Belfont Co (Hong Kong) Ltd v. Cheung Shu Fun t/a Hang Tai Finance Co
Read the full judgment text of HCA 4945/1979 on BabelCite. This High Court CFI judgment.
1. In this action the plaintiff company, Belfont Company (Hong Kong) Ltd., claims the sum of HK$91,488 from the defendant Mr. Cheung Shu Fun who trades as Hang Tai Finance Company, being the balance due on three invoices for the sale of a quantity of cut and polished diamonds. The defendant denies being indebted to the plaintiff company in that or any other sum.
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HCA004945/1979
IN THE SUPREME COURT OF HONG KONG HIGH COURT -----------------
Coram: Hon. Fuad J. Date of Judgment: 10th March, 1981. ----------------- JUDGMENT ----------------- 1. In this action the plaintiff company, Belfont Company (Hong Kong) Ltd., claims the sum of HK$91,488 from the defendant Mr. Cheung Shu Fun who trades as Hang Tai Finance Company, being the balance due on three invoices for the sale of a quantity of cut and polished diamonds. The defendant denies being indebted to the plaintiff company in that or any other sum. 2. The plaintiff company ("Belfont") is a well known partnership which has been engaged in the diamond selling trade in Hong Kong for the past 14 years or so. One of the three partners works from Geneva and the other two, including a Mr. Boris Freiman, are in Hong Kong. Mr. Freiman manages Belfont with a staff of three but since Belfont is a member of a group of companies which employs a staff of about 2,000 in all, Mr. Freiman is able to make use of the accountancy and secretarial facilities of the group. 3. The defendant is the sole proprietor of Hang Tai Finance Company which was formed in Hong Kong in 1953. It is well established as a "money-exchange business" and has a branch at 54, Nathan Road, Kowloon. 4. The third member of the triangle involved in this case is Mr. Hui Kam Pui who has been a wholesale dealer in diamonds for many years, and in 1968 set up business under the name Yat Fung Hong, at No. 13 Chi Wo Street, Kowloon. 5. Sometime in the first quarter of 1978, Mr. Hui wanted to expand his business to include a retail outlet. He was introduced to Mr. Cheung by a common friend, and they seem to have taken to each other at once, for they decided to form a partnership under the name "Hang Tai Finance Company Jewellery Department" at No. 54 Nathan Road. There were no legal formalities and no documents were drawn up. Mr. Cheung put up some money and Mr. Hui contributed stock of an appropriate equivalent value. Profits were to be shared on a 50/50 basis. Since Mr. Cheung knew nothing about the jewellery trade, it was agreed that Mr. Hui should run the new partnership with a staff of two. 6. The shop at Nathan Road was suitably altered, and fitted up with showcases, and Mr. Hui was given the use of a small office (in what he called a "cock-loft") which could only be reached by stairs inside the premises. It was decided that a new banking account for the partnership was unnecessary for Hang Tai Finance had its own accountants who could keep the accounts of the Jewellery Department separately in the books. 7. To mark the establishment of the partnership, and to announce it to the shopping public, a new sign was put up outside the shop in Nathan Road, in both Chinese and English, which read "Hang Tai Finance Company Jewellery and Money Exchange". It seems that about the same time, Mr. Hui had a business card printed which set out the name and address of the new partnership and also the name "Yat Fung Hong", showing its address in Chi Wo Street. Mr. Hui's own name appeared with the word "Manager" under it, between the names and addresses of the two firms. Half the card was printed in Chinese and half in English. In the Chinese version Yat Fung Hong took pride of place but in the English version it came second. It is perhaps convenient here to note that the business card which has been exhibited was what one might call a second edition. It was similar in style and setting out to the first, save that the address of the second branch of Yat Fung Hong, opened in Canton Road early in 1979, was added below the Chi Wo Street address. 8. The partnership began to operate in March 1978. Mr. Cheung seldom visited the Nathan Road premises throughout its existence, and only met Mr. Hui from time to time when he would be shown the accounts and they would discuss the state of business. 9. The partnership did not prosper. Business was sluggish, so Mr. Cheung and Mr. Hui decided to call at a day and to put an end to their association. This happened at the end of 1978, and from the beginning of January 1979 Mr. Hui took over the sole proprietorship of Hang Tai Finance Company Jewellery Department and continued to run it from 54 Nathan Road. Apart from the capital Mr. Cheung had put into the partnership when it was formed, Mr. Hui had borrowed money for him from time to time and when the accounts were settled, the erstwhile partners agreed that the sum of HK$432,000 was due to Mr. Cheung, a sum which Mr. Hui still owes. 10. At the end of May 1979, it was discovered that the safe of the Hang Tai Finance Company had been forced open and that cash, travellers cheques and jewellery worth not far short of $1 million was missing. Suspicion eventually fell upon Mr. Hui and police investigations covered most of the second half of 1979. Early in December, 1979 he was arrested and Mr. Cheung stood bail for him in the sum of $100,000. Mr. Hui pleaded not guilty to the charge of theft but on the 9th April 1980 he was convicted in the District Court and sentenced to three years' imprisonment, a sentence he is still serving. In fairness to Mr. Hui, it must be said that he steadfastly and vehemently maintains that he was innocent of the offence of which he was convicted. 11. Mr. Tam Sai Kay was employed by Belfont as a salesman, on a salary and a commission basis, from 1973 until June 1979, when he decided to branch out on his own. He had first met Mr. Hui in about 1977, and had sold him some Belfont diamonds at the Chi Wo Street premises of Yat Fung Hong in January 1978. Mr. Hui recalled more than once such transaction before he went into partnership with Mr. Cheung, but the only positive evidence now available concerns one sale, and comes from an invoice dated 16th January 1978, made out to Yat Fung Hong at its Chi Wo Street address, which shows that diamonds worth HK$24,318 were sold on that occasion. The records indicate that Mr. Hui made payment for them about a fortnight after the 60 days stipulated on the invoice. 12. Mr. Tam then began to deal with Mr. Hui at 54 Nathan Road. It is not clear from the evidence whether Mr. Tam first went there on his own initiative or whether Mr. Hui asked him to call. However that may be, Mr. Tam told the Court that he went to 54 Nathan Road in March 1978 and saw a sign outside, "Hang Tam Finance Jewellery and Money Exchange". When he spoke to Mr. Hui he was given a business card and noticed that the card recited Mr. Hui as Manager of both Hang Tai Finance Jewellery Department and Yat Fung Hong; and Mr. Hui told him that both organisations belonged to the same group. Mr. Tam then went back to Belfont and obtained the necessary authority to extend credit to Hang Tai Finance Jewellery Department, and the series of transactions with which this case is concerned began. 13. They were conducted in this way. Mr. Tam would bring diamonds for Mr. Hui to inspect, getting him to sign an "approval note". If Mr. Hui decided to buy, a set of invoices would be typed out in the Belfont office for each deal. At the top, on the left, would be typed "Hang Tai Finance Co., 54 Nathan Road, Kowloon." [I would mention here that all the relevant invoices were made out to Hang Tai Finance Co. except one where the words "Jewellery Department", in brackets, appears beneath "Hang Tai Finance Co."]. The invoice number and the date would appear at the top right hand corner. Then, in appropriate columns, the invoice would show the quantity of stones; the description (always "Cut and Polished Diamonds of Gem Quality"); the number of carats of the stones; the unit price and the amount due. In each case the date on or before which payment must be made would also be shown (always 60 days after the date of the invoice). Mr. Tam would get Mr. Hui to sign the top copy to acknowledge the agreement, and retain it, leaving Mr. Hui with a yellow copy. When payment was due, Mr. Tam would call and collect a cheque and return the top copy which Mr. Hui had originally signed. Mr. Hui would also be given a blue copy of the invoice with the word "Receipt" printed across it. On one of the copies retained by Belfont, the accounts department would record the date upon which the original copy of the invoice had been received back in the office and, later, the details of the cheque received in payment. 14. The invoices indicate that between the 29th March 1978 and the 22nd July 1979 fourteen sales were made in this way, to the total value of something in the region of HK$617,000. All went well with the first eleven of these transactions, and the cheques Mr. Hui gave in payment were always honoured. 15. Belfont's claim is this action relates to three invoices whose particulars are as follows -
16. The cheque Mr. Hui gave for $64,911 in respect of invoice No. D 1257, dated the 15th June 1979, was dishonoured and Belfont pressed him for payment for that amount (and, later, for the sums due on the other two invoices) by telephone and at several interviews held in the Belfont offices. Belfont gave Mr. Hui time to pay until they decided, in the words of Mr. Freiman, that "enough was enough and we would have to take steps to protect our interests." In fact, of the total sum of HK$171,488 due on the three relevant invoices, Mr. Hui managed to pay HK$30,000 on the 5th September 1979; and HK$49,600 by cheque and $400 in cash on the 21st November 1979 nearly a fortnight after the writ was issued. As a result of the somewhat complicated arrangements agreed during the period of indulgence granted to Mr. Hui, Belfont still hold two cheques (for HK$50,000 and 41,488) drawn by Mr. Hui which he was never able to date and which, therefore, have not been presented. The amount remaining unpaid on the last three invoices is HK$91,488 which is the sum Belfont claims from Mr. Cheung. 17. I should here mention two matters. On each of the fourteen occasions that the original copies of the invoices were presented to Mr. Hui, he signed his name without using a "chop" of any kind. For the amounts due on the first of the five invoices, Mr. Hui paid by cheques drawn on his personal account with the Mong Kok Branch of the United Chinese Bank. In payment for the next six invoices, Mr. Hui drew cheques (between the 28th November 1978 and the 15th June 1979) on a separate Yat Fung Hong account held at the same branch of that bank. Upon each of those cheques, including the last one which was dishonoured, there appears a rubber stamp impression -
and Mr. Hui's signature is on the dotted line. 18. I will say at once that on the totality of the evidence, I am left in no doubt whatsoever, that at all material times, in relation to the sales of diamonds covered by each of the fourteen invoices -
19. I am also satisfied that the witnesses who gave evidence before me on both sides told the truth to the Court to the best of their recollection - this includes Mr. Hui who, despite his conviction for dishonesty, impressed me as a witness of truth. 20. Belfont, upon whom the onus lies, rests its claim against Mr. Cheung on what may conveniently be described as the doctrine of apparent or ostensible authority, against the background of events which included the partnership formed in March 1978 and dissolved, I find, at the end of that year. A bare recital of the facts will have shown that Belfont has an apparently formidible case, for Mr. Hui with whom Mr. Tom of Belfont dealt had presented a business card which announced him as the manager of "Hang Tai Finance Co. Jewellery Department" and in relation to each of the transactions which formed the series out of which the claim arises -
21. In my approach to the mixed questions of fact and law raised in this action, I think it is necessary to bear in mind that each of the fourteen transactions was a separate contract and therefore it is, in my view, essential for Belfont to establish that Mr. Cheung's representation by conduct and inaction which is relied upon was operative at all material times. 22. Although I consider that had Mr. Tam been more cautious he would perhaps have been a little more inquisitive when he first began to deal with Mr. Hui at Nathan Road, I find that he was justified in all the circumstances in assuming that he was selling diamonds to Hang Tai Finance Co. Jewellery Department, and that therefore a prima facie case, as against Mr. Cheung, of agency by estoppel has been made out. 23. There was, I accept, nothing remarkable about the fact that Mr. Hui did not make use of a "chop" when he signed the original copies of the invoices; nor do I find that it was unreasonable for Mr. Tam to attach no significance to the fact that diamonds mentioned in invoices made out to Hang Tai Finance Co. were being paid for by cheques that appeared to be drawn on Mr. Hui's personal account. However in my judgment the position changed significantly when, in November 1978, Mr. Hui first paid for diamonds with a cheque clearly stamped "Yat Fung Hong" and drawn by Mr. Hui as its manager. This method of payment continued for the next five successive transactions until May 1979. I say this because only two months before the first sale at Nathan Road, Mr. Tam had sold Mr. Hui the same type of goods ("cut and polished diamonds of gem quality") at the Yat Fung Hong premises at Chi Wo Street, and the business card he had been given on his first visit to Nathan Road plainly showed that Mr. Hui was still also manager of Yat Fung Hong. Mr. Tam told the court that even if he had noticed that he was being paid by Yat Fung Hong cheques this would not have raised any doubts in his mind regarding the capacity in which Mr. Hui was contracting to buy the diamonds. But the careful and conscientious Miss Soares, who worked in Belfont's accounts department, did notice that Yat Fung Hong cheques had begun to be used. When she had raised the matter with Mr. Tam she had been told that "Yat Fung had something to do with Hang Tai" and so she had "let it pass". 24. It seems to me that the combined information then possessed by Mr. Tam and Miss Soares (and therefore possessed by Belfont) should have put Belfont upon immediate enquiry. Here was Mr. Hui who was still manager of Yat Fung Hong, and who had previously bought diamonds in that capacity and for that firm, suddenly drawing cheques on the Yat Fung Hong account. It is surely not unusual in the bustling commercial world of Hong Kong for one man to run two businesses, and such a man cannot be in two places at once. 25. Not only do I consider that it would have been reasonable for Belfont there and then to conduct further investigations to make sure in which of his two capacities Mr. Hui was buying the diamonds, I find that they displayed marked indifference by not so doing. Although it appears that statements of account were being sent to Hang Tai Finance from time to time that were never queried, the fact is that Mr. Tam dealt only with Mr. Hui; and always face to face. The invoices and the diamonds were handed to Mr. Hui and cheques in payment were given in return. The post was never used. 26. The simplest and most superficial of enquiries, made when Miss Soares first raised the matter of the Yat Fung Hong cheques, of Hang Tai Finance or of Mr. Hui, would have led to the true nature of the relevant transactions being discovered. I think it is fairly clear from the frank acknowledgement made by Miss Soares that Belfont were not too concerned provided they were being paid for their diamonds, and it was some time before anything went wrong. Although this has no bearing on the validity of Belfont's claim in law, it is interesting to note that even after the HK$64,911 cheque was dishonoured (and, as a result of the interviews, the true position disclosed) Belfont looked to Mr. Hui personally for payment and gave him time to pay; and, it seems, even accepted a fairly large instalment of the debt due after the action had been instituted. 27. For the reasons I have attempted to give, I reach the conclusion that under the ordinary law of agency and, so far as it is relevant, under the law relating to partnerships, Mr. Cheung has discharged the onus which shifted to him, of establishing that by the time the first of the three contracts which led to the sums now due to Belfont were entered into, the estoppel which had been operative had been defeated. The claim must therefore be dismissed. I will now hear counsel on costs and on the disposition of the sum Mr. Cheung paid into court as a condition of being granted leave to defend.
Representation: William Waung (Wilkinson & Grist) for Plaintiff. Ruy Barretto (Samuel Soo & Co.) for Defendant. |