HOLD STAR DEVELOPMENT LIMITED v. KOO MAN YIU, DAVID LI CHI KWONG, LAWRENCE YUJIRO HORITA trading as EIKO SHOJI (a firm) AND OTHERS

1990 No. A2082

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is an action for damages arising out of the breach of a contract under which the plaintiff was to supply materials to be ordered from Korea, to construct or erect, to supervise the construction or erection of a canopy and covered walkway at No. 8 Robinson Road, Hong Kong. In the statements of defence of the defendants, there was a dispute whether a contract between the plaintiff and any of the defendants in fact existed. In the light of arguments and the approach taken by the defence before me, the question of the existence and breach of the contract is no longer disputed, and cannot be disputed. The sole issue to be determined is which defendant had entered into the contract with the plaintiff and consequently who is liable for the loss and damages. It is the case of the plaintiff that there was one contract with one defendant only. The plaintiff accepts that liability is mutually exclusive and once judgment is entered against one defendant there cannot be judgment against any other defendant.

2. In order to understand this case, it is necessary firstly, to trace the history of the proceedings and secondly, to examine the evidence, both oral and documentary.

3. On 29 March, 1990, the plaintiff issued a writ against DCL Interiors Limited (DCL), the 2nd defendant. On 14 May 1990, DCL filed a defence. On 13 February 1991, the plaintiff amended the writ and statement of claim and added, inter alia, KOO Man Yiu, David, Li Chi Kwong, Lawrence, Yujiro Horita trading as Eiko Shoji (a firm) as the 1st defendants and DCL became the 2nd defendant. On the same day, DCL filed an amended defence. On 17 March 1991, the plaintiff re-amended the writ and statement of claim by adding, inter alia, KOO Man Yiu, David as the 3rd defendant. On 19 March 1991, a defence was filed by the 1st defendants. On 27 April 1992, the 3rd defendant filed his defence. On 11 August 1992, the 1st defendants amended their defence. On 11 September 1992, the statement of claim was re-re-amended. Consequent upon this, the 1st defendants filed a re-amended defence and the 3rd defendant filed an amended defence on 25 September 1992.

4. It is also of some importance to observe that on 5 July 1990 the plaintiff took out an Order 14 summons against DCL. On 25 October 1990, interlocutory judgment was entered against DCL with damages to be assessed. On 30 October 1990, DCL lodged an appeal which subsequently resulted in the interlocutory judgment being set aside and DCL was able to continue to defend the action. I should add, as a matter of background, that the 1st defendants and 3rd defendant had applied to strike out the statement of claim on the ground of abuse but their applications were unsuccessful. This course was taken subsequent to a letter written by solicitors acting for DCL dated 5 March 1992 to Richards Butler, solicitors for the Plaintiff. It reads:

"Dear Sirs,

Re Holdstar v Eiko Shoji & DCL: A2082 of 1990

We refer to the captioned High Court action. We would advise that on instructions from our client received this morning that 2nd Defendant DCL Interiors Ltd. admits all the liabilities and claims as in the Amended Statement of Claim of the captioned action.

Yours faithfully etc."

5. This letter had been the basis of submissions by Mr. Wong for the 1st defendants and 3rd defendant that the action against his clients must be dismissed following the admission of liability by DCL and to do otherwise would be an abuse of process. DCL was also represented by Counsel at the commencement of the hearing, who indicated that in view of the admission, his client had no intention to participate further in these proceedings. He made a submission that his client should be liable for costs up to 5 March 1992 only, the date when solicitors for DCL wrote to Richards Butler that DCL admitted all liabilities in respect of the claim in this action.

6. Having heard and considered arguments, I indicated that I would reserve the question of costs of DCL until the end of the trial and excused Mr. Tim Kwok, their Counsel from further attendance.

7. No judgment has been entered against DCL nor has there been any application by the plaintiff to enter judgment. I am satisfied that the plaintiff is not bound to do so and is entitled to proceed against all the defendants so that the question of which defendant is liable can be determined. The reason why the plaintiff does not want to have judgment against DCL to the exclusion of the 1st defendants and 3rd defendant is because they have come to realize as a result of investigation that DCL is only a straw company with a paid-up capital of $20. Any judgment obtained against DCL would be an empty one and cannot be successfully enforced. It is for precisely the same reason, the 1st defendants and 3rd defendant wanted the plaintiff to obtain judgment against DCL.

8. I overruled the submissions of Mr. Wong and decided that the action against the 1st defendants and 3rd defendant must proceed.

9. For the purpose of this judgment, it is important to bear in mind the relationship between the defendants. The central figure is unquestionably Mr. David Koo who is one of three partners of the 1st defendants and the managing director of the 2nd defendant. He is sued as the 3rd defendant in his personal capacity. There is, in my judgment, no evidence that Mr. Koo had contracted with the plaintiff in his private capacity. Mr. Byun Chong-suk never suggested in his evidence that Mr. Koo was contracting with him in a private capacity. Mr. Houghton for the plaintiff conceded in his final address that the case against the 3rd defendant on a personal basis was a weak one. On a thorough review of the evidence, I come to the conclusion that there is insufficient evidence to satisfy me on a balance of probabilities that Mr. Koo had contracted on his personal or private capacity and the claim against him as the 3rd defendant must therefore be dismissed.

10. This further narrows the issue down to whether it was Eiko Shoji, the 1st defendants or DCL, the 2nd defendant who contracted with the plaintiff.

11. No witness was called by the defence. The only oral evidence comes from Mr. Byun Chong-suk, the managing director of the plaintiff. His evidence is that he was first introduced to Mr. Koo in December 1988 through a mutual contact, Mr. Oh and they explored possibilities of future business cooperation at that meeting. Mr. Joseph Lam was introduced to him at the same time and Mr. Lam's name card indicated that he was working for Eiko Shoji. Mr. Koo's card showed that he had connection with a number of companies: Doublin Company Limited (DCL), Eiko Shoji and Eiko Development Limited. From this meeting and subsequent correspondence with Mr. Koo, Mr. Byun formed the impression that Eiko Shoji was the main company of a group of companies and that he was dealing with Eiko Shoji in his negotiations with Mr. Koo.

12. At the beginning of 1989, he entered into negotiations with Mr. Koo regarding the building of a covered walkway at No. 8 Robinson Road. He always negotiated with Mr. Koo because Mr. Lam was not involved in any business discussions after the first meeting. In turn, Mr. Byun started negotiations with his own sub-contractor, the Uni-Engineering in Korea for the production of the materials. He and Mr. Koo met once to twice a month to discuss the project and spoke on the telephone regularly. In all his correspondence with Mr. Koo, he always quoted the reference "HLD890301 ES." The initials "ES" referred to Eiko Shoji. He only became aware of DCL at a much later stage when he received two facsimiles headed DCL Interiors Ltd. from a Mr. Mak.

13. During late November 1989, Mr. Koo applied considerable pressure on him to agree on the terms of the contract. He was likewise pressed by his own sub-contractor, Uni-Engineering in Korea for the confirmation of the terms of their contract. A meeting took place between him, Mr. Koo and Mr. Mak of DCL at the beginning of December. It was the first time he met Mr. Mak who was introduced to him as the technical and engineering manager for Mr. Koo's operations. Mr. Mak also gave him a card which showed that he was a project manager of DCL and at that time Mr. Byun believed that DCL was a subsidiary of Mr. Koo's company. All terms were agreed between him and Mr. Koo at this meeting except the dates of the letter of credit.

14. Mr. Lee of Uni-Engineering came to Hong Kong from Korea on 12 December 1989 and the next day he and Mr. Lee attended a meeting with Mr. Koo at the latter's office when everything in the contract was agreed. The letter of credit would be met by two payments on 16 December and 31 December 1989 respectively. There was also a visit to the site in Robinson Road by the three. From 13 December onwards he had been continuously pressing Mr. Koo for the payment of the first installment under the letter of credit but without any success.

15. On 2 January 1990, a letter typed on the stationery of DCL and signed by K.S. Mak was addressed to the plaintiff for the attention of Mr. C.S. Byun. It reads:

"Dear Sir,

RE: NO.8 ROBINSON ROAD (COVERED WALKWAY)

We regret you have had to remind us that we have not settled your account due for L/C on 16 December 1989. We have intended to settle it before then, but because of the present depressed state of business, our own customers have not been meeting their obligations as promptly as usual. This has adversely affected our cash flow for the time being. We should therefore be most grateful i f you would allow us to defer payment of your present to the mid of January 1990. In the meantime, our Mr. Koo will contact you and discuss the details once he returned to Hong Kong by 5 January 1990.

Yours faithfully, For and behalf of DCL Interiors Ltd. K.S. Mak"

16. Mr. Byun responded by writing on 4 January 1990 to DCL (Eiko Shoji) for the attention of Mr. David Koo and copied to Mr. K.S. Mak. Three sets of revised shop drawings were enclosed with the letter and Mr. Byun also stated that the Korean factory had stopped production which would only be resumed on receipt of the letter of credit. This was followed by a handwritten letter or facsimile from DCL Interiors Ltd, David Koo to the plaintiff for the attention of Mr. Byun. In it, Mr. Koo stated that DCL might be forced to withdraw from the project due to political reasons and enquired if the plaintiff would like to contact the main contractor, Tak Son Engineering Co. Ltd. themselves with a view to carry on with the project.

17. Mr. Byun wrote in protest on 24 January 1990 and this letter was addressed to DCL Company Ltd. (Eiko Shoji) for the attention of Mr. David Koo.

18. In conjunction with the evidence of Mr. Byun and the letters to which I have already referred, I will now examine previous documents and correspondence in order to discover the true intention of the parties at the time of the contract with whom they were contracting. I turn to page 001 in File-4 relating to Documents and Witness Statements. This page contains two facsimile messages. The one at the top was dated 23 February 1989 from Joseph Lam to the plaintiff for the attention of Mr. C.8. Byun and the one at the bottom was from Mr. Byun to Eiko Shoji for the attention of Mr. Joseph Lam and it was dated 22 February 1989. Indeed all the letters or facsimile messages from the plaintiff from then onwards up to 29 December 1989 at page 062 had been addressed to Eiko Shoji either for the attention of Mr. David Koo or Mr. David Koo and Mr. Joseph Lam. 062 was copied to Mr. Mak. This was because on 9 December 1989, Mr. Mak wrote to the plaintiff for and on behalf of DCL on the letterhead of DCL enclosing a copy of a drawing approved by the architect and he further pointed out a discrepancy between that drawing and the shop drawing previously submitted by the plaintiff. However, Mr. Byun continued to address his letters to Eiko Shoji for the attention of Mr. David Koo and these letters are at pages 056,057,058 and 061. The facsimile message from Mr. David Koo on the stationery of Eiko Shoji dated 18 October 1989 is of some significance. It reads:

"RE: COVERED WALKWAY FOR ROBINSON ROAD

We are still waiting for the structural calculation that should be provided by Mr. Kwon as per our discussion yesterday (Oct. 17). After meeting with Architect and Project Manager yesterday afternoon, they would like to request the followings:

A. Frame and post to be amended from 216 galv. steel pipe to 125-150 reinforced with internal stiffener and covered with Al - sheet externally colour to match A1 - extrusion (see enclosure sheet 1); and

B. To provide elevation A-1 as marked on enclosure sheet 2 for Type A. Best regards."

19. It is the case of the 1st defendants that they could not be held liable because of the admission of liability by the 2nd defendant, who had clearly been shown by the evidence to be the other contracting party. Mr. Wong further submitted that Mr. Byun had accepted the 2nd defendant as the other contracting party and could not have been confused as to whom he was dealing with because he admitted in his affirmation, which was made for the purpose of the Order 14 proceedings, that there was no confusion on his part as to whom he was contracting with.

20. I do not accept this contention because what Mr. Byun said in his affirmation is as inconclusive as the position taken by the 2nd defendant who until 5 March 1992 still maintained and maintained vehemently that they had nothing to do with the contract. The sudden reversal of that position is not only a surprise, it is a mystery which remains unexplained by any evidence. The question must therefore be decided by reference to all the evidence. The intervention of DCL can only be interpreted as a convenient way of shifting responsibility by the other defendants to a limited company which has no or very little asset to enable them to avoid liabilities.

21. On a full and rational analysis of the evidence, I find, on balance of probabilities, that the contract was entered into between the plaintiff and the 1st defendants who must therefore be responsible for the damages suffered by the plaintiff as a result of the breach.

22. With regard to quantum, I accept the evidence of Mr. Byun and what is in the documents. Mr. Wong tried to raise objection in his final address that there had been no hearsay notice served on the defendants in respect of the documents. This objection is completely without merit. There had been no challenge whatsoever on this evidence when it was given by Mr. Byun. The documents, as I understand it, were put in as agreed bundles.

23. There would be judgment for the plaintiff against the 1st defendants for US$76,750 as claimed with interest. I will hear arguments on costs.