Evergreen Knitwears Ltd v. Harvest Knitting Co Ltd
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DCCJ5113/2005 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 5113 OF 2005 ------------------------------ BETWEEN
------------------------------ Coram : Deputy District Judge K. Lo in Court Dates of Hearing : 28th to 31st August 2007 and 3rd September 2007 Date of Handing Down Judgment : 29th January 2008 Judgment Background 1.This is a claim by the Plaintiff for monies due and owing from contracts under which, services were rendered and materials provided to the Defendant between August 2004 to December 2004 (“the relevant period”). 2.Initially, the Plaintiff claimed $401,537.21, interest thereon and costs. On 23 December 2005, partial judgment in sum of $201,527.30 was entered against the Defendant, the said judgment was subsequently satisfied. 3.Although the Judgment Sum was $201,527.30, parties had somehow treated the same as if it were $201,537.21. The Plaintiff now claims the balance sum of $200,000, interest and costs. Issues 4.There are 2 issues before the Court:-
(a) Were these contracts made between the Plaintiff and the Defendant? The Defendant’s case 5.According to the Yiu Hon Kit (“Yiu”), director of the Defendant, these contracts were made between the Defendant and Wing Hung (“WH”) a company with limited liability in Mainland China, carrying on manufacturing knitwear business. 6.Yiu said he was introduced to a Mr. Cheng Chun Keung (“Cheng”) who represented himself to be working for WH and later the Plaintiff placed order with WH during the relevant period. 7.He said purchase orders were issued to WH and it was WH that performed the contracts. He said further that although payments for these contracts were made at the request of Cheng, in favour of the Plaintiff, the Defendant only considered the Plaintiff as agent for WH in receiving these payments. 8.Yiu also said the statement of accounts were all along issued by the Defendant for the attention of WH. 9.He said the agreed payment terms were 45 days after delivery of goods. He also said the delivery of the goods under these contracts took place between 17 October 2004 and June 2005. 10.Yiu said the Defendant never had any business relationship with the Plaintiff. He denied these contracts were made with the Plaintiff with purchase orders issued in favour of WH on instructions of Cheng, acting on behalf of the Plaintiff. 11.He also said the discussion as to how much monies in respect of these contracts was outstanding also took place between WH and the Defendant in or about June 2005. 12.Yiu said all along, he only contacted Cheng for matters in connection with these contracts and had only met Mr. Lam Him Yin (“Mr. Lam”) of the Plaintiff once during a meeting when the Defendant confirmed the orders. 13.Yiu said he knew Mr.Lam was the boss of WH. 14.In his witness statement dated 9 March 2007, Yiu said the Defendant first came across the name of the Plaintiff when it was requested by Cheng of WH to settle the payments for these contracts in favour of the Plaintiff on or about 1 December 2004. 15.Yiu said in order to settle the outstanding payments due to WH in the sum of $201,527.21, they had, in their Defence, admitted liability of the like sum and did pay the same to WH via the Plaintiff. Earlier the Defendant had mentioned the figure of $201,527.30, upon which interlocutory judgment was entered. The Plaintiff’s case 16.Mr. Lam, director of the Plaintiff said he was also the legal representative of WH at all material times. He said WH was the PRC factory for the Plaintiff and renders manufacturing services to the Plaintiff so that the latter could meet the orders of its clients. 17.Mr. Lam said Cheng was in fact a sales representative of the Plaintiff and that Cheng directly reported to him. 18.He said Cheng had resigned from the Plaintiff in year 2006 and despite their best efforts, they could not secure him to come forward and testify in this case. 19.Mr. Lam said further that the accounts clerk, Ms. Lau of the Plaintiff was also the accounts clerk of WH. 20.Mr. Lam said in or about August 2004, Cheng told him that Yiu would place orders with the Plaintiff in respect of knitwear products. Cheng also said he had told Yiu that Mr. Lam was the boss of the Plaintiff and that he had a factory in Mainland that could do the manufacturing. 21.Mr. Lam said later Cheng told him that the Defendant would be placing purchase orders with the Plaintiff. Mr. Lam said he asked Cheng to tell the Defendant to issue orders directly with WH as to avoid administrative inconvenience and delay as the Plaintiff e.g. on receipt of the purchase order, would need to issue order to WH and delay would result. 22.Mr. Lam said he was certain that Cheng had passed this message to Yiu. 23.Mr. Lam said the contracts were all along made between the Plaintiff and the Defendant and they were performed by WH under the Plaintiff’s instructions. 24.Mr. Lam said the Plaintiff was not the agent of WH, as alleged by the Defendant. 25.He further Mr. Lam said that when the Defence was filed by the Defendant, they were represented by solicitors. Mr. Lam had in the Defence admitted having placed purchase orders with the Plaintiff. The Defendant had also confirmed they owed the Plaintiff the sum of $201,527.30 as the unpaid balance of these contracts. 26.Mr. Lam said as a result of such admission, partial judgment was entered against the Defendant in the said sum of $201,527.30 and the Defendant had since satisfied the said judgment. 27.Mr. Lam said prior to commencement of the proceedings, the Defendant had already paid in total $800,000 to the Plaintiff, in settlement of part of the contract price. 28.He reiterated that all along, the Defendant knew that they were contracting with the Plaintiff. Analysis 29.In this case, it is not in dispute that Yiu at all times knew Cheng was working under Mr. Lam. 30.Yiu said neither Mr. Lam nor Cheng told him that WH was the agent of the Plaintiff in receiving the orders. The same was disputed by Mr. Lam who believed Cheng had told Yiu of the same. 31.In Court, Yiu admitted that when Cheng introduced him to Mr. Lam, Mr. Lam did give a name card to Yiu bearing only the company name of the Plaintiff. It follows therefore that the evidence of Yiu saying that he only learned of the Plaintiff when Cheng asked them to settle the contract sums in favour of the Plaintiff was not true. 32.It also meant that Defendant should know Cheng and Mr. Lam were then dealing with him as staff and officers of the Plaintiff. Moreover, during this meeting, terms of the contracts such as credit period was confirmed by Mr. Lam and subsequent contracts were adopted in all. 33.Cheng had left employment of the Plaintiff and the Plaintiff did not manage to secure him to testify in Court despite all efforts. This Court would not draw adverse inference against the Plaintiff . 34.According to Lee Ka Man, witness for the Defendant, when his company could not fulfill the orders of the Defendant, he introduced Yiu of the Defendant to the Plaintiff’s factory in the Mainland, i.e. WH and subsequently, the Defendant placed orders with WH. 35.Although the purchase orders placed by the Defendnat were made to WH, the payments paid by the Defendant in respect of these contracts were all made in favour of the Plaintiff. 36.Although Ms. Lau, the accounts clerk of the Plaintiff did respond to the accounting report of the Defendant apparently in capacity of accounts clerk of WH, it should be noted that in fact, she is the accounts clerk of both the Plaintiff and WH and as the said accounting reports were addressed to WH, she had not cared to clarify the same. It is understandable, bearing in mind that WH is just the manufacturing arm of the Plaintiff. 37.The Defence filed by the Defendant, when legally represented, also supported the Plaintiff’s contention that the Defendant well knew and acknowledged these contracts were made between the Plaintiff and the Defendant. 38.This piece of evidence bears substantial weight in the assessment exercise of the Court. 39.On evidence before this Court, this Court is satisfied that the Plaintiff had proved that these contracts were made between the Plaintiff and the Defendant. The Plaintiff therefore had the locus to sue the Defendant on the contracts. (b) Was the sum of $200,000 paid by the Defendant by way of a postdated cheque dated 1 January 2005 in part payment of the contract sum or in repayment of a loan borrowed by the Defendant? The Plaintiff’s case 40.According to the witness statement of Mr. Lam, on or about 21 October 2004, Cheng received a call from Yiu at the time when Mr. Lam was beside Cheng. Yiu told Cheng that the Defendant had placed orders of knitwear with Huitai (owner of whom was Lee Ka Man) which had subcontracted the Defendant’s orders to another subcontractor. Yiu also told Cheng that said as Huitai was unable to pay the subcontractor, the latter refused to release the Defendant’s knitwear to Huitai. This would lead to failure of the Defendant to fulfill his contracts with clients. Yiu asked Cheng if Plaintiff could lend ¥200,000 to Huitai. 41.As Huitai was then of poor financial position and as the Plaintiff had no dealings with Huitai, Mr. Lam refused to lend the same to Huitai but Mr. Lam told Cheng that he would try to see if there were other ways to solve the problem. 42.Later Mr. Lam negotiated with Ms. Lam Kit Ling of PRC Wing Lung, the latter agreed to lend money to the Defendant on condition that the Defendant would repay by 1 January 2005 in Hong Kong, the repayment of which was by way of a postdated cheque of 1 January 2005 in sum of $200,000 lodged with them. 43.Mr. Lam said he informed Cheng of the same and he gathered Cheng did tell Yiu of the same as he was later informed by Cheng that Yiu had accepted the said proposal of PRC Wing Lung. 44.Mr. Lam said he understood the said postdated cheque of the Defendant payable to Wing Lung in sum of $200,000 was issued under such circumstances. The payment was therefore a repayment of the loan to PRC Wing Lung via Hong Kong Wing Lung bank account. 45.Mr. Lam said the receipt issued by the Defendant in favour of Wing Lung in sum of HK$200,000 clearly corroborated what they said. 46.Mr. Lam further said that on 14 June 2005 when Ms. Lau, the accounts clerk of the Plaintiff received the accounting report of the Defendant stating the said $200,000 payment was for partial settlement of the contract sums, Ms. Lau at once made a note on the accounting report that the same was inaccurate and faxed the same back to the Defendant. She also followed up with Yiu by way of telephone calls but Yiu did not respond despite Plaintiff’s enquiry. 47.On 7 July 2005, Ms. Lau on instructions of Mr. Lam issued letter to the Defendant and reminded them of the nature of payment of the $200,000. Following that, Ms. Lau again followed up on the matter with Yiu but in vain as the Defendant again did not respond positively to the enquiries. 48.Again, Mr. Lam instructed Ms. Lau to issue a demand letter to the Defendant on 21 July 2005 urging for settlement of outstanding sum. The Defendant failed to respond and/or settle. 49.Mr. Lam said further that subsequent to the commencement of the present action, Yiu did ring Ms. Lau that he would like to settle the outstanding amount by instalments (with some reduction). Yiu at the time treated the $200,000 as still outstanding. The said proposal was refused by Mr. Lam. 50.Mr. Lam said Yiu and/or the Defendant then did not dispute the Plaintiff being a contracting party to these contracts. 51.Mr. Lam said it was only on 20 September 2005 that the Defendant said the $200,000 loan was advanced to Huitai and that the Defendant was only a witness to the loan. 52.Mr. Lam said the Plaintiff had never asked the Defendant to pay any contract sum to Wing Lung. 53.Ms. Lau in Court confirmed the evidence of Mr. Lam so long as the same related to her. 54.In cross-examination, she denied Yiu having mentioned to her, when making proposal on the phone to repay the outstanding monies (including the $200,000) by instalments, that he was doing so for Huitai. 55.In fact, the outstanding monies mentioned during the telephone conversation according to Ms. Lau included the $201,537.21 and the said loan of $200,000. 56.In respect of the receipt of the postdated cheque of $200,000 issued by the Defendant in favour of Wing Lung, Mr. Lam said he received from the Defendant fax copy of the cheque and the wordings “Acknowledged the receipt of the cheque above” Mr. Lam said as there was no one in the office, he acknowledged receipt of the cheque on behalf of Wing Lung by signing his name and stamped the chop of Wing Lung on the fax. He then faxed the same back to the Defendant. 57.As for the other wordings “the sum could be deducted from Wing Hung’s contract price”, Mr.Lam said he did not see these words then and he also could not recognize whose handwriting it was. He said he did not recognize them as Cheng’s handwriting. 58.Ms. Lau said although she issued letter dated 7 July 2005 to the Defendant, the same only concerned the negotiation of total outstanding sum. Ms. Lau said she simply wanted to perform accounting reconciliation with the Defendant even though some of the matters referred to in the letter was relevant to the matters raised in the meeting. 59.Ms. Lau also said for the purpose of account reconciliation, in her letter dated 2 July 2005 she had included there both the loan and the aforesaid cheque payment by the Defendant in sum of $200,000. The Defendant’s case 60.Yiu said the loan of ¥200,000 was made by WH as a lender to Huitai as the borrower and the Defendant was just a witness to the loan. 61.He said at the time of loan, Cheng representing WH insisted as a precondition to the advance of the loan , that the Defendant made a cheque deposit of $200,000 for the goods he ordered, delivery of which would soon take place. He said as it was an agreed term that he had 45 days credit after delivery, he therefore drew a postdated cheque, initially for 15 January 2005 and later amended to 1 January 2005, at request of Cheng. 62.He said, at the directions of Cheng, he made the postdated cheque payable to Wing Lung. 63.He said further that initially he was told that the loan amount would be paid into his account as Lee of Huitai said he had no bank account for WH to deposit the loan. Yiu said he therefore prepared a receipt dated 21 October 2004 for the said sum in favour of Wing Lung and put it on the desk of Ms. Lee, an accounts staff of the Defendant. 64.He said later in the day, Cheng and Lee of Huitai came to his office and discussed about the loan. 65.Yiu said he also handed the postdated cheque to Cheng who signed on the paper with the cheque copy, affixed the Wing Lung chop and signified it was the deposit payment for WH purchase order and that the payment would be used for settlement of WH orders. 66.Yiu said later he then knew Lee had received the loan directly from Cheng, without using the bank account of the Defendant. Yiu said he told his accounts clerk Ms. Lee of the same who confirmed to him that she would not release the said receipt. 67.Yiu said the Defendant never received the RMB 200,000 loan. 68.Yiu said all along in the accounting reports issued by the Defendant were addressed to WH, the Defendant had treated the $200,000 as payment by the Defendant to WH for settlement of the contract sums. He said the Plaintiff did not complain then, Yiu said it was only later when Lee of Huitai was unable to repay the loan that Cheng asked the Defendant to repay the loan which Yiu finds unreasonable. 69.Yiu said it was only since 7 July 2005 that it was alleged by WH that the $200,000 was for repayment of the loan to Wing Lung by the Defendant. Yiu said the Defendant and Wing Lung did not have any dealings. 70.Yiu said later when Cheng and Ms. Lau visited his office, Cheng showed him the receipt issued by the Defendant in respect of the loan. Yiu said he was shocked why Cheng had such document as the same was never released. Yiu said Cheng must have taken the receipt from the desk of Ms. Lee and had kept it for the purpose of asking the Defendant to repay the loan of Huitai. 71.Yiu said during this meeting, he denied the loan and told Cheng that the Defendant never received the loan and that the Defendant’s cheque of $200,000 was only used as deposit for the contract sums. He also asked the receipt be returned to the Defendant as the same was made under a mistake which Ms. Lau refused. 72.Yiu also said later he talked to Ms. Lau on phone intending to settle the sum o f $201,537.21 (according to paragraph 24 of his witness statement)in one month’s time and as he is afraid of Lee of Huitai, he asked Ms. Lau if Lee could repay the $200,000 loan by instalments. 73.Lee of Huitai said in his witness statement 20 April 2007 that he intended to borrow ¥200,000 from the Plaintiff but Cheng said that as Huitai had financial problems, the Plaintiff needed guarantee from the Defendant and requested that the Defendant issued a postdated cheque in sum of $200,000 specifying that the same would later be used as deposit for subsequent purchase orders. 74.He said that Yiu issued the postdated cheque of $200,000 on the spot and tendered the same to Cheng but as Cheng said he did not have the Plaintiff’s chop, he could not sign receipt for the postdated cheque and could not lend the $200,000 then. 75.Lee said as he needed the money urgently, he asked Yiu to take the cheque to the Plaintiff’s office so that they could acknowledge receipt by chopping. Cheng agreed that Lee could send someone the next day to Dongguan office of Wing Lung to get the ¥200,000 loan but ¥7000 would be deducted as interest. 76.Lee said his staff did get the loan the next day as agreed. 77.Lee said the loan was actually made between the Plaintiff and Huitai. 78.Ms. Lee, the accounts clerk of the Defendant testified and said at request of Yiu, she had prepared the receipt for $200,000. Later, she know that in fact, the $200,000 received would be for onward forwarding to Huitai and therefore the Defendant should not issue the receipt for the same. 79.She said she had placed the receipt, then already prepared by her, at a conspicuous place on her desktop. 80.She said Yiu on hearing her advice asked her not torelease the receipt to anyone. 81.Ms. Lee said Cheng said as Huitai had financial problem, if the Defendant wanted the Plaintiff to lend the $200,000 to Huitai, the Defendant needed to issue a postdated cheque in the like sum of $200,000, the same to be used as deposit for subsequent orders. 82.She said later the receipt went missing. Yiu also told her he did not give it to anyone. 83.She said the Defendant did not borrow from the Plaintiff. Analysis 84.This Court finds the circumstances alleged by the Defendant under which the postdated cheque of $200,000 was issued, mislaid and lost unbelievable, contrary to any common sense or logic and highly improbable. 85.Why would Cheng insist the Defendant issue a postdated cheque of $200,000 as deposit for further purchase order, as a precondition to the granting of the loan of similar amount to Huitai? 86.Even on evidence of Yiu and Lee of Huitai, Cheng imposed the condition in light of the financial problem of Huitai. 87.Clearly, the lender was only willing to lend by reference to the credit of the Defendant, rather than that of Huitai. 88.Further, it is an agreed term that the Defendant was entitled to 45 days credit after delivery. Why would Cheng suddenly and so coincidentally ask for deposit for future orders from the Defendant? Why would it be for the like amount of $200,000? Is it pure coincidence? 89.I also accept the evidence of Mr. Lam that actually the lender was Wing Lung and that they only agreed to lend money to the Defendant, not to Huitai. 90.In fact, although the loan money was received by Huitai for paying its subcontractor, the Defendant did not dispute the evidence of Mr. Lam in Court, that the Defendant would in turn get its goods from Huitai to satisfy its contracts with its clients, as subcontractor of Huitai would release the goods (which belonged to the Defendant) upon payment. It is a good reason for the Defendant in the circumstances to borrow the money for the use of Huitai. 91.In fact, Lee of Huitai in his witness statement says that the Plaintiff requires the Defendant as the guarantor of the loan. In Court, however, Lee said the word “guarantee” shall be read as “deposit”. Clearly the 2 words denote something entirely different and would not be mixed up. His evidence is inconsistent and unreliable. The postdated cheque was dated 1 January 2005, exactly the same date as what Mr.Lam alleged was the agreed repayment date of the loan from Wing Lung to the Defendant. Was it mere coincidence? 92.Lee also confirmed that his staff did get the loan money from Wing Lung shop. 93.Again, is it a pure coincidence that Cheng asked the Defendant to issue the postdated cheque in favour of Wing Lung? 94.Further, why would the Defendant issue the receipt in favour of Wing Lung, unless the Defendant knew the loan come from Wing Lung? 95.Further, though Ms. Lee and Lee both said the postdated cheque was said to be used as deposit for future purchase orders, it is not disputed that the Defendant was actually entitled to 45 days credit after delivery of goods and there was no need for deposit for purchase orders. 96.Secondly, the evidence of Ms. Lee as to how she dealt with the receipt issued by the Defendant is totally unbelievable. If she knew that the receipt was prepared under a mistake, as an experienced accounts clerk, she could have at once cancelled the same. Why could she react by placing the same at a conspicuous place on her desktop as she alleged. Her explanation that as the receipt was not complete, i.e. that the cheque no. was not yet filled in, the same was not really an important document is not accepted. 97.This Court accepts the explanation of Ms. Lau that as an accounts clerk both of WH and the Plaintiff, she had put the loan figure and the repayment of loan of $200,000 in the same letter for the sole purpose of accounts reconciliation. 98.Yiu’s evidence that he was just a witness to the loan is again not accepted. What actually did he witness? There was no loan agreement signed between the lender and the borrower and he did not witness the actual advance of the loan. Yiu did not dispute 1 July 2005 being the repayment date of the loan, as said by Mr. Lam. 99.Although it was alleged by the Defendant that the handwriting on the receipt of the postdated cheque payable to Wing Lung underneath the signature and chop, i.e. that the money was for the payment of goods was written by Cheng, it is strange that Cheng did not sign nor did he affix any chop of WH after he signed the same, apparently on behalf of WH. This Court does not accept the allegation of Yiu, that the handwriting belonged to Cheng. 100.It is observed by this Court, as submitted by counsel for the Plaintiff that the evidence of Yiu and Ms. Lee in Court was inconsistent with what they said in their witness statements e.g. paragraph 11 of Yiu’s statement stated that the Defendant was required to issue a deposit prior to first delivery of goods on 27 October 2004 and since the Defendant had a credit period of 45 days, WH allowed the Defendant to pay by way of postdated cheque. 101.In Court, Yiu said the cheque was postdated to 1 January 2005 because he expected the last delivery of goods would take place by end of November 2004 and therefore coupled with 45 days credit, he initially issued the cheque and postdated it to 15 January 2005 and that only on request by Cheng he had amended the date to 1 January 2005. 102.Yiu however failed to explain why the cheque amount happened to be $200,000, same amount as the loan. 103.Yiu in paragraph 15 of his witness statement said that on 21 October 2004, he gave Cheng the postdated cheque of $200,000 and Cheng applied the chop of Wing Lung and signed on the cheque copy as acknowledgment of receipt of the same and below his signature, he further made handwritten note indicating that the payment could be deducted from the monies relating to the contracts. 104.In Court, however he said he faxed the cheque copy to Cheng for acknowledgement and he received to same by fax, signed and chopped with Wing Lung. He said later, he brought the same to Cheng and Cheng wrote on it indicating the payment would be deducted from WH orders payments. If this is so, why did he not ask Cheng to sign after he made such an additional statement? 105.Further, Yiu said Cheng did not accept the postdated cheque for the Defendant because he did not have the chop to acknowledge receipt of the same. If Cheng was indeed so careful, why would he write such an additional statement without signing and chopping. Does this additional statement not have the same effect of committing WH? 106.Yiu said all along, the Defendant admitted liability to pay the sum of $201,527.30 but the same remained unpaid because Cheng/WH did not go to the Defendant’s office to collect the same. His explanation is ridiculous. The Defendant had failed to pay the same prior to judgment entered against them despite there were previously oral demands, demands letters to them before action and issuance of the writ in this action. 107.Yiu said when the knew Cheng had the ‘lost’ receipt, he was surprised and when he asked Cheng for its return, Cheng refused. Why would Yiu not report the same to Police, if the same was really stolen from them? 108.Also why would the Plaintiff ‘steal’ the same? Did they do so in anticipation of the Huitai not repaying the loan? 109.Strangely, Lee of Huitai did not say a word about WH/Wing Lung chasing them for repayment of loan. 110.Since it had all along been the Plaintiff’s case that the Defendant had settled $800,000 towards the contract sums and accordingly this Court accepts the explanation of the Plaintiff that the $200,000 payment by the Defendant dated ‘7th January 2005’in the letter dated 10th August 2005 from the Plaintiff’s Solicitors to the Defendant should actually be referring to another $200,000 payment by the Defendant dated ‘1st December 2004’, which parties agree to be payment towards the contract sums. Had the Plaintiff been referring to this subject $200,000 payment, then the total payments by the Defendant towards the contract sums should be $1,000,000 instead. 111.This Court does not find Yiu or any of the Defendant’s witness reliable. Their evidence are full of contradictions and devoid of commercial sense. 112.This Court finds the payment by the Defendant of $200,000 to Wing Lung totally unrelated to the contract sums due from the Defendant to the Plaintiff regarding the orders in question. The payment was made for the repayment of the loan advanced by Wing Lung to the Defendant in circumstances as stated by Mr. Lam of the Plaintiff. 113.In the circumstances, I find the Defendant still indebted to the Plaintiff the sum of $200,000 and accordingly, I order that:-
114.I also make an order nisi that the Defendant shall pay the Plaintiff costs of this action (including all costs reserved, if any), the same to be taxed if not agreed, with certificate for Counsel. The same is to be made absolute on the expiration of 14 days from the date of handing down of the judgment.
Representation: Mr. Dennis Sit, instructed by Messrs. Angus Tse, Yuen & To for the Plaintiff Mr. Mr. Kwan Tong Lee, instructed by Messrs. Chak & Associates for the Defendant. |