TS OFFICE SYSTEM LTD v. WING KEE PRODUCE LTD

HCSA 31/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO. 31 OF 2014

(ON APPEAL FROM SMALL CLAIMS TRIBUNAL CLAIM

NO. 593 OF 2014)

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J U D G M E N T

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1.  This is an appeal from the Small Claims Tribunal. It is brought by the defendant against whom judgment was given by the Presiding Officer, Ms Catherine K L Cheng for HK$12,898 being the price of printer toner. I granted leave to the defendant to appeal on 27 July 2014.

2.  The claimant’s case at the tribunal was that it made three contracts with the defendant on 29 October 2014 for the supply of printer toner to the defendant.  The first batch of toner cartridges was delivered on 5 November 2013.  But the defendant returned them on 6 November 2013 and refused to pay.  The claimant did not accept the returned goods.  It reported the matter to the police.  The cartridges are now with the police.

3.  The claimant then lodged this claim against the defendant at the tribunal.  The defendant put in a number of grounds of defence.  One ground alleged that the clerk at the reception of the defendant, Ms Wong, who applied the defendant’s chop onto three quotations and purportedly placed the orders, did not have authority to bind the defendant to these orders/contracts.  The other grounds alleged misrepresentation and fraud.

4.  The Presiding Officer, Ms Cheng accepted the evidence of the claimant and held for the claimant on a balance of probability.

5.  I granted leave to the defendant to appeal only on the ground of alleged lack of authority of Ms Wong.  The crux of the matter is whether Ms Wong, the clerk at the defendant’s reception had authority to bind the defendant to these orders/contracts.

The claimant’s case

6.  The claimant’s case is substantiated by the evidence of its sales person Mr Cheung which was accepted by the Presiding Officer.

7.  Mr Cheung said he telephoned the defendant on 25 October 2013 and asked to speak to the person responsible for purchasing printer toner.  He was put through to Ms Wong who confirmed that she was responsible for purchasing toner for the defendant.  After some discussions, she asked him to fax her the quotations of toner suitable to the defendant’s printers.  He e-mailed the quotations to her on the next day.  

8.  Each quotation quoted the price of several types of toner.  They were sold at a unit price per cartridge.  Two cartridges were contained in a box and 6 boxes in a pack.  If a customer should order two packs (or 12 boxes) of a type of toner, the claimant would provide 10% discount plus some other gifts. The toner and gifts could be chosen by checking boxes in the quotation.  One quotation even gave 20% discount for a particular toner if the customer should order four packs or 24 boxes. 

9.  If an order should be placed for 2 or 4 packs of toner as the case may be, the 12 or 24 boxes would be delivered in monthly instalments within a year.  That is one box (two cartridges) or two boxes (four cartridges) per month. 

10.  Each quotation also stated at the bottom:

“[p]lease tick the items you would (sic) to order and confirm this order with your company chop.”

11.  After sending out the quotations, Mr Cheung received an e-mail enquiry from Ms Wong on some terms of sale.  He phoned Ms Wong and answered her questions.

12.  On 29 October, Ms Cheung received from the fax the three quotations returned by the defendant.  They all bore the defendant’s rubber chop mark and with boxes for particular toners and gifts checked.  He however saw that Ms Wong had written the unit price of the toner on two of the quotations. The price so written was just half of the quoted price.  He telephoned Ms Wong and clarified with her on the correct price.  Ms Wong expressed her understanding and said that she would correct the forms and fax them to Mr Cheung again.

13.  Mr Cheung later received the three forms again all had the defendant’s chop mark and with boxes for toners and gifts checked but without Ms Wong’s handwriting.  The first order was for four packs of a toner with 20% discount at HK$6,348 per box (two cartridges) or HK$152,352 for 4 packs.  Two boxes would be delivered per month.  The second order was for two packs of another toner with 10% discount at HK$3,192 per box or HK$38,304 for two packs with one box to be delivered per month.  The third order was also for two packs of a third toner with 10% discount at HK$3,358 per box or HK$40,296 for two packs also with one box to be delivered per month.  The total sum of the three orders was at HK$230,952.

14.  Mr Cheung then telephoned Ms Wong and confirmed to her his receipt of the accepted quotations.  He also told her that he would arrange delivery of one box (two cartridges) of each type of toner with the gifts to the defendant in the following week.  He also confirmed with Ms Wong the price for each box of toner.  It seems that Mr Cheung overlooked that one of the orders was for four packs or two boxes per month.

15.  On 5 November 2013, three boxes of toners together with three sales confirmations, three invoices, a delivery note all dated 29 October 2013 and the gifts were sent to the defendant’s office.  The terms of the sales confirmations and invoices corresponded with the terms of the accepted quotations save that there was short delivery of one box of a type of toner.  There were also additional terms at the bottom of the sales confirmations and invoices underneath the word “remarks”.

16.  Ms Wong, upon seeing the delivery, telephoned Mr Cheung and then, upon being reminded by Mr Cheung, recalled that she had ordered these goods from the claimant in the previous week.  She then applied the defendant’s rubber chop on the sales confirmations, invoices and delivery note and returned them to the claimant’s delivery man.  She did not seem to be aware of the short delivery.

17.  However, the three boxes of toner and gifts were returned to the claimant without prior notice on the next day.  The claimant refused to accept them and reported the matter to the police.  Mr Cheung also could not contact Ms Wong for clarification.

The defendant’s defence

18.  The defendant’s defence is that Ms Wong was only a clerk at the reception.  She dealt with stationary.  She also purchased toner for the defendant but only according to instructions from the senior staff.  The defendant had an internal procedure to govern purchases.  She had not been authorised by the defendant to place these orders with the claimant.

The tribunal’s judgment

19.  The Presiding Officer held that, despite Ms Wong being a receptionist, when she used the defendant’s chop in a transaction, she was in law acting for the defendant in that transaction.

The defendant’s argument on appeal

20.  Mr Kwan, counsel for the defendant, submitted that Ms Wong did not have any apparent authority to act for the defendant in placing the three orders with the plaintiff.  He referred to the four conditions summarized by Diplock LJ in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 506 which must be fulfilled before a 3rd party (called a contractor) can enforce a contract against a company entered into by a purported agent with no actual authority.  These conditions are repeated by the CFA in Thanakharn Kasikorn Thai Chamkat v Akai Holdings (No. 2) (2010) 13 HKCFAR479 at para 43. These conditions are:

“(1) that a representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforced was made to the contractor;

(2) that such representation was made by a person or persons who had ‘actual’ authority to manage the business of the company either generally or in respect of those matters to which the contract relates;

(3) that he (the contractor) was induced by such representation to enter into the contract, that is, that he in fact relied upon it; and

(4)   that under its memorandum or articles of association the company was not deprived of the capacity either to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent.”

21.  Mr Kwan submitted that the Presiding Officer had not paid heed to these four conditions when holding that the defendant was bound by the three orders placed by Ms Wong.  He further submitted that the Presiding Officer had held against the defendant by relying on the representation of actual authority made by Ms Wong herself.  But I think this is a misplaced criticism as the Presiding Officer had not relied on such representation in holding against the defendant.  The Presiding Officer relied on the fact that Ms Wong had been given by the defendant’s management the right to use the defendant’s rubber chop in the conduct of the defendant’s business.

22.  Mr Kwan also submitted that the defendant’s internal purchasing procedure showed that Ms Wong did not have actual authority to act for the defendant.  I think the Presiding Officer said that such procedure did not affect the claimant because she was not holding against the defendant on actual authority.

23.  Mr Kwan further submitted that the Presiding Officer only focused on the application of the round chop by Ms Wong on the quotations, but had not considered that (i) the quotations had not been signed by the claimant or chopped with the claimant’s chop and (ii) the chop of the defendant did not have the words “for and on behalf of” and “authorized signature”.

24.  Mr Kwan in his supplemental submissions submitted that if the claimant had relied on the defendant’s permission to Ms Wong to use the rubber chop as the representation of Wong’s authority to commit the defendant to toner contracts of over HK$230,000, then the representation was not made by anybody at the senior management level like a director or purchasing manager who had actual authority to do so.

25.  He further submitted that the representation is also unclear, equivocal and cannot satisfy the first and second conditions summarized by Diplock LJ in Freeman & Lockyer.

26.  He also added in oral submissions that the three contracts for a total value of over HK$230,000 would be regarded as invalid by a reasonable person.  It was also unreasonable for the claimant to have relied on the defendant’s rubber chop on the three contracts.

The defendant’s submissions

27.  Ms Ma, counsel for the claimant also relied on Diplock LJ’s four conditions in Freeman & Lockyer and other authorities to the same effect.  There is therefore no dispute on the applicable legal principles.

28.  Ms Ma also relied on Halsbury’s Laws of Hong Kong,2012 edn, vol 7(2), para 15.016  which states:

“[15.016] Representation To find an estoppels, there must be a clear and unequivocal representation that the ‘agent’ has certain authority. The content of this representation is the agent’s apparent authority. The representation may be made by conduct as well as by words, for instance it may be made by a course of dealings, by entrusting particular tasks to the agent, or by permitting the agent to assume a particular position. …”

Analyses and decision

29.  Regarding the use of the rubber chop of a company in Hong Kong, Laws of Companies in Hong Kong by Stefan Lo and Charles Qu (2013 edn) at para 12.053 says:

“Rubber chop does not have legal significance under Ordinance but could be relevant to apparent authority. It is common for Hong Kong companies to have a rubber chop which is used as the company’s chop and is stamped on company documents. The chop is not equivalent to the common seal and does not have any legal significance under the Companies Ordinance. The chop is, as a matter of custom, used to show that the person signing a document has authority to sign on behalf of the company, and so where a company allows a person to use the company chop, the stamping of the chop could be relevant to matters relating to the apparent authority of the person. In England, there is a suggestion in some cases that the imprinting of a rubber-stamped name of the company by a duty authorised person can be regarded as a signature of the company (although not with the same effect of a common seal); however, doubts have also been expressed whether this view is correct.”

30.  The first condition in Freeman & Lockyer is that there should be a representation made to the contractor that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforced.  The representation is of authority in regard to contract of the kind sought to be enforced, not any other kind of contract.  In other words, it is a contract of the kind that the contractor can, in reliance on the representation, enter into with the agent as the defendant’s agent.

31.  There are however situations where the representation is by conduct or by permitting the agent to assume a particular position.  The representation thus may not be clear as to the kind of contracts that it covers.  In such case, the facts and circumstances of the case have to be considered to determine the kind of contracts that are covered by the apparent authority.

32.  The defendant’s permission for Ms Wong to use the defendant’s rubber chop was a representation to 3rd parties that she had authority to act for the defendant in situations where the use of the defendant’s rubber chop would suffice.

33.  I would also refer to sections 32(1)(c), (2) and (3) of the repealed Companies Ordinance, Cap 32 which were still in force in 2013:

“(1) Contracts on behalf of a company may be made as follows-

…

(c) a contract which if made between private persons would by law be valid although made by parol only, and not reduced into writing, may be made by parol on behalf of the company by any person acting under its authority, express or implied.

(2) A contract made according to this section shall be effectual in law, and shall bind the company and its successors and all other parties thereto.

(3) A contract made according to this section may be varied or discharged in the same manner in which it is authorized by this section to be made.”

34.  Similar provisions are now contained in section 121 of the current Companies Ordinance, Cap. 622.

35.  The three contracts for toner are contracts that could have been made by parol by authorized persons on behalf of the claimant and defendant.  The claimant only required the stamping of the quotations with the defendant’s rubber chop in order to accept the orders from the defendant.  Prima facie Ms Wong could place the orders for the defendant as she had the power to use the rubber chop. 

36.  However, there is another issue which is the state of mind of the claimant.  Mr Kwan submitted that the claimant was acting “unreasonably” in relying on Ms Wong’s use of the defendant’s rubber chop, but reasonableness is not the test.  The test is whether the claimant was acting dishonestly or irrationally.  In this connection, I would refer to paras 47, 52 and 62 of the CFA’s judgment in Akai Holdings:

“47. Probably the main point of principle which divides the parties centres on what state of mind is required in order to establish that the Bank “justifiably relied” on Mr Ting’s authority. …

…

52. In a commercial context, absent dishonesty or irrationality, a person should be entitled to rely on what he is told: this may occasionally produce harsh results, but it enables people engaged in business to know where they stand.  As to principle, apparent authority is essentially a species of estoppel by representation (see per Diplock LJ in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd, p.503 and per Brennan J in the High Court of Australia in Northside Developments Pty Ltd v Registrar-General (1989-1990) 170 CLR 146, 173-174).  In the field of misrepresentation, it is clear that “it is no defence to an action for rescission that the representee might have discovered its falsity by the exercise of reasonable care” – per Chitty on Contracts (30^th ed., 2008) Vol.1, p.527 para.6-039 and the cases cited in footnote 190.  Even more in point, there is this passage in Halsbury’s Laws of England (4th ed., Reissue) Vol 16(2), para.1072, dealing with estoppel by representation:

‘If … [the party contending that he relied on the representation] really has relied upon its truth, it is no answer to say that, if he had thought about it, he must have known that it was untrue; the representation itself was what put him off his guard. If the representation is clear and unequivocal … he is under no obligation to make investigation or inquiry to ascertain whether it is true.’

…

62.             I conclude that it is open to the Bank to rely on Mr Ting’s apparent authority (if he had such authority) unless the Bank’s belief in that connection was dishonest or irrational (which includes turning a blind eye and being reckless).”

37.  Mr Kwan submitted that the total value of the three contracts exceeded HK$230,000.  I note that these are genuine independent contracts and that their performance was to spread over 12 months.  However, I would agree that the total value of the contracts, which were entered into at one go, is a factor for consideration on whether the claimant had acted dishonestly or irrationally. 

38.  In the light of the acceptance of the evidence of all the claimant’s witnesses and the dismissal of the defendant’s allegation of fraud or misrepresentation by the Presiding Officer, I do not think the claimant had acted dishonestly. 

39.  However, on the facts of this case, the apparent authority relied on is that of a receptionist clothed by the defendant’s representation in the form of its authorization to her to use the defendant’s rubber chop in the conduct of the defendant’s business.  I am of the view that it was reckless and hence irrational for the claimant to have relied on such apparent authority to enter into the three contracts with the defendant to supply printer toner of a total value of HK$230,952. 

40.  Mr Kwan has other submissions too.  He submitted that the claimant had not signed the three quotations.  One should however bear in mind that the quotations were claimant’s offers printed with the statement:

“[p]lease tick the item you would (sic) to order and confirm this order with your company chop.”

Assuming that Ms Wong had apparent authority to act for the defendant to enter into these contracts, I am of the view that if she should check the desired boxes on the quotations, apply the defendant’s rubber chop at the bottom and send them back to the claimant, contracts would be formed on the basis of the boxes checked.  I do not think it necessary to require the claimant to sign the quotations and return them to the defendant again before contracts would be formed.  I have already mentioned above that no signature is required for making these contracts.

41.  Mr Kwan also made the point about the absence of the words “for and on behalf of” and “authorized signature” in the quotations.  I cannot see how the presence of these words or even with the addition of Ms Wong’s signature would have made any difference to Ms Wong’s apparent authority or the lack of the same.  Mr Kwan is not making a point that the absence of these words prevented a contract from being formed.  Leave has not been given for him to appeal on such ground.  I reiterate that these contracts can be made by parol.

42.  Furthermore, if these two points should have been taken at the hearing below, the claimant could have relied on the three sales confirmations. They all bear the marks of both the claimant’s chop and the defendant’s chop.  They also have the words “authorized signature” underneath the claimant’s chop, the words “accepted and order confirmed by” above the defendant’s chop and the words “authorized chop” underneath it. 

43.  Mr Kwan also submitted that the sales confirmations and invoices had some terms under “remarks” which are not in the quotations.  However, assuming that Ms Wong had apparent authority to bind the defendant, the presence of the additional terms would only mean that the defendant’s acceptance of the sales confirmations and invoices had the effect of varying the contracts by the addition of these terms.  These new terms also had no effect on the sales in question.

44.  In the light of my conclusion in paragraph 39 above, I hold that the defendant is not bound by the three contracts that Ms Wong had purportedly made on behalf of the defendant.

45.  I allow the defendant’s appeal with a costs order nisi that the claimant do pay the defendant the costs of the appeal.