Adachi Corporation Ltd v. Cheng Hang Shek

HCA002244/1976

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Coram: Zimmern, J.

Date of Judgment: 24 April 1978

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JUDGMENT

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1. The plaintiff company is said to be a branch or subsidiary of a big Japanese Corporation, carrying on business in Hong Kong, inter alia, as an importer and wholesaler of diamonds and other precious stones. The defendant was at material times and is a dealer in diamonds and other precious stones. From about August 1974 the defendant became a customer of the plaintiff and in the course of their dealings the defendant was allowed credit on stones purchased sometimes up to ninety days and there was a limit to his credit facilities which reached to $1 1/2 million as confidence grew.

2. The plaintiff by its Statement of Claim claims against the defendant the unpaid balance of the price of stones sold and delivered to the defendant from August 1974 to August 1976 in the sum of $1,133,130 with interest thereon. At the hearing the defendant admitted the arithmetic of $1,133,130 but denied he was liable to pay five invoices forming part of that sum and I set them out.

He further says that the plaintiff has failed to credit his account with 4 cheques in New Tai Wan currency totalling NT$1,543,084.00 equivalent to $192,885.00 and admits to owing the plaintiff $282,267.60 for stones sold and delivered to him. I shall deal with his counter-claim and the matter of interest later.

3. As to the five invoices, the defendant says in respect of three of them namely No. 74992 (A20) No. 75020 (A21) and No. 75138 (A24) totalling $535,010.20, the diamonds were not sold to him but to one William Kao a jeweller of Taipei in Tai Wan and that he was only responsible for providing a courier service to deliver the diamonds to William Kao there. At material times, one Choppin Leung the general manager and a director of the plaintiff company was in charge of sales. One Raymond Wong was in charge of the precious stones section reporting to Choppin Leung but he left the plaintiff about September 1975 and Choppin Leung took over the section himself. Three of the five invoices are dated September 1975 and the evidence shows that they were the result of dealings entered into between Choppin Leung on behalf of the plaintiff company and the defendant. Choppin Leung left the employ of the plaintiff company in February 1977 and was called as a witness by his former employer. Having seen and heard him and the defendant in the witness box my impression not formed lightly is that neither had much regard for the truth and my opinion of each as a witness is low. It is a fact that these three invoices were made out as to No. 74992 (A20) in the name of William Kao in Chinese written thereon over the typed name of the defendant, as to No. 75020 (A21) in the defendant's name for William Kao typed thereon with William Kao's name also written in Chinese, as to No. 75138 (A24) in the defendant's name for William Kao typed thereon. Each of the invoices had been signed by the defendant under the stamped legend "Received The Above Items". Choppin Leung said William Kao's name had been inserted in these invoices at the request of the defendant and that the goods set out in them had been sold to the defendant and that the plaintiff locked to the defendant for payment of the William Kao transactions. Under cross examination he admitted that he had been to Tai Wan where he had been introduced to various precious stones dealers there by the defendant including William Kao with whom he said the company never had any direct diamond transactions but further admitted that the plaintiff company had dealt directly with William Kao in uncut jade. In respect of the three invoices he said he had negotiated directly with William Kao in August 1975 to the extent that he telephoned William Kao in Tai Wan to confirm the defendant's request for the diamonds for Kao on consignment. When Kao confirmed this he allowed the defendant to have the diamonds on consignment and when in September 1975 the defendant told him the diamonds had been sold he caused the invoices to be made out and the defendant signed them. Choppin Leung admitted that the defendant did bring back some cheques from William Kao but he absolutely denied that he had requested the defendant to bring the diamonds to William Kao. The defendant told the Court that he started trading in precious stones in 1974 and though most of his customers were local he did have a few in Tai Wan and he was selling to them in a small way of business coloured stones, rarely diamonds for he said he did not have the finance for that. He said that Choppin Leung spoke to him sometime in 1974 about diamond business in Tai Wan and said the plaintiff would like to expand its business and asked the defendant to introduce him to customers there. As a result the defendant, Leung, Kawai arranged to meet and did meet in Tai Wan where he the defendant introduced them to various dealers including Kao. Thereafter some of the dealers came to Hong Kong to buy diamonds but Kao never bought in Hong Kong though he sometimes came to inspect. He said vis-a-vis Kao there were two types of transactions, first goods which had been sold to Kao by Leung in which he was directed to provide the courier service to deliver the diamonds to Kao and second diamonds which kao wanted on consignment when he was directed again to provide a courier service to deliver and return should Kao not buy. He said the three invoices in issue were in respect of the 1st type and exhibit A121 a consignment note signed by him in his name for William Kao in Chinese was an example of the second type. He said he had brought back cheques from Kao and other customers for the plaintiff in which he had written his surname alone on them just to signify they had passed through his hands. In all these transactions he received his commission from the Tai Wan customers and not the plaintiff. I have mentioned the name Kawai. He was the Managing Director of the plaintiff company from 1973 to February 1977 and he came from Japan to give evidence. He told the Court he did meet with Leung the defendant in Tai Wan who introduced them to the dealers there including William Kao whom he also remembered entertaining to dinner in Hong Kong. He said the plaintiff company had never sold diamonds directly to Kao, the biggest of the dealers he met in Tai Wan and in whom he had more trust than the others. He further said the plaintiff never sold diamonds directly to Kao because Kao never came to the company for business. My impression of this witness was that he just did not have his fingers on the pulse of this section of the plaintiff's day to day business and he relied heavily on what Choppin Leung told him and indeed in his own words "Leung told me everything. We sold to the defendant and the defendant sold to Kao." In respect of the three invoices without in any way impugning his integrity I am unable to accept and do not accept his assertion that the plaintiff company never sold diamonds directly to William Kao and the reasons he gave therefor.

4. On the evidence of the three witnesses and the documentary evidence I have referred to I have no doubt in my mind that inspite of my low assessment of the defendant's credit worthiness as a witness, his version of the course of dealings between the plaintiff, himself and William Kao is far more probable than the version put out by Leung and Kawai. The meeting in Tai Wan and the introductions, the dining with Kao in Hong Kong, the telephone contacts between Leung and Kao, the manner in which the invoices were made, the bringing in of Kao's cheques are far more consistent with the defendant's version than the version of those called by the plaintiff. Furthermore it is difficult to believe that a trading company like the plaintiff would release diamonds to the defendant known to be without much financial resources for his customers in Taipei entailing what were in short smuggling operations to get the diamond there with all the attendant risks of loss in transit and confiscation by the authorities. The operation could however be readily believed if the transactions were direct between the plaintiff and William Kao who Kawai had said was more trust worthy and financially better than the others. They could talk together on more even terms as to on whom such risks would fall. The burden of proof is on the plaintiff and it now remains to be seen whether the plaintiff's allegation that the defendant had admitted liability on a taking of accounts tips the scale sufficiently in favour of the plaintiff for it to succeed. One Miss Sekiya told the Court that during material times she was the accountant and kept the books of the company. Company invoices were made in 4 copies one of which went to her office from which she made vouchers and posted entries in a sub-ledger and later on to a general ledger. Leung would hand her cheques which he had received from customers and tell her which invoices she should credit with the cheques. She would write those instruction on the back of the cheques and take copies of them before presenting for payment. If any cheque was dishonoured she would debit the customer's account. On the instructions of Leung invoices in the name of Kao were included in the defendant's account with the company. She said there was no separate account for Kao as the company looked to the defendant for payment of sales to Kao. The sub-ledger was produced being exhibit A3-A13. The three invoices have been entered in the sub-ledger against the defendant's account. No. 74992 (A20) at A11 with a notation in brackets William Kao. No. 74992 (A20) was also entered at A11 and No. 75138 (A24) at A12 but both without reference to William Kao. I pay no heed to these three entries in the account of the defendant as the witness did so on the instructions of Leung and in any case it was self serving evidence. She said on the 20th October 1975, she received from the defendant via Leung 61 cheques totalling $2,167,576 and they were said to be in settlement of his account including those of Kao and three other Tai Wan customers. Ex. B is a list of the cheques and it shows that William Kao had drawn some 20 cheques post dated from 11th December 1975 to 25th March 1976 totalling $639,193 if my counting and arithmetic are correct.

5. She said that on 11th November 1975 some of the cheques deposited and due for payment then had been dishonoured and she stopped posting the sub-ledger (original produced as Ex. J). As the situation grew worse a meeting was called and held on the 11th December 1975 between herself, the defendant, Leung, Kawai and two other Japanese executives of the plaintiff company. For the purpose of the meeting she prepared a schedule of amount of interest due on the outstanding balance being Ex.C and she said this exhibit included the outstanding balance of Kao. The interest due on the total was $38,069.05 and the defendant agreed to pay and did draw a cheque to pay for the interest and later on the same day there were a few minor adjustments by way of a cash payment and cheques for small amounts. I note that on the 11th December none of Kao's cheques was due for payment save one due on that day. It is this acknowledgment of the balance of interest due including the account of Kao's balance that the plaintiff relies so heavily. The defendant admitted the meeting on the 11th December 1975 and said he could not understand the schedule and he did not know that it included Kao's balance. He further admitted that some of Kao's cheques had been drawn in his favour but those were for other dealings he had with Kao direct and he indorsed them to the plaintiff in payment of his own debts. There was a further meeting on the 6th January 1976 in which the defendant exchanged his own cheques for some of the 61 cheques which had then been dishonoured and nothing specifically on that day turned on these three invoices. I have given serious consideration to the schedule and I am unable to accept the plaintiff's reliance on it. It was made up from the internal books of the plaintiff company which had been entered in accordance with the instructions of Leung. When the defendant was confronted with this schedule it merely contained a lot of figures under various columns such as sales, deposit, balance. It did not contain as the court copy does invoices and Kao's name written in pencil and coloured pencil. Without just accepting the defendant's word for it, I am of the opinion that the plaintiff has not proved that the defendant knew at that date that the schedule included Kao's balance. Further, I say even if the defendant had proved it, it would not have been conclusive and on probabilities I would not have been convinced that the true nature of the transactions covered by the three invoices were not what I have adjudged, i.e. direct sales between the plaintiff and Kao. The plaintiff's claim for the price of these three invoices fail.

6. There are then left two other invoices namely No. 75030 (A22) for $13,755 and No. 75155 (A31) for $109,212.20. Unlike the other three, these two had not been signed by the defendant. I am satisfied that these omissions were due to inadvertence and the defendant's denial of them is no more than a bit of opportunism for which he is not ungifted and to which I shall revert. Number 75030 (A22) covers 21 carats of diamonds at $655 per carat. The defendant had signed in favour of the plaintiff a consignment note dated 13-9-75 which included this lot of diamonds and held at all material times by the plaintiff. The plaintiff did have the defendant's signature for this lot. As for invoice No. 75155 (A31) this was a substitute for Invoice 74710 (A32) signed for by the defendant and marked "CANCEL". They bear the same goods save that the last two lots of diamonds set out in No. 74710 are not in No. 75155 (A31). Furthermore Invoice 74710 is entered in the defendant's stock book (Ex. N at page 4) and does not show its cancellation. I hold the defendant to be liable for these two invoices.

7. Turning to the Defence, the defendant's claims that a payment of 4 Tai Wan cheques totalling N.T. currency 1,543,084 equivalent $192,885.00 have not been included in his account with the plaintiff. In as much as he did not even bother to revert to these cheques in his evidence the defendant's claim for a deduction of $192,885.00 fails.

8. I turn to the defendant's counterclaim. In the course of their dealings the defendant had deposited various articles of jewellery with the plaintiff as securities for his indebtedness. He counterclaims first damages caused to one of 12 pieces of rough jade stones deposited with the plaintiff. Indeed the plaintiff has damaged that stone by cutting it up to estimate the value of the stones. The defendant did not call any evidence of the value of the stones. The plaintiff did and called Lam Foo Wah, the chief appraiser of Lambert Bros., well known auctioners. He has been an appraiser for 44 years, with some 20 years experience in jewellery and for 7 years in rough jade stones. He said he was asked by the plaintiff to value 12 rough jade stones. He made a valuation report (Ex. A 111/2). He reported that in his opinion all the stones were of cheap and common material worth an average about $30 per kilo (16/3/77). At the time of hearing he said the stones to be worth $44-45/kilo. The stone cut according to the report weigh just under 6 kilos. The witness reported on average prices only. I adjudge the damage sustained to be $50 x 6 kilos i.e. $300.00.

9. Second he counterclaims damages for failure and/or refusal to return a bag of gems and jewellery alleged to be worth $1,385,390 and a Patek Phillippe watch. This counterclaim must necessarily fail as the defendant did not even begin to make out a case that if the goods really existed he was entitled to the return of the goods. The existence of this bag of gems was hotly disputed by the plaintiff. As the defendant did not even include a prayer for a declaration that he had in fact deposited that bag of gems I do not have to set out the evidence led but I have no doubt of my conclusions that the claim is no more than a flagrant bit of opportunism to aver that an overnight receipt issued by the plaintiff for another parcel of jewellery properly receipted the next day was evidence of the deposit of 2 parcels. That parcel of gems never existed at all. The Patek Phillippe watch existed and my conclusions are that the watch was not deposited with the plaintiff but given by the defendant to Choppin Leung under difficult circumstances and Choppin Leung does not come up well at all on his own evidence in the manner he acquired it.

10. The plaintiff has claimed interests on all overdue payments at the rate of 1% per month. All invoices were stamped with the legend "Bank interest shall be surcharged 1% per month for payment overdue". This does not mean 1% per month but on the evidence of the course of dealings between the parties the defendant has paid overdue payments at 1% per month and the plaintiff is so awarded till date of judgment.

11. On the Statement of Claim there will be judgment for the plaintiff with costs in the sum of $598,119.80, calculated as under:

with interest at 1% Per month on all overdue payments totalling $598,119.80. On his counterclaim there will be judgment for the defendant in the sum of $300.00.

Plaintiff to have half the costs of the claim and no order as to costs of the counter claim.

Representation:

Robert Wei (P.H. Sin & Co.) for the plaintiff

Jimmy Kwong (T.Y. Lee & Co.) for the defendant