Guangzhou Textile Ndustry Union Import & Export Corporation v. C.F.L. Enterprises Ltd.

DCCJ 5372/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5372 OF 2004

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BETWEEN

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Coram:  Deputy District Judge Mimmie Chan in Court

Dates of Hearing:  3^rd, 4^th & 12^th April 2006

Date of Handing Down Judgment: 8^th May 2006

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JUDGMENT

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1.This is the Plaintiff’s claim against the Defendant for the sum of US$32,289.70, being the amount it claims is due under a contract for the sale by the Plaintiff to the Defendant of a total of 4,646 pieces of ladies’ silk skirts (“the Goods”) supplied by the Plaintiff to the Defendant.  The Statement of Claim pleads that the contract between the Plaintiff and the Defendant was partly in writing and contained in or evidenced by 3 invoices issued by the Plaintiff and a documentary credit dated 3 February issued in favour of the Plaintiff.  The Plaintiff further pleads that the contract was evidenced partly by the conduct of the parties as particularized in the Statement of Claim., namely by the Plaintiff’s delivery of the Goods for the Defendant’s inspection, the Defendant’s inspection and acceptance of the Goods and the eventual shipment of the Goods to the Defendant’s sub-purchaser in the USA.

2.By way of Defence, the Defendant denies that there was any contract between the Plaintiff and the Defendant, and pleads that the contract for the sale and purchase of the Goods was made between the Defendant and one Parkman Company Limited (“Parkman”) acting through its Merchandising Manager, Cheung Hok Loi George (“Cheung”).  It further pleads that the Goods were manufactured by one De Yu Tai Textile Limited (“De Yu Tai”), and that the Plaintiff was the party to which Parkman requested the Defendant to issue a letter of credit.  The Defendant claims that it received 3 invoices from the Plaintiff, and 3 invoices from De Yu Tai, for the same Goods.  It does not seek to claim that it had made payment to either Parkman or to De Yu Tai for the Goods, but claims that it is not obliged to make payment to the Plaintiff as it was never the contracting party. 

3.In its Reply, the Plaintiff originally pleaded that Cheung was at all material times acting as a go-between in introducing the Defendant to the Plaintiff. By way of amendment of the Reply which I allowed at trial, the Plaintiff also pleaded in the alternative that Cheung was acting as the agent of the Plaintiff in entering into the contract with the Defendant.

4.The issue between the parties is accordingly whether the Plaintiff is entitled to claim from the Defendant the unpaid purchase price of the Goods when it failed to obtain payment under the letter of credit as it was not able to produce the original Inspection Report which the Defendant withheld. This turns on the issue of whether Parkman, in signing the contract with the Defendant, and Cheung, in dealing with the Defendant for sale and purchase of the Goods, were acting as principal, or as agent for the Plaintiff.

5.It is not in dispute that there was no written contract of agency between Cheung or Parkman and the Plaintiff.  Hence, to answer the question of whether Cheung or Parkman was acting as principal or as agent for the Plaintiff in their dealings with the Defendant, it is important to ascertain the intention of the parties, and particularly, the intention of Cheung who was at all material times, according to the Defendant, acting for Parkman, and the intention of Mr. Li Wai Kit (“Mr Li”) who acted for the Plaintiff, when they were dealing with each other and with the Defendant.  Cheung can no longer be located by any of the parties, so his evidence was not forthcoming.  Mr. Li gave evidence in court for the Plaintiff.  The Plaintiff also called as one of its witnesses Mr. Huang Wen Bo (黃文波), the former manager of De Yu Tai.  Mr. Hwang’s evidence assists in shedding light on how the parties dealt with one another at the material time.

6.Mr. Huang’s evidence is, on the whole, consistent with the position that his company, De Yu Tai, had contracted with the Plaintiff for De Yu Tai to carry out manufacturing services for the Plaintiff, using the material supplied by the Plaintiff to produce the Goods.  A contract was signed between the Plaintiff and De Yu Tai on or about 15 January 2004, which was described as a “Finishing Contract (加工裝配合同)”. It provided for the Plaintiff to supply silk materials to De Yu Tai and for De Yu Tai to supply the Plaintiff with the finished product of silk knitted skirts.  Mr. Huang maintained that De Yu Tai had contracted with the Plaintiff, and that Cheung’s role in the entire transaction was that of a middleman (中間人). 

7.The documents which appeared to be inconsistent with the position of De Yu Tai contracting as principal with the Plaintiff and not the Defendant were the invoices which the Defendant claimed were issued by De Yu Tai to the Defendant.  Mr. Huang denied that they were issued by   De Yu Tai.  His evidence was that one Miss Helen Choi (“Helen”) who was a representative of Parkman had assisted De Yu Tai and Mr. Huang to print out various documents in English, using De Yu Tai’s computer.  He claimed that this was because he did not know English, his company had not exported goods outside China before this transaction, and he had let Helen assist him in the production of documents relating to the origin or place of manufacture of the Goods.  He explained that Helen had told him that it was necessary to produce, for this transaction, documents regarding the place of manufacture of the Goods.  Helen brought a disk from Hong Kong, and printed out some documents in English on which she asked Mr. Huang to imprint the chop or seal of De Yu Tai.   Mr. Huang believed these documents which Helen had printed out were those which appeared on pages 80 to 82 of the trial bundle.  These were documents entitled “Multiple Country Declaration”, containing a declaration made by Mr Huang that the Goods described in the documents were exported from China.  They bear the chop of De Yu Tai.  Mr. Huang’s evidence is that in addition to these documents, Helen had asked him to imprint the chop of De Yu Tai on 3 or 4 blank documents, which he did.  Helen explained to Mr. Huang that this was for her to use as a back up just in case she made some typing error on some document relating to the place of manufacture of the Goods.

8.When questioned by counsel for the Defendant as to the permitted use of these blank documents, Mr. Huang’s evidence was that the blank documents would be for use in the export of the Goods as required for the transaction.  This is in fact consistent with the evidence given by the only witness called on behalf of the Defendant, Miss Yau, who said, when she was referred to De Yu Tai’s invoices, that they were for submission to the US customs together with the Multiple Country Declaration made by Mr. Huang to declare that the Goods were exported from China.  When compared with the invoices issued by the Plaintiff, it could be clearly seen that De Yu Tai’s invoices were never processed by the Defendant for payment or payment approval, whilst the Plaintiff’s invoices which were sent to and received by the Defendant were chopped and checked by the different staff members in the Defendant’s shipping, merchandising and accounts departments.  The evidence is all consistent with the fact that the invoices issued in the name of De Yu Tai were all prepared and issued for the export of the goods and for US customs purpose, and that the parties had not intended that these invoices were to be paid by the Defendant.

9.Mr. Huang’s evidence was also to the effect that De Yu Tai, which has since closed down its business, had actually been paid by the Plaintiff for part of the costs of the manufacturing of the Goods.  There was initially some doubt as to whether Mr. Huang was paid personally, or whether De Yu Tai was paid.  Eventually, Mr. Huang’s evidence was that he had received the money on behalf of De Yu Tai.  The Plaintiff had paid for the part of the Goods which had been rejected by the Defendant, and De Yu Tai had delivered these Goods to the Plaintiff.  Because the Plaintiff had not been able to recover the purchase price of the Goods which had been delivered to and accepted by the Plaintiff, Mr. Huang explained that De Yu Tai had not pressed for payment by the Plaintiff.  He said this was not unusual in China.

10.When Mr. Li gave evidence for the Plaintiff, he was adamant that from the start, Cheung had made it clear to him and he was himself clear that Cheung was a “middleman (中間人)”.  If the business Cheung introduced to the Plaintiff was concluded, Cheung would be paid a commission.  Cheung was, to Mr. Li, the man who brought the parties together.  When questioned further by me as to what he understood this role of “middleman” to mean, he explained that Cheung would introduce the business or transaction to his company; his company would sell the goods to the client Cheung introduced; and the agreement between Mr. Li and Cheung was that if the transaction was concluded, and Mr. Li’s company received due payment thereunder, Cheung would be entitled to a commission of 30 % of the profit made by Mr. Li’s company.  According to Mr. Li’s understanding, as a layman, Cheung did not have authority to “represent” Mr. Li’s company.  His duty was to reflect and forward the respective demands of the Plaintiff and the Defendant to the other.  This was his understanding from a layman’s perspective.  However, whether Cheung could “represent” in the sense of binding Mr. Li’s company in his negotiations with the Defendant were he truly an agent would be a question of law.

11.To summarise Mr. Li’s evidence on the role played by Cheung, the Plaintiff, and De Yu Tai respectively, his case is that Cheung had told him that he would be able to introduce a deal or business  to Mr. Li’s company for the supply of finished garments.  Mr. Li had asked Cheung if the manufacturing would be arranged by the Plaintiff or whether the client in question would designate the manufacturer.  To this, Mr. Li said that Cheung had told him that the manufacturer would be designated by the client, and this turned out ultimately to be De Yu Tai.  According to Mr. Li, he had also contacted Mr. Huang of De Yu Tai to ascertain if De Yu Tai would be able to carry out the manufacturing required.  This was before the Plaintiff signed the Finishing Contract with De Yu Tai on 15 January 2004.

12.In any event, Mr. Li’s evidence is that he had always regarded the transaction of sale and purchase as one between the Plaintiff selling to the Defendant as buyer.  He struck me as credible in this regard.  Although he had at one stage early on in the negotiations asked to meet with the Defendant directly and to have a contract with the Defendant directly, he was later satisfied with just having the letter of credit being issued to the Plaintiff, with the Plaintiff being named as beneficiary.  In relation to De Yu Tai, Mr. Li’s evidence is that De Ye Tai was the party with which the Plaintiff had contracted for the manufacture of the Goods using the materials supplied by the Plaintiff, and that the Plaintiff was to pay the manufacturing costs to De Yu Tai.  In Mr. Li’s own words, the manufacturing was delegated or entrusted by the Plaintiff to De Yu Tai, the finished Goods were to be delivered by De Yu Tai to the Plaintiff, and the Plaintiff was to sell the Goods as vendor to the Defendant as buyer.

13.According to Mr. Li, although the documents relating to the transaction with the Defendant, such as the Final Inspection Report and the Multiple Country Declaration for the export of the Goods, specified Parkman and/or De Yu Tai as the manufacturer or exporter of the Goods, Mr. Li was not concerned.  In relation to the Final Inspection Report, he explained that it was correct that the manufacturer of the Goods was De Yu Tai, and the inspection had taken place at De Yu Tai’s factory, such that there was nothing wrong in naming De Yu Tai in this document instead of the Plaintiff.  Mr. Li’s explanation is entirely plausible.  The Multiple Country Declaration related to the place of manufacture or processing of the Goods.  It would not be unusual for De Yu Tai, being the manufacturer, to make that declaration.  I do not therefore regard it as very significant that the “Manufacturer” or “Vendor” or “Exporter” is described or named in these documents as either De Yu Tai or Parkman.  In any event, if Parkman or Cheung purportedly acting on behalf of Parkman were in law the agent of the Plaintiff, then the Defendant is liable to Parkman’s or Cheung’s principal, the Plaintiff.  These documents at most show that in the Defendant’s mind, it regarded Parkman as the vendor and its contracting party.  If in law, Parkman or Cheung is an agent for a disclosed or undisclosed principal, then the Defendant is liable to Parkman’s principal.

14.Miss Yau, who was the former General Merchandising Manager of the Defendant, gave evidence on behalf of the Defendant.  She claimed that the Defendant had throughout contracted with Parkman, and because Parkman owed the Defendant a sum of $700,000 which the Defendant regarded as damages payable by Parkman to the Defendant under some other contract and transaction entered into between the Defendant and Parkman, the Defendant refused to pay the outstanding balance of the price of the Goods to Parkman.

15.Although Miss Yau claimed that she had followed the orders placed by the Defendant’s US customer and was well aware of this customer’s needs and requirements, she admitted that the daily dealings between the Defendant and Parkman in relation to the transaction involving the Plaintiff and De Yu Tai were taken care of by one Michael Chan who worked under her and reported to her.  She said that Michael Chan would have to discuss important matters with her.  When asked what important matters Michael Chan discussed with her on this transaction, Miss Yau explained that these would be matters like which manufacturer to use.  The Defendant knew that payment under the letter of credit issued for the Goods under this transaction was to the Plaintiff as beneficiary.  She said this was at Cheung’s request, but she never asked Cheung why this was to be so.  Miss Yau said this was not uncommon for transactions involving Mainland companies, as not all Mainland companies would have export rights.  She said it was only when the time came for the letter of credit to be issued that she came to know of the Plaintiff’s existence.

16.Miss Yau was firm in her evidence that the Defendant had only signed a contract for sale and purchase of the Goods with Parkman.  The Defendant’s counsel referred to the Guarantee that was signed by Cheung on behalf of Parkman as evidence of the fact that Parkman was the seller of the Goods.  Miss Yau said that the Defendant had asked for this to be issued by Parkman as the Defendant’s contract was with Parkman as the supplier.  I do not regard the Guarantee as very significant evidence of which party was the contracting party as the seller or supplier of the Goods.  Even if the Plaintiff was the seller, or the Defendant had truly regarded the Plaintiff at the material time as the seller, it was nevertheless still open to the Defendant to ask Parkman to guarantee the quality of the Goods or to seek Parkman as guarantor to be responsible for any claims that may be made by the ultimate purchaser in the United States due to the alleged defects in the Goods.  

17.The important issue of whether there was an agency agreement between the Plaintiff acting through Mr. Li and Cheung has to be decided on such evidence as outlined above.  Counsel for the Defendant has referenced me to the following passage in the judgment of Chu, J. in First Good International Ltd v. Shum Kin & Ors., unreported, HCA 614 of 2004, 9th May 2005:

“What is critical in establishing the principal and agent relationship is the consent of the principal and agent.  The parties will be held to have consented if they have agreed to what amounts in law to such a relationship, even if they do not recognise it and even if they have professed to disclaim it.  The consent must have been given by each of them, either expressly or by implication from their words and conduct.”  

18.Although Mr. Li disclaimed the fact that Cheung had the authority to represent the Plaintiff, he had at all material times regarded Cheung as the “middleman” and had agreed to his acting as such.  His understanding of the role of the middleman was that Cheung would introduce a buyer to the Plaintiff, i.e. bring the relevant parties together, and would reflect and forward the respective demands of one party to the other.  It is akin to the position of a real estate broker or agent and the role of such a broker in transactions commonly taking place in Hong Kong between a seller and a buyer of real property.  It is common that the seller and the buyer would appoint or act through one estate agent, who acts as a go-between or a middleman, introducing prospective buyers to owners of property, negotiating the price and the terms and relaying the demands and terms of one party to the other.  There is no doubt that the real parties to the agreement for sale and purchase are the owner of the property and the buyer, and depending on the agreement negotiated by the parties, both or one of the seller and the buyer would pay a commission to the agent.  Obviously, in the illustration of the real estate agent and the parties to such a transaction for sale and purchase, each of the seller and the buyer would know that the agent is acting for a principal.  They regard the agent commonly as the middleman.  I therefore take from Mr. Li’s evidence and his description of his understanding of the role of Cheung, coupled with his conduct in dealing with Cheung and the Defendant as he did at the material time, as illustrating his act of and consent to appointing Cheung as the Plaintiff’s agent.  Looking at the conduct of Cheung in the dealings he had with the Plaintiff, De Yu Tai and the Defendant, I can also infer and objectively determine that Cheung had consented to acting as agent for the Plaintiff.  Mr. Li permitted Cheung to negotiate with the Defendant for the Plaintiff, Cheung conducted such negotiations with the Defendant, Cheung and Mr. Li agreed on the payment of a commission to Cheung.

19.Having thus found that Mr. Li (acting for the Plaintiff) and Cheung had both consented to the state of the relationship which existed at the material time, I find that in law, there was a principal and agent relationship between them.  Cheung, as agent, was authorised to conclude the agreement for sale of the Goods to the Defendant at the price and on the terms as set out in paragraph 3 of the statement of claim and as contained in the contract Cheung signed with the Defendant in January 2004.  These terms include payment of the price by a letter of credit to be established in favour of the Plaintiff.

20.The evidence is that the written contract for sale and purchase made between the Defendant and Parkman was signed on 27 January 2004.  At that time, Parkman was already struck off the companies register.  It was so struck off on 9 August 1996.  The contract was signed by Cheung, “For and on behalf of ” Parkman, a company which did not exist then.  I accept the Plaintiff’s submission in this regard that in law, there is no valid written contract between the Defendant and Parkman.   The document was a nullity. At most, it served as evidence of the oral agreement which the Defendant pleads in paragraph 3 of its Defence that it had made with Cheung that the Defendant would purchase the Goods to be manufactured, and that a letter of credit would be issued in favour of the Plaintiff by way of payment of the price of the Goods to be supplied.

21.Although the Defendant may have thought that Cheung was acting for Parkman, Parkman was a company which did not exist.  The Defendant was aware of the existence of the Plaintiff, as the letter of credit was agreed to be issued in favour of the Plaintiff.  Whether the Defendant regarded the Plaintiff then as Cheung’s true and disclosed principal, or just as a “payment conduit” as it claims, I have found that Cheung was in law acting as the Plaintiff’s agent.  Accordingly, I find that the Plaintiff as Cheung’s principal is entitled to sue for the recovery of the outstanding price of the Goods due under the agreement for sale and purchase which the Defendant made with Cheung.

22.The Defendant is to pay to the Plaintiff the sum of US$32,289.70 together with interest thereon at the judgment rate from the date of the Writ (13^th October 2004) to the date of payment.  The Defendant shall also pay costs of this action to the Plaintiff, to be taxed if not agreed, with certificate for counsel.  This is an order nisi that shall become absolute after 14 days from the date of handing down of the judgment.

Mr. Roland Lau instructed by M/s C.Y. Chan & Co. for the Plaintiff.

Mr. Lawrence Cheung instructed by M/s Andrew Lam & Co. for the Defendant.