U.S.I. (Hong Kong) Ltd v. Yung Woon Cheung t/a Union Trading Co

HCA000699/1967

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO.699 OF 1967

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Coram: Mills-Owens, J.

Date of Judgment: 4 November 1968

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JUDGMENT

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1. The plaintiff company sued upon a promissory note for the balance payable thereunder. The note was made on the 10th July 1965 in the sum of $293,057.09 being as to $269,514.17 the price of polyethylene resin sold and delivered by the plaintiff company to the defendant, and as to the balance $23,542.92 interest at the agreed rate of 7 1/2% p.a. The principal was to be paid by 26 equal instalments of $10,000 monthly between the 22nd July 1965 and the 20th August 1967 with a final instalment of $9,514.17 on the 20th September 1967, and the interest also was to be paid on the 20th September 1967. In default of payment of any one instalment the whole was to become due. The defendant paid the first seven instalments only. Accordingly the plaintiff company claimed the balance of $223,057.09 with interest from the date of the writ until payment or judgment at the agreed rate.

2. In his statement of defence the defendant asserted that he was only an agent, employed pursuant to an oral agreement made in 1963 to find customers for the plaintiff company, and to collect the sums due from them, at a commission of 3 1/2%; owing to the Bank crisis in early 1965 he was unable to collect the sums due from various customers, in the aggregate amount of $205,069.00; on the 8th July 1965, the defendant alleged, Mr. Cavendish-Baulton of the plaintiff company orally agreed with the defendant that if the defendant signed the promissory note for 293,057.09 (being the debts due plus interest of $87,988.09), payable by instalments, the plaintiff company would supply him (the defendant) with 80,000 lbs. of polyethylene resin per calendar month, at the market price; the defendant also pleaded that he was entitled to a 'commission' of 12 cents per lp., and that his liability under the promissory note was dependent on the plaintiff company continuing to supply him with the 80,000 lbs. of polyethylene per month; pursuant to the oral agreement, as the defendant alleged, he signed the promissory note and gave post-dated cheques for the instalments due thereunder; eight such cheques were duly honoured but the plaintiff company, as the defendant pleaded, then failed to honour its agreement to supply him with the 80,000 lbs. per month; accordingly he denied liability under the promissory note and counterclaimed for the loss of the commission of 12 cents per lb. on the 80,000 lbs. per month for the months of July 1965 to September 1967 inclusive (being the period over which payments were to be made under the promissory note) in the aggregate sum of $259,200.00, with interest at 8%.

3. Issue was joined, the plaintiff company asserting that the defendant was the buyer not an agent in respect of the goods for the price of which the promissory note was given, and that the 3 1/2% was a trade discount; the plaintiff company had, in March 1965, agreed to supply the defendant with 80,000 lbs. per month but that was an arrangement not in any way dependent on the signing of the promissory note, and was strictly on terms of payment by way of post-dated cheque; the defendant had purchased certain amounts and given cheques for $2,925.63 and $2,629.50 dated the 31st March 1966 and the 5th May 1966 respectively but they had been dishonoured, wherefore the plaintiff company refused to supply the defendant further.

4. Upon the action coming on for trial counsel for the defendant forthwith admitted that the defendant was a buyer, not an agent, in respect of the goods for the price of which the promissory note was given, and conceded therefore that the plaintiff company was entitled to judgment on the claim. The hearing thereupon proceeded upon the counterclaim only. At this point it is relevant to observe that in effect the foundation for any consideration having been given by the defendant for the plaintiff company's alleged promise to supply him with 80,000 lbs. per month was gone. As pleaded, the alleged promise was in consideration of the defendant, an agent, undertaking personal liability for the debts of the customers introduced by him. Once he admitted that he was himself the actual buyer that form of consideration disappeared. In the course of his evidence the defendant, in reply to a question, said that not only was the plaintiff company bound to supply him with the 80,000 lbs. per month but he was bound to take that amount; but it was an unexpected question and an answer given with considerable hesitation, as it appeared to me. Also, in giving evidence, notwithstanding the admission made on his behalf the defendant clearly wished to maintain that he was only an agent in respect of the goods for the price of which the promissory note was given, even in the face of the production of orders signed by himself personally, and the express statement in the promissory note that it was for goods supplied to him.

5. The main burden of the defendant's case on the counterclaim was that he would have been unable to meet the cheques given by him for the instalments becoming due under the promissory note unless he had the means making a profit over the period of the instalments and that this was known to and the reason for the agreement made with the plaintiff company for the supply of 80,000 lbs. of resin per month. He relied particularly upon two letters written to him by the plaintiff company dated the 25th March 1965 (Ex.B) and the 24th June 1965 (Ex.C) and signed, respectively, by Mr. Tsang the plaintiff company's sales manager and Mr. Cavendish-Baulton the (general) manager. The letter Ex.B speaks of acceding to the defendant's request for an allotment of 80,000 lbs. per month, but on strict conditions as to payment by 90 day post-dated cheque to be given on delivery and as to the cheques being duly met. The letter Ex.C refers to arrangements for the signing of the promissory note, and adds that on it being signed the plaintiff company would immediately be in a position to supply him with his future requirements against 90-day post-dated cheques. As the defendant said, he calculated that the 80,000 lbs. per month would produce a profit to him of $9,600 per month which would enable him to meet the cheques given for the instalments due under the promissory note; that is, taking the price of the polyethylene resin at the approximate figure of 1 dollar per 1 lb. x 12 cents = $9,600. (The figure of approximately 1 dollar per 1 lb. was accepted in the course of the evidence for the plaintiff company.)

6. The defendant said that he had put his position before Mr. Cavendish-Baulton in a letter which he took to the plaintiff company's offices on the 5th July 1965, that is five days before the promissory note was signed. The letter was in Chinese but Mr. Tsang interpreted it to Mr. Cavendish-Baulton. (It is agreed that in any discussion between the defendant and Mr. Cavendish-Baulton interpretation was necessary.) The defendant produced a copy of this alleged letter. It appears to maintain the attitude that the money due to the plaintiff company at that date was due from the defendant's customers, not the defendant himself as the buyer. It contains the phrase 'our firm will only be in a position to proceed with the amount of $5,000 each month', but then appears to indicate that the defendant will obtain further business, but only as an agent. There is not a word in this document about the alleged agreement for the supply of 80,000 lbs. per month. I refer further to this document below. The defendant said that he signed the promissory note on the faith of a promise by Mr. Cavendish-Baulton to give him a guarantee of 80,000 lbs. per month but he never received the guarantee and after the signing of the promissory note the plaintiff company ceased supplies to him, except for a small quantity of one or two thousand pounds weight. For this reason he was unable to meet the cheques given under the promissory note and stopped payment of the eighth cheque. He agreed that at the time of signing the promissory note he was being pressed by creditors.

7. In cross-examination the defendant, as I have said, sought to maintain that he was not the buyer of the goods for the price of which the promissory note was given, even in the face of documentary evidence to the contrary, including cheques drawn by himself in payment. He agreed that his cheques were being dishonoured for lack of funds, but he said only after the promissory note was signed. In a letter written by him on the 25th March 1965 (Ex.F) to one of the four Banks at which he kept accounts he stopped payment of some eleven cheques drawn by him in favour of the plaintiff company; the letter expressed it - 'owing to trade disputes existing between this company and some of our clients'; but, he said in evidence, what he meant to say was 'disputes with, or including, the plaintiff company'. He wrote a similar letter (Ex.G) on the 30th April 1965 to another of his Banks. At this stage, being faced with his letters Ex.F & G, the defendant was brought to agree that at the date of the promissory note he owed the plaintiff company the $269,514.17 and had given cheques therefor, but he soon equivocated, returning to his stand that he was only an agent. He agreed that he had been given notice to produce his Bank statements, but he did not produce them; the purpose was made evident to him - to show his impecunious state; he then said he had overdraft facilities on the security of his goodwill. He appeared reluctant to acknowledge that he knew of a certain oil company - he 'had heard of it a few years ago', he said; finally he was brought to admit that he owed the oil company some $200,000. At one point the defendant said that the terms for payment for the 80,000 lbs. of resin per month were to be 'negotiated later'; later in his evidence he said that payment was to be by 90-day post-dated cheques and that this was arranged at an oral discussion he had with Mr. Tsang and Mr. Cavendish-Baulton on the 2nd or 3rd July 1965. Here again there was considerable equivocation in his evidence.

8. He said there must be something wrong with the date (25th March 1965) of the letter Ex.B because his discussions about a supply of 80,000 lbs. per month were in early July 1965. He said he would try to trace his letter to which it was a reply, but it was not produced. Referred to his statement in chief that he only received 1,000 - 2,000 lbs. weight after the promissory note was signed he said this was not what he meant. He received small supplies of such quantities from Mr. Tsang - but not as part of the 80,000 lbs. Cross-examination was then directed to the question whether the defendant had given orders for the 80,000 lbs. per month after the signing of the promissory note. It was apparent that there were no such written orders and the defendant endeavoured to meet this by saying the arrangements for ordering by him had been changed - all Mr. Tsang now required, i.e. following the promissory note, was a telephoned order and a post-dated cheque - but the defendant was unable to explain why written orders were no longer required. Clearly some explanation was required if, as the defendant alleges, the plaintiff company were under an obligation to supply and he was under an obligation to accept 80,000 lbs. per month, particularly when the initiative in placing orders rested with him. He was then asked how many post-dated cheques he issued after the date of the promissory note. He said he would have to find his cheque counterfoils. Eight transactions, all small in amount, were then accepted by him as proved to have taken place between July 1965 and February 1966 (Exs.L to AA inclusive). He agreed that he had in every case received the goods but that he had not paid for the seventh and eighth deliveries; he had stopped the cheques (Exs.BB & CC) given therefor, and the plaintiff company still remained unpaid. The defendant said he had tendered other cheques and said he would produce the counterfoils, but when produced they were in my view clearly prowed to be the counterfoils of post-dated cheques (Exs.AD and AE) given prior to the promissory note. He was brought only with difficulty to agree that the cheques were useless because the dates had been crossed out. He was also brought only with difficulty to agree that he never had $80,000 in any Bank account at the relevant time. He agreed that he had never complained in writing of the failure of the plaintiff company to fulfil its alleged promise to supply 80,000 lbs. per month; his explanations were - he 'couldn't write'; he did not write in Chinese because Mr. Tsang 'found difficulty in translating' his Chinese letter (Ex.D); although his secretary was able to write letters in English he 'could not make him understand!

9. Turning to the defence to the counterclaim: both Mr. Tsand and Mr. Cavendish-Baulton denied in evidence that there was an agreement to supply the defendant with 80,000 lbs. of resin per month. It was pointed out that to supply the defendant with that amount per month on terms of 90 days credit would have meant that in addition to his liability on the promissory note the defendant could have immediately proceeded to pile up some $240,000 in unsecured additional debt to the plaintiff company (the polyethylene being priced at approximately one dollar per lb.). Mr. Cavendish-Baulton said there was never any arrangement to give the defendant a commission of 12 cents per lb.; in fact, at best the plaintiff company's own gross profit never reached that amount. With regard to the suggestion that the defendant would be unable to meet the payments due under the promissory note unless supplied by the plaintiff company with 80,000 lbs. per month, Mr. Cavendish-Baulton said that it was possible for the defendant to buy resin elsewhere; there were several other suppliers. Mr. Cavendish-Baulton agreed that the defendant had told him he could not meet his outstanding debt to the plaintiff company unless supplies were continued and that he (Mr. Cavendish-Baulton) agreed to continue supplying him; this was the meaning of the letter (Ex.C) of the 24th June 1965, but supplies were to be on a day to day basis. Mr. Cavendish-Baulton agreed that, in de bene esse proceedings before the Assistant Registrar, he had said in reference to the Chinese document (Ex.D) that at some date he 'thought there was an agreement brought in of the nature'.

10. It is, however, apparent that no translation of the document was available at the de bene esse proceedings so that little, if any, weight can be attached to this statement. The following extract from the record of the de bene sees proceedings were put to Mr. Cavendish-Baulton (being a record of his cross-examination in those proceedings) -

Mr. Cavendish-Baulton agreed that he must have replied as above, but, he said, he had difficulty in understanding some of the questions put to him in the de bene esse proceedings, which on a reading of the proceedings does not surprise me.

11. It is apparent that the defendant's pleadings do not specify any period over which the alleged agreement for a supply of 80,000 lbs. per month was to extend; the defendant now says it was to be co-extensive with the period over which instalments were to be paid under the promissory note. It is apparent also that the alleged agreement, as pleaded, made no provision for the method of payment for the 80,000 lbs. per month; the defendant now says it was by 90-day post-dated cheques. I have referred above to the defendant's evidence regarding the method of ordering the alleged 80,000 lbs. per month. There is no documentary evidence unequivocally establishing the alleged agreement. The alleged commission of 12 cents per lb. has, in my view, been shown to be wholly unrealistic. The defendant's position as a buyer, not an agent, has been clearly established and admitted, nothwith-standing his equivocations. On the other hand, as has been pointed out the figure of 80,000 lbs. per month was not entirely a figment of the defendant's imagination; it is mentioned in the letter of the 25th March, 1965 (Ex.B). The point is made that a promissory note was unnecessary, unless, that is, there was some additional arrangement (such as for a supply of 80,000 lbs. per month) because the plaintiff company could have sued upon the defendant's outstanding cheques for the aggregate sum due to the plaintiff company in July 1965. As it appears to me the purpose of the promissory note could well have been to bring home to the defendant the necessity for paying off his debts to the plaintiff company and to provide an orderly means of doing so.

12. The whole matter depends very largely on the credibility of the defendant as a witness. The onus of proving his counterclaim is on him. I am bound to say that I cannot accept his version of events; he was not a straightforward witness, but rather sought whenever possible to suit his answers to his case; awkward questions were invariably evaded. The most charitable view that can be taken is that he succeeded in persuading himself on the strength of the letter Ex.B that the plaintiff company had bound themselves to supply him with 80,000 lbs. per month as a condition of his signing the promissory note, when in fact all that the plaintiff company agreed to do, in general terms and without entering into a legally binding relationship, was to continue business relations with him on prompt payment. In my judgment the counterclaim has been amply demonstrated to be without foundation both in fact and in law.

13. Accordingly I give judgment for the plaintiff company on the claim with interest at the rate of 7 1/2% per annum from the date of the writ until payment, and with costs, including costs of the Order 14 proceedings and dismiss the counterclaim with costs.

4th November, 1968.

Representation:

Basto Q.C. (Wilkinson & Grist) for plaintiff.

Shears (Thomas Wang & Co.) for defendant.