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HCA1163/2007
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO. 1163 OF 2007
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| BETWEEN |
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CHUNGHWA PICTURE TUBES LIMITED |
Plaintiff |
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and |
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THE GRANDE HOLDINGS LIMITED |
Defendant |
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Before : Hon Poon J in Court
Dates of Hearing : 26-28 and 30 April 2010
Date of Judgment : 16 July 2010
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J U D G M E N T
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Introduction
1.The plaintiff, Chunghwa Picture Tubes Ltd (“CPT”), is a Taiwan company engaging in the business of manufacturing and supplying visual display devises including liquid crystal display panels (“LCDs”).
2.The defendant, The Grande Holdings Ltd (“GHL”), is the corporate head of an international group of listed public companies in Hong Kong, Singapore, Tokyo, London, Kuala Lumpur and the USA (“the Grande Group”).
3.Some of companies within the Grande Group that feature in these proceedings are:
(1) Nakamichi Corporation Limited (“NCL”);
(2) Nakamichi Enterprises Limited (“NEL”);
(3) Akai Electronics (China) Co. Ltd (“Akai China”);
(4) Sansui Electric (China) Co. Ltd (“Sansui China”); and
(5) Capetronic Displays Ltd (“CDL”), a subsidiary of Capetronic Group Ltd (“CGL”), another company within the Grande Group.
Also involved in one of the transactions is Varitronix (Macao Commercial Offshore) Limited (“Varitronix”), which is on GHL’s case a sub-contractor of CDL.
4.CPT sued GHL for the unpaid price of LCDs sold and delivered pursuant to 4 purchase orders (“POs”) dated 22 March 2006, 20 April 2006, 18 May 2006 and 29 May 2006, totaling US$3,999,980. The 1st to 3rd POs were issued by NCL, the 4th PO, Varitronix. The LCDs were all delivered to Akai China in Zhongshan. Particulars of the LCDs are as follows:
(1) For the 1st PO, 900 units of 20” LCDs at US$195 each, delivered on 30 April 2006. The unpaid price is US$175,500.
(2) For the 2nd PO, 10,000 units of 32” LCDs at US$440 each. The price for 3,000 units were later reduced to US$410 each. CPT delivered the said 3,000 units and another 1,000 units on 29 April 2006. CPT delivered the remaining 6,000 units on 3 May 2006, for which price had been made. The balance unpaid is US$1,670,000.
(3) For the 3rd PO, 1,152 units of 37” LCDs at US$615 each, delivered on 23 May 2006. The unpaid balance is US$708,480.
(4) For the 4th PO, 2,410 units of 37” LCDs at US$600 each, delivered on 7 June 2006. The unpaid price is US$1,446,000.
5.CPT alleged that the various companies and individuals involved in the 4 POs were all acting as agent for GHL. Having represented that they had apparent authority to act on its behalf, GHL is liable for the unpaid price.
6.The only defence raised by GHL is this. At the apex of the Grande Group, GHL is a non-trading company. All the business transactions of the Grande Group are conducted by individual subsidiaries within the Group as separate and distinct legal entities on their own. The companies and individuals involved in the 4 POs did not act as GHL’s agent. Nor did GHL represent that they had apparent authority to act on its behalf as alleged. GHL however stopped short of pleading who the actual purchaser was.
7.Nor did GHL plead why the price was not paid in full. The reasons for non-payment, which emerged from the evidence, are strictly irrelevant. I just note them briefly here for completeness. First, under the 2nd PO, 4,000 units of 32” LCDs were manufactured by CPT’s factory in Wujiang, Mainland. They were allegedly defective. Second, payments for the purchase orders were by way of letters of credit. For those LCDs manufactured by CPT’s factory in Wujiang, a cargo receipt was required as part of the documents to be presented to the bank for payment. When CPT did not receive the cargo receipt, one of the employees of its Logistics and Financial Department forged a cargo receipt. But the bank noticed the discrepancy in signature and refused to pay.
8.At the trial, CPT called two witnesses: Mr Edward Cheng Ling Yun (“Mr Edward Cheng”), a director in CPT’s sales and marketing general division, and his subordinate at the working level, Mr Eric Lee Hou Tsung (“Mr Eric Lee”). GHL called one witness only, who is one of its executive directors, Mr Paul Law Kwok Fai (“Mr Paul Law”). These gentlemen were all involved in the dealings concerning the 4 POs.
The primary issue—agency based on apparent authority
9.The only issue that requires my determination is: were the companies and individuals involved in the 4 POs GHL’s agents based on the doctrine of apparent authority, thus rendering GHL liable for the unpaid balance?
10.The general principles are well settled.
11.Where a person, by words or conduct, represents or permits it to be represented that another person has authority to act on his behalf, he is bound by the acts of that other person with respect to anyone dealing with him as an agent on the faith of any such representation, to the same extent as if such other person had the authority that he was represented to have, even though he had no such actual authority. See Bowstead & Reynolds on Agency, 18th Edn, para.8-013 at pp.335-336.
12.The representation can be express or implied from the surrounding circumstances. It must have been made by the principal or a person who had actual authority to act on its behalf. On its own, a representation by the agent himself shall not suffice to bind the principal. See Chitty on Contracts, Hong Kong Specific Contracts, 2nd Edn, para.1-050 at p.24.
13.CPT bears the burden of proving that GHL is liable as alleged. With the above general principles in mind, I now examine the evidence to see if CPT has discharged the burden of proof.
Discussion
14.GHL is an exempt, non-trading public company listed in Hong Kong. Mr Law’s evidence, which I accept, is that at all material times GHL served as the administrative head of the Grande Group, overseeing top level management matters such as corporate governance, making policy and strategy decisions and generally overseeing the performance of each branch of subsidiary and associated companies in the Group; and that all trading businesses of the Grande Group were done at subordinate level by subsidiary and associated companies.
15.CDL is a Taiwan company. As already noted, it was at all material times a subsidiary of CGL. CGL went into administration in 1990. In 1992, GHL acquired the shares of CGL. Since then, both CGL and CDL have become part of the Grande Group.
16.The Grande Group, through various subsidiary companies including CDL, engaged in the audio-visual equipment business. It owned various famous brands including Nakamichi, Akai, Kawa and Sansui. The Group had various factories in the Mainland, including the ones operated by Akai China and Sansui China in Zhongshan.
17.It is apparent from Mr Paul Law’s evidence, which I accept, that there was a division of labour within the Grande Group for the audio-visual equipment business.
18.On the corporate level, CDL functioned as the International Procurement Office for the Grande Group, responsible for consolidating the demands of its factories and negotiating with suppliers, which included securing bulk purchase discounts from them. CDL and other subsidiaries could, depending on the circumstances, issue the purchase orders and apply for the letters of credit for payment. In the instance case, the 1st to 3rd POs were issued by NCL. The letters of credit for the 1st to 4th PO were applied for by NCL, NEL, NEL and CDL respectively.
19.For individuals, Mr Law said in his witness statement, which I accept, that:
“5. Apart from being executive director on the board of the Defendant company, I am also a director on the board of some of the subsidiary and associated companies in the Grande Group. In recent years I have been in charge of the audio-visual equipment manufacturing business of a few subsidiaries of the Grande Group at Zhongshan, China. The Defendant company is not involved. Even myself, as a director on the board of the Defendant company, is not directly involved in the day-to-day business operations, which are left to direct employees and other lower level front line staff of the respective subsidiary and associated companies. Front line staff need not all be direct employees of subsidiary companies of the Grande Group, as it is commonly known fact that most joint-venture businesses in China require participation of a local partner under government economic laws and regulations…
6. My involvement in the Zhongshan manufacturing business is always at top management level. I do not, as a director on the board of the Defendant company, interfere in the daily implementation of the business operation of the subsidiaries. Operational decisions and contractual matters are left to the directors and management staff of the subsidiary and associated companies concerned.
7. In the course of my work routine I do quite a bit of travelling and attend different work meetings of various subsidiary and associated companies with their clients. I am of course always accompanied by staff of the relevant subsidiary and associated companies in their respective fields of business. These management and front line staff are employees of the subsidiary and associated companies but not staff of the Defendant; they have no authority to represent or act as agent of the Defendant on any matter. But then no business of the Defendant is ever transacted at any of these meetings. As I attend various meetings with outsiders wearing different corporate hats I would normally hand out name cards of myself under the logo of Grande Group as a gesture of business courtesy. It is therefore not surprising that some third party company staff have my name card with them. This is not any indication that the Defendant has transacted business with them. In fact the Defendant has never directly transacted any trading, manufacturing or other business with anybody.”
20.In the instant case, different personnel of the Grande Group played different roles.
21.Mr Paul Law was the head of the Consumer Electronics for OEM Services of the Grande Group, responsible for manufacture. He was the lead negotiator with CPT concerning the 4 POs. Mr Christopher Ho, chairman of GHL was also involved in some parts of the dealings concerning the 4 POs. They had the authority to decide important matters including price, quantity and delivery dates. But when all the evidence is considered in the round I do not think they necessarily acted on behalf of GHL. Their role is entirely consistent with Mr Law’s evidence that they represented the top management of the Group to supervise and oversee the performance of the subsidiaries and employees concerning the 4 POs.
22.Mr James Cheng, a local Taiwanese, was an employee of CDL. He was the international purchasing officer. He had to report to Mr Paul Law for purchasing of raw materials, including LCDs. (For finished products, he reported to the sales and distribution division.) He was responsible for the dealings of the 4 POs at the working level. Other individuals involved at the working level included Ms Josephine Lau, purchasing general manager of Sansui China and two other female employees of CDL, Wenda Ng and Anne (full name unknown). None of the personnel mentioned here was at the material times GHL’s employee.
23.In my view, the mere participation by different individuals and subsidiaries in Grande Group’s audio-visual equipment business entailed by the division of labour described above, without more, is insufficient to render GHL, the ultimate holding company, liable as principal under the 4 POs.
24.This brings me to the representations that CPT sought to rely on.
25.Mr Cheng said in his witness statement:
“2. CPT started to do business with the Defendant in or around 2003. At the time I met Mr Bill Chou (‘Bill’), the then-Head of the International Purchasing of the Defendant. He showed me the 2002 Annual Report of the Defendant and told me that the Defendant was a large company listed on the Stock Exchange of Hong Kong.
3. Bill also told me that the Defendant’s business volume was very high and that it owned a company Capetronic Displays Ltd (‘Capetronic’) in Kaohsiung, Taiwan. It was known that the Defendant had bought Capetronic when the latter was facing financial collapse. Bill confirmed the same and also said that Capetronic had since become the Defendant’s representative and purchasing office in Taiwan with about 6 or 7 people.
4. Since the Defendant’s representative office in Taiwan was called Capetronic, CPT opened a customer file reference for the Defendant under this name. Our contact person at Capetronic was Mr James Cheng (‘James’). We started to have some sales and purchases.
5. Sometimes during that same year 2003, I also met the Defendant’s Chairman Mr Christopher Ho (‘Mr Ho’) when he, Bill, and others. They visited our factories in Taoyuan with a view to taking over all our production of plasma television displays and increasing the volume to 7,000 pieces per month. They came to hold discussions with our senior management.
6. But throughout the time from 2003 to 2004, the scale of CPT’s production of plasma television displays was too small. We were not able to offer low prices, and our volume of sales to the Department dropped.
7. In 2005, Capetronic’s office in Taiwan closed down and James was transferred to work in Zhongshan. James also told me that Bill had resigned.
8. Also in 2005, CPT started to produce Liquid Crystal Display (LCD) panels for television sets. Sometime later that year, James called me to ask that we (CPT) would have a meeting with his ‘boss’ Mr Ho in Zhongshan to discuss potential supply of LCD panels to the Defendant.
9. On or around 15 November 2005, I went with Mr Eric Lee (‘Eric’) of CPT’s Sales and Marketing General Division to Zhongshan. We met Mr Ho, Paul Law (James’s superior), James and Josephine Lau.
10. At this first meeting we introduced CPT’s LCD panels and discussed model names, size, volume of sale, and prices. The meeting did not culminate in any orders but they requested to see some samples, so we arranged for samples to be sent to the Defendant in Zhongshan for their inspection.
11. Eric and I went to Zhongshan again on or around 20 December 2005. At this later meeting, the parties agreed on the modus operandi of how we would do business and how we would arrive at our sale and purchase contracts.
Modus Operandi
12. Each month or thereabout, I, usually together with Eric, met with James, Paul, and sometimes Mr Ho, usually in the Defendant’s factory in Zhongshan. We discussed the products and the quantities that the Defendant required and the prices that CPT required. Upon agreement, we wrote down these terms on a white board in the meeting room for all those present to see and confirm. The essential terms of the contract were thereby settled.
13. Within about a week of the meeting, someone from the Defendant (usually Josephine or Jame’s assistant Anne Chen) faxed or emailed written purchase orders to us. The terms of the orders reflected the terms that we had agreed at the meeting.
14. As in any normal business dealings, the agreed terms were sometimes subject to further negotiations and revisions. It occurred before or after the Defendant faxed or emailed us the purchase orders.
15. The Defendant mostly issued the written orders under the name ‘Nakamichi Corporation’. We knew the Defendant owned the brand names ‘Nakamichi’, ‘Akai’, ‘Kawa’, and ‘Sansui’. Therefore when we received written orders under the name ‘Nakamichi Corporation’, we understood the entity to be the Defendant’s subsidiary and to be acting on the Defendant’s behalf.
16. We also knew that none of Paul, James, Josephine or Anne was working for Nakamichi Corporation. We understood them to be acting on the Defendant’s behalf too.
17. Indeed, James himself had said at one time in a meeting that they requested that we change the name of the addressee of the purchase orders to Varitronix.
18. The purchase orders mostly directed us to ship the products to ‘Akai Electric (China) Co. Ltd’ or sometimes to ‘Sansui Electric (China) Co. Ltd’, both at ‘Grande Building, No. 5 Zhongshan Road, Zhongshan, Guangdong, PRC’. Again, we knew the Defendant owned these brand names, and understood the entities to be the Defendant’s subsidiaries and to be acting on the Defendant’s behalf.
19. We did not mind which of the Defendant’s subsidiaries issued the purchase orders or received the goods, because we were dealing with the Defendant, in the person of Paul and James (and sometimes Mr Ho). And they had already agreed to the terms of each contract at their prior meeting with me (usually together with Eric).
20. Sometimes the Defendant divided the products or quantities we had agreed at the meeting into separate purchase orders to suit their own schedule. We did not mind how the Defendant did this, as long as the total amount was right.
21. We at CPT also sometimes divided the products or quantities in an order into several shipments because of our production capacity. We issued an invoice for each shipment.
22. Occasionally, Eric and I went to the Defendant’s facility in Zhongshan with James after delivery to inspect the delivered LCD panels. If required, CPT’s technical staff would also go to deal with quality issues.
23. Payment was by letter of credit. Sometime in early 2006, the Defendant asked us if they could pay their future orders by open credit. We could not agree to this and the payment method continued.
24. On or around 11 May 2006, Mr Ho, Paul, and James again came to Taoyuan and met with C.H. Lin, CPT’s then-Chairman, to discuss the production of generation 7.5 LCD panels with a view to the Defendant making investments into a joint venture to develop CPT’s factory capacity. Eric was in Germany at the time and could not attend this meeting. Our top management later sent a letter to the Defendant to follow up and to enclose some materials.
25. In the afternoon on 11 May 2006, Mr Ho, Paul, James and I had a separate meeting to discuss CPT’s ongoing supply of LCD panels to the Defendant. At one point we were discussing the price trend in the global market; Mr Ho said he would bet that the price of LCD panels would soon drop. He took out a ten pounds sterling note, signed it, and gave it to me as his bet. A copy of the note is at annexure 1 hereto.
26. Sometime in or around April 2006, the Defendant informed us that there were problems with some of the LCD panels. I went to Zhongshan. Our engineers also went to check. The Defendant’s people said that the 37” LCD panel was ‘red’ and had symptoms of fuse problems. But after checking, it was found that only very few panels had this symptom; the problem could have been due to the Defendant’s television sets. After assessing the matter, the Defendant decided to accept the panels.
27. Later I asked Paul for a QC report and requested to meet with the people from their QC department. I even asked Paul whether he wanted to issue a quality claim. But they gave us any such reports or arranged any meeting.
28. By the time in July 2006, several orders of the Defendant remained unpaid. So Eric and I requested James to arrange for a meeting with Mr Ho to discuss the matter. We went to Zhongshan on a 2-day trip in or around 18 and 19 July 2006. On the first day, Eric and I were able to meet with Mr Ho. However, he brushed us off, saying that it was a legal issue and should be dealt with by the legal department.
29. On the next day of the trip, we wanted to see Mr Ho again. But Paul met us instead. He repeated what Mr Ho had said the day before. He also said as reasons why the Defendant would not settle the unpaid orders (1) the quality of the LCD panels and (2) improper documentation in relation to the letters of credit.
…”
26.Mr Eric Lee’s evidence is similar. Additionally, he said in his witness statement:
“The Defendant’s Personnel
3. Prior to doing any business with the Defendant, the Plaintiff had business with a company called Capetronic; James Cheng (‘James’) was the contact person. Some time later, James told me that the Defendant had acquired Capetronic. He introduced the Defendant to us. James said he would be placing orders for the Defendant and thus he continued to negotiate with us on behalf of the Defendant.
4. Throughout the business dealings with the Defendant, the key personnel of the Defendant whom I interacted the most were Christopher Ho (‘Christopher’), Paul Law (‘Paul’), James, Josephine Lau (‘Josephine’), Anne Chen (‘Anne’) and Wenda Ng (‘Wenda’).
a. Christopher
Christopher was the Chairman of the Group Executive Board of the Defendant. The email address of Christopher is [email protected], which I believe stands for Grande Group Hong Kong Limited.
b. Paul
Paul was the assistant of Christopher and the person to whom James reported. He was in charge of international purchasing and responsible for negotiating prices with the Plaintiff. The email address he used was [email protected].
From the name card he gave us, he was the Group Executive Director of the Defendant.
c. James
James was a local Taiwanese and was responsible for details of orders for purchases from the Plaintiff. He communicated with me using 2 email addresses interchangeably, namely: [email protected] and [email protected].
From the name card he gave me, he was the Assistant General Manager of something called ‘n.a.k.s. Taiwan Corp’. From my understanding, each letter of ‘n.a.k.s.’ stood for Nakamichi, Akai, Kawa, and Sansui, which were the brand names that the Defendant used for its products.
In his email dated 9 May 2006, James described Christopher, Paul, and himself as ‘persons from the Defendant’, specifically that Christopher was the Chairman, Paul a board member, and James the IPO (meaning International Purchasing Officer) of the Defendant.
d. Josephine
Josephine was stationed in Zhongshan. From her name card, she was the Purchasing General Manager of Sansui Electric (China) Co. Ltd. Her email address was [email protected].
e. Anne
I did not and do not know Anne’s job title. But she served as James’s assistant. Her email address was [email protected].
f. Wenda
I did not and do not know Wenda’s job title. She communicated with me using the email address [email protected].
5. Although Christopher, Paul, James, Josephine, Anne, and Wenda used name cards and had email addresses referring to different companies, at all times, I understood that those companies (other than the Defendant) were subsidiaries of the Defendant and that they (the individuals as well as the companies) were all acting for and on behalf of the Defendant.”
27.In my view, the assertions by Mr Edward Cheng and Mr Eric Lee do not withstand a closer scrutiny.
28.GHL’s status and role within the Grande Group militates against the suggestion that it somehow engaged in actual trading activities through its subsidiaries and personnel, including the 4 POs with CPT.
29.None of the contemporaneous documentary evidence, including the 4 POs and the letters of credit, showed that GHL was involved as principal. To the contrary, there is a substantial body of emails indicating quite unequivocally that CPT was at the material times dealing with CDL and not GHL. For example:
(1) In the email dated 5 February 2006, Mr Eric Lee thanked Mr James Cheng for his assistance in helping CPT establish a firm relationship with CDL.
(2) In the emails exchanged between Mr James Cheng and Mr Eric Lee and his colleagues in February and March 2006, the parties discussed about various visits to CPT by CDL.
(3) In the email dated 16 March 2006, Mr Eric Lee referred to the supply projects with CDL.
(4) In the email dated 18 April 2006, Mr James Cheng and Mr Eric Lee discussed the arrangements for Mr Edward Cheng’s business trip to CDL.
(5) In the email dated 19 April 2006, Mr Eric Lee wrote that “after the coordination of Edward Cheng, [CDL] agreed 576 pieces of 370WA02 to be delivered from Wujiang from April…”.
(6) In the email dated 27 April 2006, Mr Eric Lee referred to Mr Ho’s intention to invest in CPT, told Mr James Cheng that Mr Edward Cheng would try to arrange a top management meeting between CDL and CPT and asked Mr James Cheng to confirm if Mr Ho would be available for the proposed meeting.
30.Mr Li, counsel for CPT, placed particular reliance on an email dated 9 May 2006, in which Mr James Cheng informed Mr Edward Cheng and Mr Eric Lee that for “the Grande visiting”, persons from the Grande Group attending would be Mr Christopher Ho, chairman of GHL, Mr Paul Law, board member of GHL and he himself, self-described as IPO. The topics to be discussed were financial investment and business discussion and partnership. I do not think much assistance could be derived from this email. Plainly, the meeting was between CPT and the 3 named individuals representing the Grande Group, and not GHL.
31.The emails exchanged in July and August 2006 when the problems of non-payment began to emerge, also showed that CPT was dealing with CDL.
32.As already alluded to above, one of CPT employees had forged a cargo receipt. Mr Eric Lee issued a formal letter of guarantee dated 6 July 2006, assuring, among other things, that the same would not happen again. That letter was expressly addressed to CDL, and not GHL.
33.Having considered all the evidence with care, I do not find the evidence of Mr Edward Cheng or Mr Eric Lee credible. I reject their bare allegations that Mr Bill Chou or Mr James Cheng or indeed anybody from the Grande Group had made the representations that they were acting for GHL. In any event, there is no credible evidence to show that either Mr Bill Chou or Mr James Cheng had the authority to make such representations or that Mr Christopher Ho or Mr Paul Law had authorized them to make such representations.
34.Both Mr Christopher Ho and Mr Paul Law would have authority to commit GHL to contract such as the 4 POs. But I do not think the evidence shows that they had so conducted themselves.
35.For completeness, I need to deal with two points. The first relates to the 4th PO. It is GHL’s case that Varitronix was CDL’s subcontractor. In his oral testimony, he explained why the 4th PO was placed by Varitronix thus. At that time, the capacity for production of TV sets in the factories operated by Akai China and Sansui China was fully loaded. The production was therefore sub-contracted to Varitronix. Hence Varitronix placed the 4th PO. He readily accepted that the LCDs were delivered to Akai China in Zhongshan. He said it was necessary to do so because of the relevant import and export requirements. He also accepted that it was CDL who applied for the relevant letter of credit. But it does not mean GHL was liable as principal. I fully accept his evidence.
36.The second point relates to an email dated 31 May 2006 written by Mr James Cheng to Mr Edward Cheng, requesting CPT to issue an acknowledgement that the purchase orders for 32” LCDs were made by Varitronix. Mr Li submitted that this email showed that GHL causally and interchangeable used the companies involved in the POs. I disagree. 32” LCDs were the subject matter of the 2nd PO issued by NCL only. So any change would affect NCL and Varitronix at most. More importantly, the reason why Mr James Cheng made that request is unclear. Mr Li’s submission is against the overall weight of the evidence before me.
37.In his oral testimony, Mr Edward Cheng said repeatedly that CPT had all along identified GHL as the contracting party. The reason was that the unit price for the LCDs was high. They must have the confirmation from “the big boss” for the transactions. This may well represent CPT’s thought at the time. But that unliteral view is hardly sufficient to make GHL liable as the principal under the 4 POs. CPT’s case that the different personnel and subsidiaries involved in the 4 POs had represented that they were acting for GHL is, in my view, an afterthought made up for the purpose of litigation.
Conclusion
38.For the above reasons, I find that CPT has failed to prove its claim. I accordingly dismiss its claims.
39.Costs should follow the event, I made an order nisi that CPT do pay the costs of the action, including all the costs reserved, to GHL, to be taxed if not agreed.
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(J. Poon) |
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Judge of the Court of First Instance |
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High Court |
Mr Laurence Li, instructed by Messrs Boughton Peterson Yang Anderson, for the Plaintiff
Mr Thomas Lai, instructed by Messrs Kennedys, for the Defendant
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