Wing on Metal Co. Ltd. v. Chow Wing Kee t/a Wing Lee Shipping Co. and Another
Read the full judgment text of DCCJ 4452/2001 on BabelCite. This District Court judgment.
[1] The Plaintiff was in the business of supplying shipping equipments including: steel wire ropes, fibre ropes, shacklers, wire slings and alloy chains. The 1st Defendant had been trading in the name of "Wing Lee Shipping Company" and at the relevant time the owner and operator of several barges. The 1st Defendant had been a customer of the Plaintiff for over 25 years.
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DCCJ004452/2001 DCCJ 4452/2001 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO.4452 OF 2001 -----------------------------------------
-------------------------------------- Coram: Deputy District Judge Anthony Chow Date of Hearing: 6th, 7th, 8th and 11th February 2002 Date of Handing Down Judgment: 13th March 2002 ------------------ JUDGMENT ------------------ Background: [1]The Plaintiff was in the business of supplying shipping equipments including: steel wire ropes, fibre ropes, shacklers, wire slings and alloy chains. The 1st Defendant had been trading in the name of "Wing Lee Shipping Company" and at the relevant time the owner and operator of several barges. The 1st Defendant had been a customer of the Plaintiff for over 25 years. [2]The 2nd Defendant was a limited company incorporated on 28/7/1989. The 2nd Defendant also traded in the name of "Wing Lee Shipping Company". At all relevant times, the 1st Defendant was a shareholder and up to 17/2/2001 also a director of the 2nd Defendant limited company. [3]The Plaintiff alleged that between 8/4/1999 and 18/9/2000, at the 1st Defendant's request, it had supplied goods to the 1st Defendant in the total sum of HK$543,774.50. Invoices particularising the price of goods sold and delivered had been sent to the 1st Defendant. Despite repeated demands, the 1st Defendant had failed or refused to pay the same. [4]The 1st Defendant's defence was that his sole proprietorship business "Wing Lee Shipping Company" had ceased trading on 22/11/98 and denied that he had ordered any goods from the Plaintiff for the period between 8/4/1999 and 18/9/2000. Although not specifically stated, the 1st Defendant's defence was that commencing from 22/11/98, the 2nd Defendant had taken over the operation of the 1st Defendant's business and at the relevant time, the Plaintiff was doing business with the 2nd Defendant and not the 1st Defendant. [5]On or about 22/5/2001, the Plaintiff filed an Amended Statement of Claim and added an alternative claim against the 2nd Defendant, however, the Plaintiff maintained that its primary contention was that it was the 1st Defendant who had ordered and received the goods. [6]The 2nd Defendant did not defend the Plaintiff's claim, in fact it filed a document on 31/1/2002, expressly admitted liability to the Plaintiff's claim. Irrespective of the 2nd Defendant's admission, the Plaintiff maintained its claim against the 1st Defendant. Pre-Trial Applications: [7]On the day of trial, Mr. Hingorani, counsel for the Plaintiff, submitted a summons to add Ms. Chau Yau Ping as an additional witness for the Plaintiff. [8]After taking instructions, Mr. Wong, counsel for the 1st Defendant, did not object to Mr. Hingorani's application; however he made two last minute applications of his own. First, Mr. Wong applied to add a newspaper advertisement of Wing Lee Transportation Holdings Limited's ("Wing Lee Holdings") public listing and the prospectus for Wing Lee Holdings' initial public offering into the agreed bundle of documents. Second, Mr. Wong applied to issue a Praecipe for Writ of Subpoena Duces Decum against the 2nd Defendant and adjournment of the trial until the next day. Mr. Wong explained that the 1st Defendant had intended to rely on documents in the possession of the 2nd Defendant for his defence; however, in view of the fact that the 2nd Defendant's admission of liability, it was necessary for the 1st Defendant to issue the subpoena to compel the 2nd Defendant to disclose these documents. [9]Mr. Hingorani objected vigorously to Mr. Wong's applications. The objections were based on the following grounds: First, the Wing Lee Holdings advertisement and prospectus had never been disclosed. Second, the 2nd Defendant had never appeared in any of this proceedings and the fact that until recently, the 1st Defendant was the 2nd Defendant's director and at the time of trial, he remained the 2nd Defendant's largest shareholder, the 1st Defendant must have access to all documents he sought to add, there was no reason for the last minute applications. [10]Mr. Wong stated that the 1st Defendant was no longer a director of the 2nd Defendant and no longer had access to the documents he sought to introduce into evidence. There were 4 types of documents he required from the 2nd Defendant: (1) an employment agreement between Mr. Chan Chun Yip ("Mr. Chan"), one of Plaintiff's witnesses, and the 2nd Defendant. (2) Mr. Chan's Inland Revenue Returns. These 2 documents will show that Mr. Chan was employed by the 2nd Defendant and not by the 1st Defendant. (3) Cheques issued from the 2nd Defendant to the Plaintiff and (4) confirmation letters sent from the 2nd Defendant's auditor asking for confirmation of amounts owed to the Plaintiff. [11]After a brief adjournment for counsels to discuss this matter, Mr. Wong agreed to withdraw the prospectus of Wing Lee Holdings and Mr. Hingorani agreed to allow the newspaper advertisement into the agreed bundle of documents. However, on the issuance of the subpoena to the 2nd Defendant, there was no agreement. Counsels invited me to rule on Mr. Wong's application. [12]In view of the fact that 2 of these documents related directly on the status of the primary witness for the Plaintiff and after Mr. Wong informed me that the documents are in fact available and the trial will only be adjourned till the next morning, I reluctantly granted Mr. Wong's applications. [13]Next morning however, Mr. Hingorani advised me that the Praecipe for Writ of Subpoena Duces Decum was issued against the 2nd Defendant Limited Company and not against one of the officers or directors of the 2nd Defendant. In fact the documents required by Mr. Wong was in the possession of a manager of the 2nd Defendant. When I asked if there had been any resolution passed by the board of directors for this manager to represent the 2nd Defendant in this matter, Mr. Wong informed me that no resolution had ever been passed. In fact both directors of the 2nd Defendant were away from Hong Kong in different places of the world. [14]At that point, I indicated to Mr. Wong that he must make a choice between commencing the trial without these documents and applying for an adjournment with the usual costs consequency attached. Mr. Hingorani stated that he would withdraw all of his objections, including the prospectus, so long as the trial can continue. However, there was still the problem of how could the 2nd Defendant's documents be introduced into evidence. [15]After a short adjournment, Mr. Wong advised me that the 1st Defendant would submit the 2nd Defendant's documents as his documents. Mr. Hingorani did not object and after a day and a half of arguments, the trial finally began. The Claim and the Defence: [16]The Plaintiff's claim was straightforward. It dealt with the 1st Defendant for 25 years and in respect of the relevant transactions of this claim, it continued to deal with the 1st Defendant. [17]Although in his Statement of Defence, the 1st Defendant stated that the 2nd Defendant took over the business of his "Wing Lee Shipping Company" on 22/11/1998, the 1st Defendant's witness statement however, stated that in the middle of 1996, he started to reorganize his business interest in preparation to go public. Towards the end of 1996 the 1st Defendant wanted to incorporate his business but the name "Wing Lee Shipping Limited" was not available, therefore it was on 1/11/1996 that he caused the 2nd Defendant, one of his limited companies, to take over all of the business interest of Wing Lee Shipping Company. [18]On 1/5/1996, the 2nd Defendant applied for registration of branch business under the business name of "Wing Lee Shipping Company". On 1/11/96, his Wing Lee Shipping Company had ceased all business activities. The 1st Defendant had not ordered any goods from the Plaintiff for the period between 8/4/1999 and 18/9/2000. At the relevant time, the Plaintiff was doing business with the 2nd Defendant and not with the 1st Defendant. The Issues: [19]Mr. Wong, in his final submission, suggested that there were 4 issues in this matter: (a) Which party placed the order between 4/1999 and 9/2000? (b) If the 2nd Defendant was found to have placed the order, should the 1st Defendant be liable if he failed to properly inform the Plaintiff before he changed from a sole proprietorship to that of a limited company? (c) In the alternative, did the 1st Defendant have the legal obligations, statutory or otherwise, to inform the Plaintiff? (d) If the answer to (c) is in the affirmative, did the 1st Defendant formally inform the Plaintiff about the change? [20]I am afraid I do not agree with Mr. Wong's assessment of the issues of this case. Mr. Wong's issues presupposed that the 1st Defendant could not have conducted any business activities after he registered a notice of cessation of business with the Business Registration Office of the Inland Revenue Department; however, it might have been illegal to do so, but there are thousands of business activities everyday that involves parties not so registered. No, there was only one issue in this matter: Did the Plaintiff contract with the 1st Defendant or the 2nd Defendant between the period 4/1999 to 9/2000? The answer will depend on whether the Plaintiff had notice of the 1st Defendant's change of business identity from a sole proprietorship to a limited company at the relevant time? The Law: [21]As to whether actual or constructive notice of the change of business identity is required, in Esselte Ltd. v. Wong Hon Cheung and Another HKCSA16/2001 (Unreported), a case where the plaintiff had been dealing with the defendant partnership business for a period of time and the defendants then transferred all of their business interest into a limited company that operated under the same business name as the partnership. The Small Claims Tribunal Adjudicator held that the defendants were not liable for goods delivered after the business transfer, because the plaintiff had constructive notice of the change of identity. It was held that the plaintiff had constructive notice because words to the effect that the business was operated by the new limited company had appeared on the back of the receipts and the front of cheques issued to the plaintiff. [22]On appeal, counsels agreed that constructive notice was not applicable because of section 38(1) of the Partnership Ordinance Cap. 38 and the defendants must prove that there was actual notice of the change of identity before the defendants could escape liability. In reversing the Adjudicator's decision, Pang J. held that the words to the effect that the business was operated by the new limited company appearing on the back of the receipts and the front of cheques issued to the plaintiff did not constitute actual notice. [23]Mr. Wong argued that Esselte Ltd. v. Wong Hon Cheung And Another was a decision based on provisions of the Partnership Ordinance and should not be applied to this case, since the 1st Defendant was a sole proprietorship. [24]I do not agree. In his judgment in Esselte Ltd. v. Wong Hon Cheung And Another, Pang J. quoted Lindey & Banks on Partnership, 17th edition, para. 13-40, and explained the common law origin of section 38 of the Partnership Ordinance as follows:
[25]In Underhill's Principles of the Law of Partnership, 11th edition, the author stated in page 66:
[26]In this regard, I can see no difference between a partnership firm and a sole proprietorship business. The Plaintiff had been dealing with the 1st Defendant for 25 years and it was entitled to assume that there had been no change in business identity, until it received actual notice to the contrary. Findings: [27]In accordance with Pang J.'s judgment in Esselte Ltd. v. Wong Hon Cheung And Another, the cheques from the 2nd Defendant to the Plaintiff and letters from the 2nd Defendant's accountants to the Plaintiff did not constitute actual notice. To avoid liability, the 1st Defendant must show that he had given actual notice to the Plaintiff prior to 4/1999. [28]During the hearing, there emerged 3 incidents that could constitute actual notice to the Plaintiff. I will deal with them separately. Mr. Chan informing the Plaintiff's staff that the defendant business was going public: [29]Mr. Chan worked for the defendant business for 3 separate periods. While he worked in the defendant business, he was the person responsible for ordering most of the goods that was the subject of this dispute. Mr. Wong submitted Mr. Chan's latest employment agreement as evidence that Mr. Chan was employed by the 2nd Defendant. However, Mr. Chan's latest employment agreement was entirely in Chinese, except the letterhead and the employer's chop and the 2nd Defendant's name in English only, appeared in those parts of the employment agreement. [30]Mr. Chan could not read English and stated that he had no idea there had been a change of business identity. He stated that all along he had assumed he was working for the 1st Defendant when he rejoined the business on 14/7/2000. If Mr. Chan, a former employee, could not tell that there had been a change of business identity, how could an outsider like the Plaintiff differentiate the 2nd Defendant from the 1st Defendant, without actual notice of the change. [31]Mr. Chan testified that he had informed the Plaintiff's staffs that the Defendant's business was going public; however, this could not amount to actual notice of the 1st Defendant's change of identity. Simply put, Mr. Chan could not give the Plaintiff notice of the change of identity of the business, because he did not know of such a change himself. [32]As to the veracity of Mr. Chan's testimony, irrespective of his reluctance to discuss the details of the authorization letter issued by the Plaintiff for him to collect a sum of money from the 1st Defendant, I found him to be a truthful witness. Mr. Chan was an independent witness and had no stake in the outcome of this trial. The only hesitation in his testimony related to the details of the authorization letter. This may stem from his desire to protect the true identity of the person who arranged the payment. In any event, the authorization letter was not relevant to whether the 1st Defendant did or did not give actual notice to the Plaintiff on the change of business identity. The 1st Defendant informing Mr. Leung Fuk Tim of the change of business identity: [33]In fact, the 1st Defendant never pleaded that he had given the Plaintiff actual notice to the change of business identity. Even in his witness statement, actual notice was never stated. It was not until Mr. Hingorani's cross-examination that the 1st Defendant first stated he had personally told Mr. Leung Fuk Tim, the retired founder of the Plaintiff's business, that there had been a change of business identity. [34]In his final submission, Mr. Hingorani submitted that because the issue of notice was crucial to the 1st Defendant's case, it was inconceivable that the 1st Defendant's solicitors would not have asked him about whether he had informed anyone in the Plaintiff's organizations of the change of business identity. If the 1st Defendant did inform Mr. Leung Fuk Tim of the change, he would have told his solicitors and it would have been included in his witness's statement. The absence of this vital information in the 1st Defendant's witness statement suggested that the 1st Defendant had made up this part of his testimony. [35]In additional to the omission of the vital information that he had personally informed Mr. Leung Fuk Tim of the change of business identity, my review of the business registration records of the 2nd Defendant revealed that the 2nd Defendant had in fact registered a branch business in the name of "Wing Lee Shipping Company" on 21/5/1993, more than 3 years prior to the date the 1st Defendant had stated in his witness statement. The earlier registration was significant because in paragraphs 5 and 6 of the 1st Defendant's statement he stated:
[36]The 2nd Defendant's registration of the business name "Wing Lee Shipping Company" in May 1993 was completely inconsistent with the 1st Defendant's testimony that he intended to form a limited company in 1996 to take-over all of the business, assets, liabilities and staffs of his Wing Lee Shipping Company. I agree with Mr. Hingorani's assessment of the 1st Defendant's testimony and I found that the 1st Defendant had never informed Mr. Leung Fuk Tim of the change of business identity. The newspaper advertisement: [37]In addition to the above, Mr. Wong also submitted that the Plaintiff appeared as one of the sponsors of an advertisement on a Chinese newspaper congratulating the successful initial public offering of Wing Lee World Transport Holdings Limited, as proof that the Plaintiff had knowledge of the change of business identity. [38]The initial public offering was for "Wing Lee World Transport Holdings Limited" and not "Wing Lee Shipping Company". Knowledge of the initial public offering of "Wing Lee World Transport Holdings Limited" did not and could not be equated to knowledge that Wing Lee Shipping Company had changed its business identity from a sole proprietorship to a limited company. Conclusion: [39]Taking the evidence as a whole and having balanced all of the circumstances of this case, I found that the Plaintiff did not receive the requisite notice that the defendant business had changed its identity from a sole proprietorship to a limited company, and the Plaintiff was entitled to and did contract with the 1st Defendant from 4/1999 to 9/2000. Costs: [40]In view of the conduct of the 1st Defendant in failing to properly preparing his case and the waste of the first day of trial, I have decided that the costs of the first day of trial should be assessed against the 1st Defendant on an indemnity basis. Order:
Representation: Mr. Jeevan Hingorani instructed by Messrs. Deacons for Plaintiff Mr. Peter Wong instructed by Messrs. Henry Wan & Yeung for 1st Defendant The 2nd Defendant E&W Shipping Agencies Limited trading as Wing Lee Shipping Company, in person (absent) |