WING SANG SEA PRODUCTS CO LTD v. YEUNG YING CHUN

HCA 4555/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4555 OF 2002

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J U D G M E N T

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1. The plaintiff Wing Sang Sea Products Company Limited (Wing Sang) is a wholesale retailer of seafood products. Wah King Seafood Trading Company Limited (Wah King), was a major client to Wing Sang. The defendant Yeung Ying Chun is a 90% shareholder and a director of Wah King. His brother holds the remaining 10% of the shares and is also a director of the company.

2. Wah King bought seafood products from wholesalers and then resold those products to restaurants and hotels. It acted as a middleman between the wholesaler and the retail customer. The two companies had had this relationship since 1997. One of Wah King major clients was the Tung Wan Group (敦煌酒樓集團) of restaurants.

3. As Wah King was a major customer of Wing Sang it was allowed up to 9 months credit. By 2001, on average, Wah King had an account with Wing Sang up to $4.5 million.

4. In September 2001 Wing Sang decided to reduce its exposure to Wah King. As a result of a meeting between a director of Wing Sang, Yeung Wei-sung, and Yeung Ying-chun of Wah King, agreement was reached that the debt then standing as some $3.6 million would be reduced to $2.0 million by the payment of 10 monthly instalments by way of 10 post-dated cheques. The agreement was recorded in writing and the cheques were duly delivered to Wing Sang, and, apart from a delay with two of the cheques, all were met on time.

5. It was part of the agreement that Wah King would keep the amount of credit at or around $2 million. However by September 2002, despite three additional substantial payments, the debt had arisen again to $3.3 million.

6. Between June 2002 and August 2002 Wah King made no payments at all in reduction of its debt. That is probably because the Tung Wan Group of restaurants had closed.

7. Consequently in September 2002, Yeung Wei-sung sent to Yeung Ying-chun another agreement, in similar form to the earlier agreement, again seeking to reduce the amount of credit to below $2 million by a series of 10 post-dated cheques of $150,000 each.

8. The proposal differed from the earlier agreement in two main respects. First, interest was sought on the $1.5 million being paid by the 10 instalments. Second, Wah King would have to provide a guarantee for the post-dated cheques. It was made clear that unless agreement was reached, Wing Sang would not continue to supply Wah King of seafood products.

9. It is clear that by this time Yeung Wei-sung was no longer content to rely on the corporate liability of Wah King alone, and he sought the additional comfort of the personal liability of a suitable individual for at least part of the debt.

10. Of particular concern to Yeung Wei-sung was the fact that the Tung Wan Group of restaurants, a major client to Wah King, and accordingly a key source of Wah King's income, had collapsed.

11. When contacted by Yeung Wei-sung's secretary about the proposal, Yeung Ying-chun said that it was not acceptable and sought a longer period of repayment. The proposal was varied to provide for 15 instalments of $100,000.00 each plus interest. The requirement for a guarantee remained in place. Again a written proposal was sent to Yeung Ying-chun at Wah King's office. Both of these proposals took the form of a relatively simple written document prepared by Wing Sang and sent to Wah King.

12. Yeung Wei-sung made it clear, as he had in September 2001, that if agreement could not be reached, Wing Sang would no longer be able to supply fish products to Wah King.

13. The second proposal was also rejected by Wah King. Yeung Wei-sung asked Yeung Ying-chun to attend his office to work out a solution but Yeung Ying-chun said he was too busy at that time.

14. A few days later they spoke on the telephone again and a meeting was arranged for 26 September 2002. The meeting took place at Wing Sang's office at 3.00 pm in the afternoon. Both parties accept that an agreement was made at that meeting, but they differ as to the terms of that meeting.

15. Yeung Wei-sung says that after some negotiation it was agreed the Yeung Ying-chun would accept personal responsibility for the payment of $1.5 million, to be paid, with interest, by 24 instalments. Twelve instalments were to be at the rate of $50,000 a month, and 12 at the rate of $75,000 per month. A schedule to that effect was prepared during the meeting and was signed by Yeung Ying-chun at the meeting.

16. Yeung Ying-chun says he did not agree to accept any personal liability, but that, on behalf of Wah King he agreed that Wah King would pay $1.5 million by the 24 instalments that I have described.

17. For reasons that I will now set out I prefer the evidence of Yeung Wei-sung and I am satisfied that Yeung Ying-chun did agree to personally pay the sum of $1.5 million by 24 instalments.

18. Yeung Ying-chun signed the schedule of payments prepared during the meeting. He did not record that he was signing on behalf of Wah King, but merely appended to the document the name of his own signature. His explanation as to the signature was inconsistent during his evidence and was inconsistent with his written statement. In his statement he says that he signed it by way of acknowledgment of receipt of a copy of the document. But it was plain that no acknowledgment of receipt was required or sought.

19. However in cross-examination by Mr Chau for the plaintiff he said first that he signed it because Yeung Wei-sung told him to sign it and later that although he had signed on behalf of his company, there was still no agreement and he needed to consult with his brother and obtain his consent to the arrangement by his company. That itself was inconsistent with the evidence that the agreement had in fact been reached.

20. Had he been signing on behalf of Wah King, and not in his personal capacity, he could have, even without the company chop, signed in the name of the company. He did not do so.

21. It was abundantly plain that Yeung Wei-sung was determined to reach a point where, if he was to continue to supply fish on credit to Wah King, he must have some form of personal liability in addition to the corporate liability of Wah King. Without any personal liability, he was not prepared to continue to extend credit.

22. That was clear from the requirement for a guarantee, a requirement that was discussed at the meeting and had been contained in both of the preliminary documents. It was suggested that at the meeting to Yeung Ying-chun that he and his brother should act as guarantors but that was rejected out of hand by Yeung Ying-chun because he said that his brother would not act as a guarantee for the sum but he was only a 10% shareholder in the meeting.

23. I am satisfied that Yeung Wei-sung would not have made any agreement that did not involve some personal liability. It simply makes no commercial sense for him to agree to the proposal suggested by Yeung Ying-chun namely that Wah King would make payments of $1.5 million over 24 months without more. No signature would be required and Wing Sang would in reality be no better off. It already had the corporate liability of Wah King for the full amount and would have achieved nothing and the payment would have been deferred. On the other hand Yeung Ying-chun needed to secure future supply of fish if he was to trade out of the financial difficulties his company was in.

24. On the balance of probabilities I am satisfied that in order to secure that supply, and to meet Yeung Wei-sun's requirement for personal liability, and when he knew that he would be unable to secure his brother as a guarantor, Yeung Ying-chun agreed to accept a personal liability for $1.5 million plus interest over a 24 month period. It is for that reason that he signed the schedule. That was simply the only circumstance in which Wing Sang would agree to continue the credit line and to supply fish stocks.

25. It was a term of the agreement, orally reached in consideration for the continuing of the credit supply of fish and not enforcing the debt immediately, that it would be recorded in the document to be prepared by Wing Sang's solicitors. It is right that no instructions were given to the solicitors to prepare the documents but I am satisfied that was because in the days following the meeting Wing Sang's staff were unable to contact Yeung Ying-chun to arrange attendance at the solicitors' office for signature. The documentation required was nothing more than a simple acknowledgement of the arrangement and would take no time to prepare. It is right too that Wing Sang had itself prepared more complicated documents as to the earlier arrangement and the two rejected proposals, and could have prepared a simple acknowledgment at the meeting. But I accept Yeung Wei-sung's evidence that as the payments would have been over a two-year period he wanted his solicitor to prepare the document. The failure to prepare a document recording the agreement either at, or following, the meeting does not lead me to disbelieve Yeung Wei-sun.

26. On 1 October 2002 Wah King was closed and no payments were made by Yeung Ying-chun pursuant to the agreement. By failing to make himself available to sign the acknowledgement of the arrangement and by failing to make progress payments pursuant to the arrangement Yeung Ying-chun has wrongfully repudiated the arrangement.

27. In no circumstances, there must be judgment for the plaintiff in the sum of HK$1,680,000.00 with interest at judgment rate from the date of the issue of the writ, until the date of payment. Costs to the plaintiff on a party and party basis to be taxed if not agreed.