH Chemische Produkte (‘CO’).  They claimed Concord was an agent of CO.  Further they claimed that the plaintiffs had repudiated their contracts by failing to provide the necessary letter of credit within time.  Concord lodged a counterclaim for damages for breach of contract by the plaintiffs. 

3. The case was heard by Deputy High Court Judge To.  He found for the plaintiffs and awarded them damages.  He dismissed the defendant’s counterclaim.  The defendant now appeals against the decision. 

The facts

4. The relevant facts of this case are as follows :

5. Mr. Nelson Ho (‘Nelson’) was the general manager of China Rare Metal Industries Inc. (‘China Rare’) in China and the general manager of Leva International Trading Company (‘Leva’) in Hong Kong.  In July 2003 he enquired with the defendant whether Concord was able to provide the goods. 

6. The defendant enquired with its supplier CO in Germany for the price of the goods.  On 22 July 2003 the defendant obtained an offer from CO to sell the goods at Euro 12.40 per kg inclusive of 2% commission for the defendant. 

7. On 28 July 2003 Nelson made a bid on behalf of China Rare for 20 metric tons of the goods at US$14.50 per kg. 

8. Eventually the defendant managed to ask CO to sell the goods at Euro 12.40 per kg.  However at the same time it also informed Nelson that the price of the goods was Euro 12.60 per kg.  By then the defendant was aware that the buyer of the goods would be Leva. 

9. On 31 July 2003 CO issued a document entitled Confirmation COR 729/03 to the defendant for the sale of 20 metric tons of the goods at Euro 12.40 per kg C&F Nan Gang, Nan Hai via Hong Kong. 

10. By a fax dated 2 August 2003 Leva wrote to the defendant the following :

‘ This is to confirm our purchased of 20 Mt Se 99.9%, 325 mesh, at Euro 12.6/kg C&F Nan Gang, Nan Hai, Guangdong, China.

Please prepare a sales contract between Leva and Concret Orgachem so we can proceed LC application.  Thank you.

Best regards,

signed

P.S. Please sign & chop for sales confirmation at below.  Thank you.’

11. The defendant countersigned on the fax by imposing its chop and signature and faxed it back to Leva on 2 August 2003. 

12. There was a dispute whether the defendant had provided Leva with a copy of the Confirmation COR 729/03 by CO.  The defendant claimed that it had faxed the document to Nelson by a fax dated 2 August 2003.  In that fax the defendant asked Nelson to open a letter of credit at Euro 12.60 per kg C&F.  Nelson denied that he had received from the defendant that fax or the Confirmation from CO.  The judge accepted the evidence of Nelson and rejected the evidence of the defendant on this issue. 

13. Later on 4 August 2003 Nelson requested the defendant to separate the 20 metric tons agreement into two contracts of 10 metric tons each with Leva and another company namely, Bowlstar (Hong Kong) Limited (‘Bowlstar’) as the buyers of the goods. 

14. On the same day the defendant faxed two sales confirmations, each for 10 metric tons of the goods, one with Leva and one with Bowlstar to Nelson.  These two documents bore the name of Concord in Chinese and English with details of its address and contact numbers at the top of the page.

15. The sales confirmation to Leva stated that the price of the goods was Euro 12.60 per kg C&F Nan Gang, Nan Hai via Hong Kong.  The shipment date to Leva was September.  Payment was by way of the irrevocable letters of credit at sight in favour of CO.  There was a remark which stated that ‘All refer Concret Orgachem Chemische Produkte Confirmation COR 729/03’.  The bottom of this sales confirmation had the following words : ‘For and on behalf of Concord Enterprises’ followed by the chop of Concord together with a signature above the line with the words ‘Authorised Signature(s)’ below. 

16. In respect of the sales confirmation issued by the defendant to Bowlstar the contents were identical save that the shipment date of September was changed to August. 

17. Leva and Bowlstar eventually issued the letters of credit in favour of CO. 

18. Subsequently CO requested the name of the beneficiaries to be changed from CO to Alfa Aesar Johnson Matthey (Deutschland). 

19. Neither CO nor Alfa Aesar delivered the goods to Leva or Bowlstar. 

Issues in this appeal

20. We are not concerned in this appeal with whether Bowlstar had failed to open the letter of credit in favour of CO within time.  The question of damages is also not an issue.  The main issue was whether the defendant was an agent for CO and hence was not liable to the plaintiffs for non delivery of the goods.

The judge’s finding

21. The judge found that the defendant was not an agent but was a contracting party with the plaintiffs.  At paragraph 18 of the judgment the judge stated that :

‘18.  Continuing from where I had left, upon receipt of Nelson’s fax dated 2 August 2003, Paul signed the fax, impressed it with the chop of Concord Enterprises and fax it back to Nelson.  Pausing here at this stage, it would appear that Leva anticipated contracting with Concret Orgachem through Concord Enterprises as agent.  Hence it requested for a contract between Leva and Concret Orgachem.  Leva’s request to Concord Enterprises for signature and confirmation must be for Concord Enterprises to sign as agent of Concret Orgachem.  But this finding is unnecessary as events took a turn from here.’

22. Although the judge said he did not need to make the finding on this issue it is apparent from his judgment later on that he did make a finding on this particular issue and this can be seen from the following paragraphs of his judgment :

‘38.   On my finding of fact, Nelson had been liaising with Paul of Concord Enterprises about the purchase of 20 metric tons of selenium.  He had no knowledge that the ultimate supplier was Concret Orgachem until 2 August 2003 when Paul informed Nelson over the telephone to issue a letter of credit in favour of Concret Orgachem.  It was in that setting that Nelson asked Paul to prepare a sale contract between Leva and Concret Orgachem.  On these facts, there were two possibilities.  Firstly, it is open to infer that Nelson intended to trade with Concret Orgachem as principal through Concord Enterprises as its agent.  This inference would have been reinforced by Paul’s fax dated 2 August 2003 in which he informed Nelson that he had received a sales confirmation from its principal.  But I have rejected this evidence from Paul.  The second possibility is that Concord Enterprises was trading as principal on its own right in a sub-sale from Concret Orgachem.  In a commercial transaction, there is nothing unusual for a sub-purchaser to pay the first seller.

39.    However, the first possibility is excluded by two facts.  Firstly, Paul responded to Nelson’s request to prepare a contract between Leva and Concret Orgachem by signing the sale confirmation for and on behalf of Concord Enterprises.  He never indicated that Concord Enterprises did so as agent of Concret Orgachem.  Secondly and more importantly, there is no dispute that Concord Enterprises was to make a profit of Euro 0.20 per kg out of the transaction in addition to the 2% commission it would receive from Concret Orgachem.  Even though Concret Orgachem was aware of the profit as it agreed with Concord Enterprises to refund the price difference to Concord Enterprises, the arrangement was more consistent with a sub-sale than with an agency agreement.  This contract did not materialise as Nelson requested to split the contract into two, one with Leva and the other with Bowlstar on 4 August 2003.  That was the setting in which the subsequent contracts came into existence.

40.    On 4 August 2003, Concord Enterprises issued two sales confirmations instead of arranging for them to be issued by Concret Orgachem.  The parties stated on the sales confirmations were Leva and Concord Enterprises in one contract and Bowlstar and Concord Enterprises in the other.  These sales confirmations were signed by Paul for and on behalf of Concord Enterprises.  The formula ‘for and on behalf of’ is a well-known one indicating agency.  But the context in which this formula was used indicated that Paul was signing as agent of Concord Enterprises and not as agent of Concret Orgachem.  There is a very strong presumption that if a contract is signed by an agent in his own name without qualification, he is deemed to have contracted personally: see Transcontinental Underwriting Agencies SRL v Grand Union Insurance Co Ltd [1987] 2 Lloyd’s Rep 409.  This presumption would be displaced if contrary intention plainly appears from the other parts of the document: see Concordia Chemische Fabrik auf Actien v Squire (1876) 34 LT 824.  The absence of any indication on the two sales confirmations that Concord Enterprises was acting for and on behalf of the ultimate seller or of Concret Orgachem must give rise to a very strong inference that it was entering into the contract in its own capacity as principal and not for and on behalf of another.  Thus on the face, these two sales confirmations are contracts in which Concord Enterprises entered into as principal.  This is so despite the background that it was known to Nelson that Concret Orgachem was the ultimate supplier of the selenium and despite that Concret Orgachem was named as the beneficiary of the letters of credit.  Furthermore, there is of course the very important inference that could be drawn from the profit which Concord Enterprises was to make.  The whole arrangement was, in my view, a sale between Concret Orgachem and Concord Enterprises and a sub-sale between the latter and Leva and Bowlstar respectively.  In view of this conclusion, it is not necessary for me to consider the second issue.’

The actions taken by the defendant

23. The evidence of the defendant was that after it had secured the agreement from CO and Nelson to sell and buy the goods at Euro 12.40 per kg, it wrote to CO asking it to issue a sales confirmation for the goods at an inflated price of Euro 12.60 per kg and to refund the defendant the difference of Euro 0.20 per kg plus a 2% commission.  However, CO only issued a sales confirmation at the price of Euro 12.40.

24. After receiving the signed confirmations from Leva and Bowlstar the defendant wrote to CO and requested CO to issue two separate sales confirmations, each for 10 metric tons to Leva and Bowlstar and quoting the price of Euro 12.60 per kg.  The defendant also sent two commission agreements to CO for its execution, one for each of the sale.  The commission agreement provided for payment by CO of 2% commission on the total invoice price and the refund of the price difference of Euro 0.20 per kg between the contract price quoted in the sales confirmations with Leva and Bowlstar and the price as agreed between CO and the defendant.  CO did not respond or sign the commission agreement. 

25. In the appeal bundle there were two documents disclosed by the defendant.  They were two confirmations issued by CO to the defendant.  The first was confirmation COR 729/03/1 in which the customer was stated to be Bowlstar.  The second was confirmation COR 729/03/2 in which the customer was stated to be Leva.  The terms of the confirmation were identical namely, 10 metric tons of the goods at Euro 12.60 per kg C&F Nan Gang, Nan Hai via Hong Kong.  Both confirmations were dated 4 August 2003.

26. While the judge in his judgment did not deal with these two confirmations, at the same time, there was no allegation from the defendant that it had supplied Leva and Bowlstar with copies of these two confirmations from CO.  There was also no explanation from the defendant why it did not do so. 

The request for contract

27. Mr. Alfred Chan, counsel for the defendant, argued that when Leva on 2 August 2003 asked for a sales contract between Leva and CO this showed that Leva had intended to contract with CO and not with the defendant. 

28. In my view this request was obviously a relevant factor to be considered in deciding who were the contracting parties.  However this cannot be the only evidence to be considered.

Non disclosure of Confirmation

29. In this case despite the fact that the defendant had received Confirmation COR 729/03 from CO agreeing to supply 20 metric tons of the goods at Euro 12.40 per kg, it had not disclosed this confirmation to Leva.  The judge rejected the defendant’s evidence that it had by a fax dated 2 August 2003 supplied this confirmation to Leva. 

30. The defendant might well have a motive in not disclosing this confirmation to Leva because of the price difference.  Nelson had stated in evidence that if he was aware of this confirmation he could have dealt with directly with CO instead.  The judge found Nelson to be a truthful witness.  This is a finding of fact which the judge was entitled to make.  I would have thought that at the very least if Nelson had indeed received this confirmation he would have raised with the defendant about the difference in price.  It would be most odd for a buyer not to be concerned with an apparent price difference or to raise it if he knew that the price quoted by the supplier was less than the price that he was asked to pay in the first place.  By not disclosing this confirmation to Nelson and by signing on the fax of 2 August 2003 from Leva the judge was entitled to conclude, in the light of this and other evidence in this case, that the defendant was the contracting party. 

The two sales confirmations

31. The subsequent two sales confirmations signed by the defendant clearly reinforced the plaintiffs’ case that the defendant was a contracting party. 

32. Mr. Alfred Chan argued that it was wrong to rely on these two sales confirmations because they were merely a continuation of the original arrangement in which the defendant was merely acting as an agent for CO. 

33. I disagree.  In these two sales confirmations the defendant did not express any qualification that it was merely acting in the capacity as an agent for and on behalf of CO. 

34. Further the silence of the defendant on its case concerning Confirmation COR 729/3/1 and Confirmation COR 729/3/2 to Leva and Bowlstar from CO further damaged its case that it was merely acting as an agent for CO.  It would have made commercial sense to provide the plaintiffs with these documents if the defendant was only an agent for CO.

Stanley Yeung Kai Yung

35. The judge also relied on the case of Stanley Yeung Kai Yung and another v. The Hong Kong and Shanghai Banking Corporation [1981] AC 787.  In that case the plaintiff was a shareholder of the defendant.  His shares were stolen from him without his knowledge.  A firm of stockbrokers was instructed to present share transfer deeds with the stolen share certificates to have the transfers registered to one Mr. Wong.  The signature of the plaintiff was forged in the share transfer deeds.  The defendant registered the transfer to Mr. Wong.  Mr. Wong then sold the shares.  The plaintiff brought an action against the defendant for his name to be restored to the register.  The defendant brought third party proceedings against the stockbrokers for indemnity.  The stockbrokers argued that it was merely acting as a ‘conduit pipe’ for Mr. Wong and they were not the true requester but rather Mr. Wong.  

36. Lord Scarman delivering the judgment of the Privy Council rejected this argument.  He held that the request by the stockbrokers to the defendant was the request of the stockbrokers notwithstanding the fact that the request was written on behalf of Mr. Wong.  He held that the stockbrokers made the request to the defendant and

‘the fact that the request, by the law of agency, was also Mr. Wong’s request in the sense that it was made with his authority does not necessarily prevent it from being a request made by the brokers (i.e. ‘the plaintiff’).’

37. He further held that :

‘It is not the law that, if a principal is liable, his agent cannot be.  The true principle of the law is that a person is liable for his engagements (as for his torts) even though he is acting for another, unless he can show that by the law of agency he is to be held to have expressly or impliedly negatived his personal liability.’ 

38. In my view the judge had correctly applied the statement of law by Lord Scarman.  In this case when the defendant signed the two sales confirmations in favour of the plaintiffs, it did not in any way qualify itself as merely acting as an agent for CO.  On the face of it the sales confirmations were documents confirming that the defendant would supply the goods to the plaintiffs personally.  The defendant certainly had not expressed any qualification which might negative their personal liability. 

Other matter

39. Mr. Chan also attempted to challenge the finding of fact by the judge on whether the defendant had supplied CO’s confirmation to Leva.  In my view the judge was clearly entitled to reach a finding that it had not done so.

Conclusion

40. In my view the judge was correct in his judgment.  Accordingly I would dismiss the appeal together with costs to the plaintiffs. 

Hon Yuen JA :

41. I agree.

Hon Waung J :

42. I agree.