Yick Fung Plastic Industrial Ltd v. Universal Sheen Group Ltd (in Liquidation)

DCCJ 5145/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5145 OF 2007

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BETWEEN

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DCCJ 5146/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5146 OF 2007

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BETWEEN

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Coram: His Hon Judge Leung in chambers (open to public)

Date of hearing: 8 May 2009

Date of judgment: 2 July 2009

DECISION

1.Yick Fung (the Plaintiff in DCCJ 5145/2007) and Globalink (the Plaintiff in DCCJ 5146/2007) obtained default judgments respectively against Universal Sheen (the Defendant in both actions).  Universal Sheen, now in liquidation, applies to have the judgments set aside.

2.Various other summonses were before this court.  Except for the substantive applications, the rest, including that for the applications in both cases to be heard together, were not in dispute.

3.In DCCJ 5145/2007, Yick Fung claims against Universal Sheen for outstanding balance of the cost of goods sold and delivered in the sum of HK$212,771.74.

4.In DCCJ 5146/2007, Globalink claims against Universal Sheen for advancements/settlements on behalf of Universal Sheen at its request in the total sum of HK$400,693.10.

5.Default judgments in both actions were entered against Universal Sheen on 17 December 2007.

BACKGROUND

6.Universal Sheen was a manufacturer and supplier of components for use in shop display.  Chow was at all material times a director in charge of the operation of Universal Sheen.  At the material time, the other shareholder and director was Lui.

7.Chow had a factory in Dongguan, the Mainland 東莞市長安宇軒工藝制品廠.  The registered owner of the factory was Mok who was a mere nominee of Chow and had no interest in the factory.  Chow also took part in the daily operation of the factory.

8.Wellmate Corporation Limited was and is in the business of trading in plastic raw materials.  Chung was of the accountant and company secretary of both Wellmate and Universal Sheen.  Through the introduction of Chung, Chow came to know Cheng.  In fact, the offices of Wellmate and Universal Sheen were located on the same floor of an office building at Tsimshatsui East, Kowloon.

9.Cheng is a friend of Chan of Yick Fung.  In 2006, through the introduction of Cheng, Chow came to know Chan.  Yick Fung was and is a supplier of plastic injection components for shop display products.  The business relationship among these companies began.  In practical terms, Wellmate would supply the plastic raw materials to Yick Fung and Yick Fung would produce the plastic injection components required by Universal Sheen.

10.Meanwhile, negotiation also began between Chow and Cheng of possible investment by Cheng into Universal Sheen.

11.In early 2007, dispute arose between Chow and Lui.  This created a deadlock in the management and operation of the company bank accounts.  As a way out, Chow and Cheng came to agree to set up another company to take over the business of Universal Sheen and specifically the orders placed by its customers that were pending completion.  Chow’s factory would continue its manufacturing operation.

12.Globalink was eventually acquired in February 2007 as the corporate vehicle for such purpose.  Globalink shares the registered office of Wellmate.  Its director and shareholder is a BVI company which was also acquired for the purpose of forming Globalink.  Chow was responsible for all the incorporation expenses.  Cheng apparently was made the owner of the BVI company.  Cheng and Chow were supposed to have beneficial interest in Globalink.

13.Further complication arose when Chow was detained in the Mainland by the authority towards the end of April 2007 and thus being prevented from operating Universal Sheen or the factory.  At one point since Chow’s detention, Cheng became effectively in charge of the operation of Globalink and Chan of Yick Fung also took part in the operation of the factory in the Mainland.

14.Chow was released by the Mainland authority in late October 2007.  But by then, Wellmate had already commenced legal action and actually obtained default judgment against Universal Sheen (HCA 1775/2007).

15.In November 2007, Yick Fung and Globalink also commenced the present two actions.  As mentioned above, in December 2007, they obtained default judgments respectively against Universal Sheen.

16.In January 2008, Universal Sheen was wound up by the court upon another creditor’s petition (HCCW 476/2007).  Leave to bring proceedings to set aside the judgments in the present 2 actions was obtained from the High Court subsequently.

REGULARITY OF THE JUDGMENTS

17.It is argued that the judgments in both cases are not regularly obtained judgments.

18.Miss Lam for Universal Sheen argues that Yick Fung, Globalink and Wellmate knew full well that Chow had been detained in the Mainland since the end of April 2007 and would be unable to acknowledge service of the writ on behalf of Universal Sheen in Hong Kong.

19.Miss Lam also argues that Yick Fung and Globalink knew that the office premises of Universal Sheen was repossessed by the landlord.  Yet they still issued the writs and served them at the office premises of Universal Sheen, knowing that Chow would not have received them.

20.It is suggested that the legal actions against Universal Sheen by Wellmate in the High Court and Yick Fung and Globalink in the District Court, through the same firm of solicitors, was a concerted action to take advantage of the fact that Chow would not have become aware of the legal proceedings.  The judgments are said to have been obtained unfairly.

21.Universal Sheen is a corporate entity.  Its registered office was its usual or last known address.  Service pursuant to section 356 of the Companies Ordinance, Cap.4 is an alternative to O.10, r.1 of the Rules of the District Court.  A writ may be served on a company by simply leaving it at its registered office, even though the plaintiff is aware that the office has already been vacated: see Ho Kwok Wah v Group Jewellery Arts Ltd v Ors [2000] 3 HKC 595; Stevenson Wong & Co v Goldsense Technology Ltd [2007] 1 HKLRD 217; Hong Kong Civil Procedure Vol.1 at 10/1/18.

22.These two actions were commenced when Chow had already been released by the Mainland authority and he was apparently in Hong Kong.  Notwithstanding the repossession of the office premises by the landlord, Chow allowed it to stay on record as the registered office.

23.In my view, the risk of losing mail or missing legal documents that were properly served at the registered office pursuant to section 356 was for Chow and Universal Sheen to take.  Notwithstanding the arguments on behalf of Universal Sheen, I find that the judgments in both cases are regular judgments.  To have them set aside, Universal Sheen must show that its proposed defences carry a real prospect of success.

DCCJ 5145/2007

24.Yick Fung claims the outstanding cost of goods sold and delivered at the request of Universal Sheen.  The amounts claimed are evidenced by 3 pro-forma invoices and 3 invoices.  The pro-forma invoices concerned the production of moulds while the invoices concerned the plastic products manufactured out of the moulds.  The moulds are still with Yick Fung’s factory in the Mainland while the goods under the 3 invoices had been delivered to Universal Sheen’s factory.  The deliveries were made prior to Chow’s detention in the Mainland.

25.In his first affirmation, Chow of Universal Sheen denied having seen the 6 invoices or knowledge about them.  He emphasized that the factory and Universal Sheen were two separate legal entities.  The delivery notes in respect of the goods on question were allegedly fabricated.

26.After viewing the affirmation of Chan of Yick Fung and the documents exhibited, Chow apparently did not insist on his allegation that the delivery notes were false.  Instead, he excused himself for failing to recall these transactions by accusing Chan of Yick Fung and Cheng of Wellmate of seizing his assets and documents from the office of Universal Sheen when he was detained in the Mainland.  The office premises, as mentioned above, has also been repossessed by the landlord.

27.Chow now emphasizes the fact that the pro-forma invoices for making the moulds were issued to and acknowledged by the factory.  While the invoices for the goods were issued to Universal Sheen, Chow alleges that as the goods were delivered to his factory, the invoices should have been issued to the factory, not Universal Sheen.  The defence is essentially that the contracting party to Yick Fung was the factory, not Universal Sheen.

28.Miss Lam suggests that whether it was Universal Sheen in Hong Kong or its factory in the Mainland placed the orders for the goods in question could have been verified by reference to the purchase orders.  She submits that there must have been such purchase orders or at least contemporaneous correspondence on which Yick Fung based to manufacture the goods and to reproduce the various items and quantities now contained in the invoices.  Yick Fung should be in a position to produce these purchase orders. However none has been produced.

29.Considering the contemporaneous email correspondences between Yick Fung and Universal Sheen, including Chow, and the documents exhibited to the affirmation of Chan of Yick Fung, I have serious reservation about the allegation that the factory and Universal Sheen were operated as separate entities as alleged.  The evidence that the factory was set up, operated and held out as the manufacturing arm of Universal Sheen in the Mainland while the office here was the Hong Kong headquarters are simply compelling.

30.The correspondences also show that Chow directed Yick Fung to liaise with his factory relating to the production of the moulds and the manufacture of the goods.  Yick Fung accordingly did so.  Lui was also involved and could only be representing Universal Sheen then.

31.While Miss Lam’s argument regarding the purchase orders is somehow logical, the fact as evidenced by the contemporaneous correspondences between the parties was that Chow or Universal Sheen has never challenged the propriety of the pro-forma invoices or the invoices.

32.When Yick Fung requested for payment in early 2007, Chow’s response was not that Universal Sheen was not the contracting party or that the pro-forma invoices were issued wrongly.  Chow simply asked for indulgence as his bank accounts were frozen.  He could only be referring to his dispute with Lui and the deadlock as he explained in his affirmation.

33.Regarding the amount claimed, this was the balance of the amounts under the invoices in question after deducting the deposits paid (by Universal Sheen by the way), the price of plastic raw materials supplied by Wellmate on behalf of Universal Sheen and the advancement by Wellmate on behalf of Universal Sheen.

34.The amounts of the deposits were stated in the invoices.  As to the other amounts deducted, they actually formed part of the amount claimed and in which default judgment was entered in Wellmate’s action against Universal Sheen in HCA 1775/2007.  Whilst Chow suggests that Universal Sheen is also seriously considering applying to have that judgment set aside as well, there is no materials before me to suggest that the amounts of deduction were inaccurate.  As these were deductions, setting aside the High Court judgment would not affect the amount of the invoices or the claim to the advantage of Universal Sheen.

35.This is Universal Sheen’s burden to show a real prospect of success in defending the claim by Yick Fung.  I am not satisfied that it has discharged such burden.  I therefore will not set aside the judgment.

DCCJ 5146/2007

36.Globalink’s claim is less straightforward.  It claims effectively for the return or reimbursement of alleged advancements or settlements made on behalf of Universal Sheen.  The amounts were set out in Globalink’s debit notes to Universal Sheen during the period between March and October 2007.

37.According to the statement of claim, the alleged advancements or settlements were made at the request of Universal Sheen.  In the absence of any express agreement, the presumption would be that the amount advanced was meant to be repaid by Universal Sheen, probably on demand.

38.However, in its answers to the requisition by Universal Sheen’s liquidators, Globalink stated that the advancements or settlements were made not merely at Universal Sheen’s request but pursuant to an oral agreement made between Cheng and Chow around February 2007.  It was also expressly agreed that repayment should be made on demand.

39.When it came to Cheng’s first affirmation, such oral agreement became loan arrangements dated from as early as October 2006 to April 2007.  In his second affirmation, the scope of the request or loan agreement was further expanded to cover the time after Chow had been detained in the Mainland.

40.Apart from the apparently various cases of Globalink in respect of the timing and scope of the alleged loan agreements, it should be noted that Globalink was not conceived and did not come into existence until early 2007.  Even assuming that Cheng agreed to assist Chow financially in as early as October 2006, it is arguable whether Cheng did so for and on behalf of Globalink which is now the plaintiff.

41.The contemporaneous email correspondences between Chow and Cheng tend to show that Chow did request for Cheng’s financial assistance from time to time prior to his detention by the Mainland authority in April 2007.  There were also undisputed payments made out of the money provided by Wellmate to discharge the liabilities of Universal Sheen to third parties.

42.Miss Tsang for Globalink emphasizes that Globalink had no obligation to shoulder up the liabilities of Universal Sheen towards the third parties.  But a major dispute between the parties is the pretext of such payments.  Chow considered that the Globalink venture was effectively in operation.

43.On the contrary, while Cheng had in mind the Globalink venture, he considered that he was merely helping out without choice and with a view to an investment agreement yet to be concluded.  According to Cheng, there was suggestion but no consensus on the ratio of interest between him and Chow.

44.Apparently Cheng has the support of Chung.  But Chung was not involved in the negotiation between Cheng and Chow; and substantial part of Chung’s evidence, according to his affirmation, is based on what he understood from Cheng.

45.Cheng disclosed 3 draft loan agreements prepared by Wellmate and dated from mid-February to late March 2007.  By these draft agreements, Wellmate agreed to lend to Globalink various sums of money and Chow agreed to guarantee to repay 65% of the loan amount.  None of the draft agreements was signed.  However it is pointed out that the extent of guarantee required of Chow reflects the then understanding of Cheng and Chow that Chow was supposed to be the 65% majority shareholder of Globalink.

46.In his email to Chow in March 2007, Cheng stated his understanding that by then, some customers of Universal Sheen were already going to pay Globalink (though some customers apparently still made payments to Universal Sheen).  In his email to Chow in April 2007, Cheng also asked Chow to consider giving some financial contribution with reference to Chow’s 65% interest and his capacity as a minority shareholder.  According to Chow, which is also in dispute, Cheng excluded him from Globalink eventually on the basis that Cheng was the one who has made substantial financial contributions to Globalink.

47.Cheng also relies on various letters written by Chow while he was detained in the Mainland.  However there is similar dispute as to whether by the letters, Chow was requesting Cheng to merely discharge the liabilities of Universal Sheen or to provide financial support to sustain Globalink as their joint investment in the process of taking over the business of Universal Sheen which was to be wound up.

48.There would apparently be dispute as to whether what Cheng arranged, whether by himself of Wellmate, to finance Globalink to pay off Universal Sheen’s creditors affords Globalink the right to claim for reimbursement from Universal Sheen.

49.Of the credit notes particularised in the claim, the 2 substantial ones concern 2 customers, namely, Monte Blanc and Tung Smart.  There is no dispute that there was some sort of agreement between Universal Sheen and Monte Blanc whereby Universal Sheen would make payment of a bonus to Monte Blanc in certain circumstances.  The documents evidence that Wellmate made out the cheque for payment to Monte Blanc.  The credit note to Monte Blanc was dated April 2007 but the payment was dated October 2007.  While Monte Blanc confirmed the receipt of the payment, it denied having come across the credit note.  Universal Sheen disputes that this amount was payable by Universal Sheen and questions what that payment was for.

50.Tung Smart’s invoice was dated January 2007 but the telephone and fax numbers of the recipient on the invoice were not those of Universal Sheen but Wellmate.  It was apparently sent to Wellmate in May 2007.  The documents show that the invoice was settled by Wellmate’s cheque deposit soon after the receipt of the invoice. Universal Sheen denies having ordered the goods stated in the invoice from Tung Smart.  It is pointed that the items of goods stated in that invoice were essentially similar to those Yick Fung supplied to Universal Sheen’s factory.

51.As to the other amounts claimed, Universal Sheen questions whether parts of these amounts were incidental to the operation of Globalink which was taking over the pending orders from Universal Sheen.  Miss Tsang for Globalink points out various features of the case against Universal Sheen’s allegations.

52.The question is whether such factual dispute should and could be adjudicated by reference to the affidavits and the available materials.  In view of the substantial amounts of payments so far allegedly made or arranged by Cheng that were intertwined with the pretext of the Globalink venture, I think not.  I am not prepared to rule out a real prospect of success in Universal Sheen’s defence.

CONCLUSION AND ORDER

53.Universal Sheen’s application to set aside the judgment in DCCJ 5145/2007 is dismissed with costs.

54.The judgment against Universal Sheen in DCCJ 5146/2007 dated 17 December 2007 is set aside.  Miss Lam asks for no order as to costs.  As I find that the judgments were regularly obtained, I disagree and order that costs of and occasioned by the application in this case be to Globalink in any event.  I certify the engagement of counsel.  Costs shall be taxed, if not agreed.

55.Upon the revival of Universal Sheen’s right to defend in DCCJ 5146/2007, Globalink would first need the court’s leave to carry on the legal proceedings in the action against Universal Sheen in liquidation.  I therefore do not propose to give further directions in this action at his stage.

Miss K L TSANG instructed by Messrs Tang & Lee for the Plaintiffs in both actions

Miss Yanky LAM instructed by Messrs Tsang Chan & Woo for the Defendant in both actions