Ng Kam Wah t/a Lee Fung and Co v. Lucky Industrial Co Ltd

HCA001308/1967

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO.1308 OF 1967

-----------------

-----------------

Coram: Williams J. in Court.

Date of Judgment: 16 July 1969

-----------------

JUDGMENT

-----------------

1. The plaintiff based his claim on a contract in Chinese made with the defendant on 20th July 1967 under which he agreed to purchase 16,000 dozen pairs of plastic sandals for the total price of $213,000. The contract is document No.11 in an agreed bundle of documents filed under the letter A.

2. The contract provides that the sandals should be "made in Chinese", be of a kind known as LARK brand and of a style or class known by the number 875.

3. The statement of claim, as amended, alleges that "LARK" is a registered trade mark and that the plaintiff paid $135,000 by way of cash and cheques under the contract.

4. By way of Special Damages he sets out the said sum of $8,540 as an amount which would have been deducted from the total price by way of rebate, by the plaintiff had the contract been performed.

5. It is also alleged that the defendant was aware that the sandals were for re-sale and he claims $11,000 as loss of profit.

6. Those allegations are not really in dispute.

7. The statement of claim alleges that in breach of contract the defendant delivered sandals which were not according to its terms. They are alleged not to have been made in China, and to be imitation LARK sandals bearing a forged trade mark.

8. The defence does not deny that the sandals are forgeries, and that they bear a forged trade mark LARK and that they do not come within the terms of the contract A.11. However, the defendant pleads it was the intention of the parties to deal between themselves in such imitation of LARK brand and to pass them off to others as genuine articles. He alleges for the foregoing reasons that the contract A.11 was an illegal contract and that the plaintiff is not entitled to recover anything under it.

9. During the hearing the defendant in support of his allegations of illegality referred to, what he described in his amended statement of defence as the first contract. It is contained in a Chinese document Ex.D1 dated 1st June 1967 for 2,000 dozens of plastic sandals. That contract specifically requests the defendant to make them according to LARK colours, measurements and design, and instructs the defendant to follow that practice in relation to subsequent orders placed by the plaintiff. Ex.D1 is written on the plaintiff's headed business paper and bears the plaintiff's signature which appears in an appropriate place at the foot of the contract within the rubber stamp of the plaintiff company. Ex.D1 contains the plaintiff's promise to accept liability in regard to defendant's manufacture of the fake sandals. It is not disputed that the plaintiff had an employee called LIU. He was closely concerned with the contracts between the parties for the sale and supply of plastic sandals. On the evidence he was a go-between in the arranging of those contracts. The plaintiff says that LIU was mainly a correspondence clerk employed for English correspondence. The employee LIU did not give evidence. Although he was an important means of communication between the parties and able to discuss terms and prices, and no doubt able perhaps to bring his influence to bear upon the plaintiff, there is nothing to show that he had authority to finalise any contract or to bind the plaintiff in any way. The plaintiff denies that LIU was his agent and there is no document in evidence showing that he signed as agent for the plaintiff or acted as such. I am satisfied that LIU was not the plaintiff's agent and that he was not held out as such. He was merely a means of communication. It was undoubtedly a profitable occupation from LIU's viewpoint because the defendant states that he paid very substantial commissions to LIU in regard to contracts made with the plaintiff.

10. The plaintiff stated in evidence that he was not aware of the document Ex.D1 although he admits it bears his signature. He denies that he ever ordered the 2,000 dozen pairs of sandals referred to therein or that he received them on that he paid the price referred to. He alleges that Ex.D1 must be a forgery connived by LIU and the defendant. LIU being an English correspondence clerk was responsible for replies to English firms and business people who used English; from time to time the plaintiff says that he used to sign "business letters" in blank so that LIU could fill in the details. On the face of it, that would appear to be a risky procedure. However, if as he says, the plaintiff cannot read English then an English letter awaiting his signature could in itself be false without his knowledge. Of course that may not excuse him from performance of every obligation to which his signature thus appeared. His explanation for Ex.D1 is that LIU must have filled a blank signed business sheet with the details which appear in Ex.D1 and handed it to the defendant. Whether that is an adequate defence would depend upon the surrounding circumstances.

11. If Ex.D1 is a genuine document representing a contract for the sale of 2,000 dozen pairs of sandals to the plaintiff then presumably it would be carried out in the same way as similar contracts between the parties, and there would be other evidence to support any contention that the parties had performed their obligations thereunder. The defendant, in that connection, produced a receipt Ex.D7, dated 1st June, 1967 for $16,000, being a deposit allegedly paid under that contract Ex.D1. It is purportedly a duplicate of the original receipt received by the plaintiff. The latter denies that he paid that sum or that he received the sandals. There is a further receipt Ex.D8 for $14,720 which purports to be the balance payable under the contract, Ex.D1. It is dated 15th June, 1967, and favours the plaintiff who of course denies he ever made the payment or received the original receipt. The payments were by cash according to the defendant who is therefore unable to refer to any cheque received from the plaintiff in relation to that contract and in support of the receipts Exs.D7 & 8.

12. The defendant produced an invoice Ex.D9 favouring the plaintiff and referring to the 2,000 dozen pairs of sandals. It contains no acknowledgment on the face of it from the plaintiff or any of his employees to indicate the goods had been delivered. Moreover it is dated 1st June 1967 whereas it appears that the goods were not delivered until 15th June 1967.

13. The contract Ex.D1 does not appear to have followed the kind of procedure or to have moved through the same kind of channels and thereby giving rise to the kind of associated documents which occurred in other contracts. Thus in contract Ex.D2 for 7,000 dozen pairs of sandals, dated 19th June, 1967, there are directions that the sandals be delivered alongside the pier, and the existence of that particular contract Ex.D2 is supported by documents B1, B2, B3, B4 and A10 in the agreed bundles, which show that those sandals were in fact exported. The supporting documents emanate from, or are directed to 3rd parties who could be called upon if necessary.

14. The contract in dispute, document A11, directs that the 16,000 dozen pairs of sandals be delivered alongside the ship, and as a step towards the fulfilment of that direction the defendant had delivered them to "The Safety Godown". Proof of that is adduced in the form of godown warrants A13 to A21, A25 and A26 and the existence of those warrants point to the fact that a contract such as A11 most probably existed. They were clearly not manufactured by the defendant to support a fictitious contract.

15. Document A1 to A5 refer to a sale by Winnie Plastics, a firm owned by Mr. Ho managing director of the defendant company, to the plaintiff in 1966 of 1,500 dozen pairs plastic slippers. Delivery of the 1,500 dozens was effected to the S.S. Lola by Winnie Plastics on behalf of the plaintiff, as is shown by the document A3. Other documents in A1 to A5 include application for letter of credit and letter of credit and mate's receipt point to the existence of such a contract.

16. The last three mentioned contracts could be proved to have been created by the existence of documents which were associated with and which only came into existence as a result of the said contracts between the parties. By contrast there is not in existence any document to show that the alleged contract in Ex.D1 was followed by any such steps as obtaining godown warrants, certificates of origin or exemptions, delivery to ships, mate's receipts or bills of lading. The receipts Ex.D7, D8 and the invoice Ex.D9 do not bear the mark, signature or stamp of the defendant, or of any transport company; they are of no more evidentiary value than any other self-serving document.

17. The evidence reveals that whilst the 16,000 dozen pairs of sandals were in the godown the plaintiff received certain complaints as a result of which he asked the defendant if he could inspect the sandals. The defendant refused until such time as the plaintiff paid the balance of the contract price. The plaintiff refused to pay until he had inspected the goods. If the plaintiff was aware that the sandals were forgeries it would be rather foolish for him to insist on inspection unless he was trying to bluff and was building up a background of innocence. The parties according to the defendant were parties in a fraud and if the sandals were inspected in the godown the plaintiff and defendant would almost certainly be revealed as dealing in fakes. Why should the plaintiff insist on an inspection which could put him in the position of having to show he was not a party to the fraud? If the plaintiff were a party to such an attempt to defraud I feel it is likely that he would approach the defendant and suggest that they had better make some alternative arrangements to dispose of the sandals, and avoid being detected as cheats and frauds.

18. A document Ex.P13, shows that in April 1967 the defendant purchased "875" type sandals at $14, $10 and $8 per dozen for large, medium and small sizes. There are other purchases made by the defendant as evidenced by similar documents Ex.P11 and P9 at similar prices for the same type of sandals earlier in April 1967. The evidence indicates that those purchases which totalled many thousands of dozen pairs of sandals were imported from Taiwan. In June 1967 the defendant sold 2,000 dozen pairs to Sun Yuen Hong of Hong Kong at $17 per pair according to Ex.P5, but the defendant explained that after allowing a rebate the true price was down to $13.50. The defendant said in cross-examination that the mainland price was $17.80 per dozen for the genuine LARK sandals. It seems quite obvious from the general trend of the evidence as to prices for the different sizes that he was referring to the large size. One would expect that if the defendant was selling imitation LARK sandals to the plaintiff, to the latter's knowledge, then the plaintiff would have insisted on the lowest possible price having regard to the risk he was taking. However, the price of the large size payable by the plaintiff under the disputed contract for 16,000 dozens was $16 per dozen which was approximately 18% more than Sun Yuen Hong had paid only 3 months earlier under the genuine contract Ex.P5. In cross-examination the defendant agreed that he deliberately increased the prices at which he normally sold 875 sandals when attached the false trade mark of LARK to them. If the plaintiff were unaware of the fact that these were imitations the defendant would no doubt be able to take advantage of that fact to obtain higher prices, and on the face of it, it would appear that that is what he did. As I have said, I find it difficult to accept that the plaintiff would knowingly agree to paying prices for Hong Kong made sandals which were higher than the usual Hong Kong prices; he would, I feel, insist on paying not more than the normal price if he knew they were forgeries.

19. In my view this is yet another factor which militates against the defendant and suggests that the plaintiff placed his orders with the defendant on the basis of a genuine article.

20. If he knew that he was ordering 16,000 dozen pairs of fakes for export and re-sale it seems to me that the plaintiff would be unlikely to pay substantially more than half the contract price; especially at prices in excess of those payable for the local product in addition to which he would be paying freight and insurance. He would be interested in seeing that the defendant bore an equal share of the financial risk.

21. When proceedings were at first instituted against the defendant, I would have expected him to be surprised at the audacity of the plaintiff, his partner in crime, and to at once endeavour to put a stop to it, all by his defence of illegality. He did not do that but he continued to insist that the plaintiff should pay in full. In his affidavit for leave to defend the defendant stated that the goods were made in China and were intended for markets in Indonesia. His statement that they were made in China was untrue and he admitted that in the course of cross-examination.

22. The plaintiff after initiating proceedings applied for a court order authorising him to inspect the sandals in the godown. In his affidavit in reply to that application the defendant referred to a survey report issued by P. Yaunghusbond Ltd. dated 14th November, 1967 and annexed to his affidavit. The said survey report describes the sandals and refers to the fact that they have markings "made in China" and "LARK" brand. The defendant did not state then in his affidavit that the sandals were fakes; nor did he point out that his surveyor's report referred to forged marks, but left it to be assumed that they were properly described as "made in China" and of LARK brand. One might be justified in referring to such documents as an attempt to deceive by inference.

23. The defendant admitted in evidence that he was ready to earn by dishonest means, and that fraud and forgery were not beyond him in his efforts to make a profit by passing off his own goods as manufactured by someone else.

24. In cross-examination he admitted that he had imported ten odd thousand dozen pairs from Taiwan and had re-sold them as "made in China". That admission appears to be typical of the defendant's approach to business and to his customers. Deceit is almost a part of his stock in trade. He clearly takes the view that there are no ethics in business outside the one dominant feature that a profit be made and money be acquired.

25. I am afraid I cannot accept his evidence as opposed to that of the plaintiff. On the defendant's own showing and on his own evidence he is clearly capable of conspiring with LIU to forge the document Ex.D1, and of forging self-serving documents such as receipts and invoices in an endeavour to support it. I do not accept the defendant's plea of illegality; in fact I have no hesitation in rejecting it.

26. I accept the evidence tendered on behalf of the plaintiff.

27. I find that the plaintiff was not a party to an illegal contract; that plaintiff ordered the 16,000 dozen pairs of sandals referred to in the pleadings in the belief that he was getting "China made" "LARK" brand sandals; that the prices agreed for the various sizes were fair market prices.

28. I am satisfied that the sandals supplied by the defendant were fakes and did not comply with the terms of the contract.

29. I am satisfied that the plaintiff has received no consideration for the $135,000 be paid to the defendant as a part payment; that his loss of profit would be $11,000 as pleaded. Had the contract been concluded the plaintiff would have received a rebate of $8,540 on the purchase price; in other words his profit would have been enhanced by that amount. I feel it is a fair claim.

30. There will be judgment for the plaintiff in the terms of the prayer to his statement of claim; with interest on the judgment debt at 8% from the date of filing of the plaintiff's writ to the date of payment; and for costs to be taxed.

Representation:

O. Cheung, Q.C. & R. Arculli (Lau, Chan & Ko) for Plaintiff.

R. Wei (K.C. Yung & Co.) for Defendant.

(Judgment handed down).