Woo Yih Bang t/a Metropolitan Industrial Co v. Wong Chi Wah Alias John C.H. Wong t/a The Santo Trading Co

HCA003184/1979

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

ACTION NO. 3184 OF 1979

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Coram: Penlington J.

Date of Judgment: 29th June 1981

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JUDGMENT

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1. This is a claim for account brought by the plaintiff in respect of a contract entered into between the plaintiff and the China National Chemicals Import and Export Corporation (Peking Branch) for the supply of 100 metric tons of P.V.C. It is the plaintiff's case that this contract was entered into by him as a joint venture with the defendant, the terms of that joint venture being that the profits or losses incurred in the resale of the P.V.C. would be shared equally between them. The defendant on the other hand says that he agreed to purchase the P.V.C. from the plaintiff on the basis that he would take over the contract and would pay the plaintiff a commission of 2%. It is not in dispute that in fact the defendant opened a Letter of Credit for the P.V.C., that it was eventually delivered to Hong Kong and resold by the defendant to various plastic factories at a substantial profit.

2. The plaintiff said that he had been trading under the name of the Metropolitan Industrial Company since 1965. Before that he had been in Shanghai and was involved in dealing textiles. When he came to Hong Kong he started dealing in chemicals and he had a good relation-ship with the Chinese authorities. He received normal invitations to attend the Canton Trade Fairs held in the spring and autumn.

3. He said that in October 1978 a Mrs. Wong of the defendant company came to see him regarding the supply of castor oil from China. They had a discussion and Mrs. Wong suggested that he might deal in Chinese chemicals as well as castor oil and they might go into business together. He said that he was interested in any commodity provided they were potential buyers. Mr. Woo said that he went to Canton on the 13th November but before that he had spoken to the defendant regarding supply of paint brushes and also calcium carbonate as Mrs. Wong had said they had buyers for those goods. Again the relationship was to be one of the joint venture on a fifty-fifty basis. He said however that there was no discussions specifically regarding P.V.C. prior to his departure to Canton. He said that having had discussion in Canton with the Chinese authorities he rang Mrs. Wong and said that there were no brushes available. He said he did not however talk to her about P.V.C. In fact during the Trade Fair he did purchase 100 tons of P.V.C. and when he came back to Hong Kong he told Mrs. Wong and her husband about this contract. He said that they were very interested and an agreement was reached under which the defendant would market the P.V.C. on the basis of a joint venture, as had been agreed in relation to the other commodities discussed. He said that while he was himself in a position to open a Letter of Credit with the China State Bank Mr. Wong suggested that he open the Letter of Credit. He said that there was no mention at all of a 2% commission and that he would not have agreed to contract on that basis. He said that the defendants wanted all the P.V.C. to be sent in one shipment and he sent a cable to Peking asking for that and the Chinese authorities agreed. The contract price for this 100 tons of P.V.C. was US$500 per ton. He said that the defendant was interested in securing more P.V.C. at that price and Mr. Wong said he had customers for a thousand tons. Accordingly a telex was sent to Peking which is at page 21 of the agreed bundle of documents. This was sent on the defendant's telex machine and it advised the authorities in Peking that a Letter of Credit had been opened for the 100 tons already purchased and offered to buy a further one thousand tons at a price to be agreed. While the plaintiff and the defendant could expect to get "a lower price" for such a substantial amount of P.V.C., the terms of this telex seemed to me to indicate that they were prepared to buy a thousand tons at approximately the same price as the 100 tons. The telex goes on to say that the plaintiff's manager will come to Peking to conduct further negotiations and sign a sales contract. It was not in dispute between the parties that if this offer had been accepted both the plaintiff and the defendant intended to go to Peking together. Eventually a reply was received to this telex to the effect that no further supplies were available. Eventually a further cable was sent by the plaintiff, he says at the defendant's suggestion, dated the 22nd December asking if 200 to 300 tons could be supplied. Again however no supplies were available and the plaintiff was told in a polite way by the Chinese authorities that they would not prepare to grant him the sole distribution rights for P.V.C. in Hong Kong. It is again not in dispute that the one of the reasons for ordering large quantity of P.V.C. was that the plaintiff and the defendant were hopeful that the plaintiff would be appointed such a sole distributor. The plaintiff produced, at page 56 of the agreed bundle, a business card which was printed on which, in addition to reasons own name, is the name of his company and also the defendant company. He says that this was intended to be used if he and the defendant went to Peking together. He said that the defendant had a similar card with the two company names on it but his own name above them in the same way as his was printed.

4. The plaintiff said that he had an invitation to go to the Canton Trade Fair in the Spring of 1979 and that he managed to get Mr. Wong and his wife included in that invitation. At the Fair P.V.C. was discussed but by this stage they were aware that the distributorship had been granted to China Resources Limited in Hong Kong. They did however also see some samples of synthetic rubber and asked for quotes. Again he said that Mr. Wong suggested a joint venture in synthetic rubber. They were told that quotes would be available in about a week's time. Mr. Wong and his wife then returned to Hong Kong on 13th April while he went to Shanghai.

5. After his return to Hong Kong the plaintiff said he went again to Canton to see about synthetic rubber although before going the Wongs had said they were no longer interested. The plaintiff said that when he got to Canton he was then told that the defendant had in fact already purchased 100 tons and no more was available. Clearly the plaintiff thought that he had been badly treated by the defendant in this manner and clearly from then on relationship between them turned very sour. He saw the defendant on his return and insisted on settling the matter of the 100 tons of P.V.C. He said that the P.V.C. had already arrived in Hong Kong and that that as fact over half of it had been sold. He was told by the defendant that accounts would be settled only when all the P.V.C. had been sold. He said that at this time the market for P.V.C. had gone up very considerably and it was then selling at about US$850 per ton. There was no agreement about this and eventually he saw a mutual friend, who was Shanghaiese employed in the San Wah Bank and complained about manner in which he had been treated by the defendant. Subsequently on the 12th June 1979 he received a cheque being payment of commission at 2% on the amount of the purchased price of the P.V.C. He then decided to take legal action.

6. The plaintiff said that he had not dealt in P.V.C. before this particular contract but that he paid attention to the market price of chemicals even if he was not in fact dealing in them. He said he did not consider that he was running any great risk in entering into this contract as the market for P.V.C. was good and he thought the Chinese authorities had reduced their price in order to do a trial sale to Hong Kong. He said that as the defendant was also Shanghaiese he did not reduce the agreement to writing as it was a custom amongst Shanghaiese business men to trust each other and an oral agreement was respected as being as good as a written one. It was suggested to the plaintiff that at the time he signed the contract with the Chinese authorities P.V.C. was available from Western Germany for $1960 per ton or from Rumania at $2220 per ton. He said he did not know if that was so or not but he was sure he could not get a quantity of 100 tons at that price. He said that if that was a market price for European P.V.C. why should they tried to get a thousand tons from China at a higher price and when that request was refused tried to get at least 200 to 300 tons. He Said that the quality of Chinese P.V.C. should have been about the same as any other.

7. Mr. Woo said that he took an interest in the shipment of 100 tons of P.V.C. from China to the extent that he went with Mr. Wong to open a L.C. at the bank, he inquired from time to time from the defendant as to how sales were going and when the goods arrived, which was in three lots not one, he went to the goodsyard and he certainly seemed to be a well aware of exactly what had happened to each consignment. It seemed that some was taken to a godown and some was sent direct to customers.

8. Evidence was given for the defendant by Mr. Wong Chi Wah the sole proprietor of the company and also by his wife. He said he was a dealer in petro - chemicals and building materials. He said that his wife helped because he was busy. He said he saw the plaintiff on the 10th November 1978 in the afternoon in his office he said that he saw him again towards the end of November when he came to the defendant's office with a contract. This was the contract for the 100 tons of P.V.C. He said that he remembered one evening his wife had received a long distance telephone call from Canton. This was between the 13th and 15th November. He said that he remembered that a price was quoted to his wife of US$520 per ton for P.V.C. but she said she did not want to buy at that price. His wife then asked the party at the other end of the line what was the actual contract price said that if it was $500 per ton she would pay him a 2% commission. He said she looked at him, i.e. Mr. Wong, and he nodded his head in an agreement. 2% commission was to be added to the purchase price and they would pay that to plaintiff.

9. He saw the plaintiff again towards the end of November and the plaintiff asked him to take out a Letter of Credit in respect of the consignment. However his wife said to the plaintiff that he had purchased the goods at a rather high price and she would help him to complete the transaction as he had not dealt in P.V.C. before. Mr. Wong agreed to open the L.C. which he did the following day. He denied that Mr. Woo came with him to the bank to open the Letter of Credit. He said that there was no mention at all of any joint venture in respect of this 100 tons of P.V.C. but that he considered he was buying the goods from the plaintiff and was paying a 2% commission. He said he was interested in helping to obtain the distributorship of Chinese P.V.C. for the plaintiff as this would give him another source of supply. This was why he bought the 100 tons even though it was at a high price and also why he agreed to the telex being set ordering the 1000 tons. He said that the price of P.V.C. in Hong Kong at this time was US$400 to US$500 per ton and there was no shortage. He said that he would not agree to a fifty-fifty deal over this consignment and if he had been approached he would have asked with to put up a deposit in case there was a loss. He said that that his trade depended very much on contacts and the plaintiff did not have any.

10. He said that he had also discussed the question of purchasing paint brushes with the plaintiff and he produced two quotes from the plaintiff, D1 and D2, and says that he did not see the quote received by the plaintiff from the Chinese authorities for paint brushes at p. 29. The relevance of this is that in p. 29 the plaintiff was offered a rebate of 5% but he did not mention this rebate to Mr. Wong, which suggests that he was looking at the purchase of the paint brushes on his own, not as a joint vanture. He said that the plaintiff asked him to support him in securing the distributorship of P.V.C. and if they could place a large order such as a 1000 tons this would help his chances.

11. He said that his wife and himself went with Mr. Woo to the Canton Spring Fair and he agreed that this was on the basis of Mr. Woo's invitation. He agreed that name cards were printed with both their company's names on them. He said that the P.V.C. was in fact delivered, the first consignment being in March. The delivery documents were produced, D5 to 10, and Mr. Wong said he paid the delivery expenses and also storage charges. He said that he had debit notes and trust receipts from his bank showing that he paid the financing charges for the 100 tons of P.V.C.

12. Mr. Woo said that he had eventually sold off all the 100 tons but not immediately because of the poor quality. He produced the series of invoices, exhibits D16 to 23. He finished selling the material in July 1979. It is clear that even if the quality was poor he was able to sell the P.V.C at a very substantial profit. He said that this was because the price of P.V.C. went up very rapidly in March 1979. He said however that there was no shortage of P.V.C. at the time the plaintiff went to the Canton Autumn Fair. He said that the agreement between himself and the plaintiff to purchase the P.V.C. at US$500 per ton was done by his wife out of kindness to Mr. Woo. He said that they realised Mr. Woo had purchased this amount of P.V.C. in Canton and having made the contract would not be able to back out of it. They realised that he had no contacts in the P.V.C. trade and would have difficulty in reselling. They therefore decided that in order to assist him they would purchase the P.V.C. and would pay him a 2% commission. He said that the telex page 21 was sent on his machine in furtherence of a long term plan for the plaintiff to get the distributorship of Chinese P.V.C. He said however that there was no mention of a joint venture even on the basis of a sole distributorship. He also said that the commission payable to Mr. Woo was only payable when the goods was sold as the purchase price was high and the quality unknown.

13. Evidence was also given for the defendant by Mrs. Wong who in fact concluded the agreement with the plaintiff. She said that she wanted to buy castor oil in late 1978 and was given the plaintiff's name as being the distributor. He came to their office and said he did not have any castor oil but they also discussed the supply of paint brushes. He said he was going to the Autumn Canton Fair and asked if there was anything that they might require. She said that they would dealing in P.V.C. and Mr. Woo asked what it was. Mrs. Wong said that she told him in that China was producing P.V.C. and asked him to inquire about the price. She said she did not want to order 100 tons and said that they will buy from Rumania at about US$400 per ton plus US$25 freight. She said she only told him to ask about the price but not to sign a contract.

14. She said she received the phone call from Mr. Woo in Canton and Mr. Woo said that P.V.C. was US$520 per ton. Mr. Wong said that was too dear and Mr. Woo then said he had in fact signed a contract for 100 tons at US$500. She then said that she would buy the 100 tons and would pay him a 2% commission. She did not give any evidence that this contract was approved by her husband at the time. But she did this out of kindness because Mr. Woo had entered the contract and that he would have difficulty in selling.

15. Mrs. Wong said that the plaintiff came to their office at the end of November with a contract for the P.V.C. and asked them to take out a Letter of Credit. She said that she told him that the price was high and they would have difficulty in selling. She asked him if he would agree to receive the commission only when the P.V.C. was sold and he agreed to that. She said that her husband was buying P.V.C. from several different sources some of which were a considerable distance away and it took a time for the shipments to arrive. She said they were interested in the P.V.C. distributorship from China and they would continue to have discussions with the plaintiff after he received it.

16. She said that the first defence file was when she was in Peking and it was not correct. She said that the second amended defence was in fact correct.

17. This was the all-to-common case of parties not recording their agreement in a form of a proper document or even an exchange of correspondence. This therefore for the Court to try and sort out what in fact was the agreement between them. In this case it was either, as the plaintiff says, an agreement for a joint venture in the P.V.C. profits and losses being shared on a fifty-fifty basis or it was simply the defendant purchasing the P.V.C. from the plaintiff at US$500 per ton on which he would be allowed a 2% commission.

18. The plaintiff is a man now over 70 years of age and he impressed me as a witness of truth. He said that he did not reduce the agreement to writing because as both he and the Wongs were Shanghaiese he trusted them on their oral undertakings. It seems to me clear that he did have contacts with the Chinese authorities and he certainly had an invitation to the Canton Spring and Autumn Fairs. I accept his evidence that in so far as all the dealings were concerned he was provided the introduction to the sources of supply in China while the defendant was to provide the marketing facilities. I have no doubt that they had high hopes that these purchases in future including possibly the sole distributorship in Hong Kong of Chinese P.V.C. would prove extremely profitable. I did not think that the plaintiff would have gone to the efforts which he did if this was purely a sale on commission. Mrs. Wong says that she bought the 100 tons of P.V.C. over the phone at well above the market price and that the quality was unknown. I find this remarkable if the sale was purely on commission. Mr. Wong said that afterwards he sent the telex ordering the 1000 tons on the basis that it would possibly enable Mr. Woo to obtain the sole distributorship. It seems to me from all the circumstances that this was in fact committing both he and Mr. Woo to a very substantial purchase at what he says was a very high price. May be that as he says they could have obtained a reduction in price in view of the amount being ordered but I would have thought it very unlikely that that reduction would be substantial. I am quite satisfied that the defendant was anxious to get supply of Chinese P.V.C. in view of rapidly increasing oil prices and therefore the price of P.V.C. If the quality of this product was doubtful it seems strange that there was no request to obtain any samples. It is also quite clear that some at any rate of the P.V.C. was sold to customers prior to delivery. Therefore I find it difficult to accept the defendant's evidence that this P.V.C. was of poor quality. It is quite clear that it was resold over a period of time at increasingly substantial profits.

19. There was a considerable amount of evidence given relating to other dealings between the plaintiff and the defendant in such things as paint brushes and calcium carbonate. The defendant points to the fact that the quote given to the plaintiff for paint brushes allowed a 5% rebate and that the defendant was not apparently to be given the benefit of that rebate. This he says points to their not being a joint venture. The defendant also points to the fact that the contract for paint brushes possibly involved a very large investment of over $2,000,000 and it seems that possibly the plaintiff would not have the financial resources to come into such a venture on joint basis. The plaintiff however says that he did have facilities with the China State Bank, which apparently is accepted, and that he was able to provide some credit facilities if these were needed. As however there was a prospective buyer in the Middle East it may well be that no credit facilities would have been required from either the plaintiff or the defendant.

20. I am satisfied from all the evidence including the documentary evidence that the defendant was anxious to secure a foothold in the China trade particularly in P.V.C. I do not accept that the defendants entered into this contract merely as a friendly gesture to try and help Mr. Woo out of what was potentially a bad contract. Both the Wongs impressed me as hard-headed business people and I do not accept for one moment that they were the slightest bit interested in helping Mr. Woo as a friend. I was not impressed with either of them as a witness of truth. I am satisfied that they were anxious to use Mr. Woo as a means of securing substantial quantities of P.V.C. from China which they considered they could resell at a good profit. It seems clear that the exact terms of the agreement between the plaintiff and the defendant were never finalised but I am satisfied that there was never any agreement for the plaintiff to purchase this 100 tons on the basis of a 2% commission. In particular I did not accept Mrs. Wong's evidence about the telephone conversation she says she had with Mr. Woo, calling from Canton. It seemed to me to be highly unlikely she would agree to buy the 100 tons in the casual manner she said she did. It was significant that Mr. Wong said that he was present when his wife had the conversation and "nodded in agreement" but she said nothing about it in her evidence. I do not believe either of the Wongs' evidence relating to that conversation.

21. It seems to me that the conduct of the parties and the relevant documents point, on a balance of probabilities, towards a joint venture between the plaintiff and the defendant, the profits or losses to be shared equally.

22. It appears from the invoices produced that the 100 tons of P.V.C. was in fact sold for a profit of $133,700 and therefore the plaintiff's half share of that gross profit is $66,870. From that must be deducted the defendant's expenses.

23. There will therefore be judgment for the plaintiff for an account in accordance with paras 1 to 4 of the Statement of Claim. There will be an immediate order for payment of the sum of $50,000 due by the plaintiff to the defendant and for payment of the balance if any found due to the plaintiff after the taking of such account. If the amount found due to the plaintiff is less than the said $50,000 any excess is to be repaid immediately by the plaintiff to the defendant.

24. The plaintiff is entitled to interest of the said $50,000 and on any other sum found due to him at 14% from the 1st July 1979 to the date of payment.

25. The plaintiff is entitled to his costs.

26. There will be liberty to apply for further directions.

Representation:

William Waung instructed by (W.I. Cheung) for the plaintiff

Mr.G. Ma instructed by (Stevenson, Low & Co.) for defendant