Takashi Holding Ltd v. Lo Chap Fai t/a Y&H Trading Co and Others

DCCJ 6317 & 6348/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6317 & 6348 OF 2006

____________

Coram: H.H. Judge Chow

Date of Hearing: 17^th to 19^th August, 29^th October, 5^th & 8^th November 2010, 6^th, 18^th & 31^st January 2011

Date of handing down Judgment: 10^th March 2011

JUDGMENT

1.The Plaintiff is a trading company, whereas the 1^st Defendant is a shareholder and a director of the 2^nd and 3^rd Defendants respectively. Its claims against the Defendants are for losses and damages it suffered due to the wrongful acts of the Defendants.

2.In August 2005, the Plaintiff received a purchase order from a company in Singapore known as Rich Brothers Pty Limited (“the Rich Brothers”), ordering 4 containers of television sets. There was also another order from an Egyptian client placing an order of 1 container of television sets.  Consequently on or about 5^th and 26^th August 2005 respectively it entered into 4 sales contracts with the 3^rd Defendant, as particularized under Paragraph 2 of the Amended Statement of Claim.  The 1^st Defendant was named as the beneficiary under these 4 sales contracts, each of which contained an express term that the terms of delivery were FOB (free on board) Shenzhen.

3.By 21^st September 2005, the Plaintiff had paid the 1^st Defendant all the money due and owing under the first 3 contracts and 30% under the 4^th contract.  On 23^rd September 2005, the Plaintiff received the original bill of lading for the 1^st contract.  However, it never received the remaining 4 containers of goods to Madagascar and their original bills of lading.  Hence it instituted the present action against the Defendants.  The defence case is that because the Plaintiff owed a debt of US$25,000, a tri-parte meeting was held and an agreement was entered into between the Plaintiff, the Defendants and the Rich Brothers for the settlement of the matter.  Hence it is not liable for the claims. 

4.When the sale contracts were signed, the Plaintiff was required to pay 30% of the total sum of the sales contracts in advance as deposit before shipment.  After payment of this 30%, in or around mid-September 2005, the 3^rd Defendant required the Plaintiff to pay the remaining 70% before shipment.  On 21.9.2005, the Plaintiff paid this remaining 70% into the account of the 2^nd Defendant.

5.According to his witness statement, the 1^st Defendant gave an account of what allegedly happened around that time:-

“10. …… However, I was reported form the Shipping Department of HKC that the Plaintiff refused to give the forwarder the freight. As such, the forwarder could not provide the Plaintiff with the bills of lading. For such matter, 2 staff of the Plaintiff, Roger and Victor met with the forwarder in a street in Shenzhen. However, Roger and Victor in the meeting suddenly scrapped the bills of lading from the forwarder and ran away. After such incident, even though Roger and Victor returned the said bills of lading back to the forwarder who had called the police for help, the forwarder and HKC totally lost confidence on the Plaintiff. In order to escape from the risk of the Plaintiff, HKC asked the forwarder to change the parties in the said bills of Lading.

The Plaintiff’s evidence is that, it is the forwarder who seized the bills of lading from the Plaintiff. Mr. Rajsekar Swampypc (“Roger”), witness for the Plaintiff, said that on 11.10.2005, he went to the forwarder’s office at Shenzhen to collect the three original bills of lading, because when he was to collect the goods at Africa, he needed the original bills of lading.  The forwarder’s staff (David) refused to hand over the bills of lading.  David said that he would talk to the Defendants first.  Then they hired a taxi and went to the Defendants’ office. On the way Roger asked the taxi driver to take them to a police station.  There be explained the situation to a police officer.  Then that police officer told David to hand over the bills of lading to him.  David did so.  Then he made a number of phone calls.  When he and Victor (who accompanied him) went out of the police station and walked down to it’s compound, four unknown Chinese males suddenly confronted them, and one of them threatened them to return the bills of lading to him, or that it would be dangerous for them to leave with them and cross into Hong Kong.  To avoid danger to himself and Victor, he gave the bills of lading back to David.  Just about this time he saw a car arriving there.  He saw Virginia Chen and Andrew Xu (the manageress of the 3^rd Defendant and her superior respectively) inside the car.  He asked her why they would not release the bills of lading to them.  She said that was the the instructions of her boss.  Subsequently David, Virginia Chen and Andrew Xu went away in the car.   The evidence of Plaintiff’s witnesses impressed me as honest witness.  I accept their evidence. 

6.The Defendants admit that the 3^rd Defendant gave a shipping guarantee to the shipping forwarder, on 12.10.2005 and requested that forwarder to change the names of the shipper in the 3 bills of lading in question from that of the Plaintiff to the name of the 3^rd Defendant, and that the names of the Plaintiff on these 3 bills of lading were changed or converted to the name of the 3^rd Defendant on 14.10.2005.  By so doing, the Defendants took away the Plaintiff’s rights of entitlement to the goods without the Plaintiff’s permission.  On 15.10.2005, the Plaintiff’s legal representative wrote to the 3^rd Defendant to enquire about the 3 bills of lading.  By that time the names of the Plaintiff on these bills of lading had been changed to the name of the 3^rd Defendant.  In its letter dated 19.10.2005 to the Plaintiff’s legal representative the 3^rd Defendant replied that it did not receive any of the bills of lading.  Thus it was telling a blatant lie to the Plaintiff.  The 2^nd Defendant was named as the notifying party when the names of the original bills of lading were altered.  The Defendants eventually sold the Plaintiff’s goods to the Plaintiff’s original buyers and received from their payment of the goods.  The Plaintiff made a 100% payment for the goods to the Defendants, but it never received any of the goods.

7.When asked why the balance was not returned to the Plaintiff, which paid over US$100,000 for the television sets, but the debt was US$25,000, Miss Virginia Chen gave an account of all the charges which were never mentioned in any witness statements or records.  She said that the 3^rd Defendant would not extend credit for 60-90 days, and it would generally require the purchaser to make payment, once the purchaser received the goods.  The debts of US$25,000 were owed in 2003 and 2004, but they remained not settled in September 2005.  After she had discovered the debt of US$25,000, she did not ask the Plaintiff to make payment straight away. Instead, she asked for a 100% payment of the television sets which amounted to US$72,938.  She said she did this because she did not want to offend the boss of the Plaintiff, and she wanted the goods to be shipped. 

8.The Plaintiff was not communicated of this outstanding debt of US$25,000.  Andrew Xu ordered this to be done. Once the debt was discovered, one would anticipate the 3^rd Defendant to notify the debtor for payment, as the debt had been outstanding for a long time.  But this was never done.  This is an affront to common sense.  Andrew Xu is still working for the 3^rd Defendant.  But he did not give evidence in this trial to explain why he had made such an order. 

9.When asked about the supporting documents relating to the debt of US$25,000, Virginia Chen said that the finance department may have kept copies.  This Court asked her if she had made enquiries with the finance department; she said that she had not.  It is astonishing to hear this reply.  No doubt, this debt of US$25,000 was essential to the Defendants’ case.  Common sense demands that an effort to locate the supporting documents should have been made.  Making an enquiry with the finance department would not be a difficult thing to do.  A telephone call made to the finance department would be sufficient.  But she just did not do it.

10.The Plaintiff paid US$72,938 for the television sets under the 2^nd to 4^th contracts.  Even if there was a debt of US$25,000, the remaining amount was US$45,938.  But this amount was never returned to the Plaintiff.  The 1^st Defendant said that he did not know anything about this. The 1^st Defendant admitted that the 3^rd Defendant had a list of debtors/outstanding debts in its account.  But this was never produced.  This Court asked him whether a record of indebtedness could be obtained at any time from the computer.  He answered in the affirmative.  If the 3^rd Defendant had referred to such a list, it would shave shown the existence of the debt right away.  It is astonishing that the debts owed in 2003/2004 would only come to light in September 2005.

11.In March 2010, during the trial at that time, it was unfolded that the documents of the debts could not be recovered.  The Court at that time remarked that it is a bit dubious why those documents were not there.  Subsequent to the aborted trial, the documents relating to the debts (PP.430 and 431 of the trial bundle) were produced.  When asked about this the 1^st Defendant stated that he thought it was in relation to the contracts of the debts, which he could not find.  It is mere common sense that even if it were so, he should have produced these documents earlier on, because they show the amounts of indebtedness.  They were related to the debts.

12.During the trial, the Defence Counsel put to Victor of the Plaintiff that he was involved in the transactions relating to the USD$25,000 debt which occurred in 2003/2004.  Victor immediately took out his Indian passport to show that the date of its issue (issued on 13.10.2004).  According to him he never travelled outside India.  He only needed a passport in 2004.  So he could not be involved in the 2003 transaction when he did not have a passport to travel out of India and to enter China.

13.The Plaintiff did not owe any debt to the 3^rd Defendant.  The debts in question were incurred by Takashi USA, a different entity from the Plaintiff.

The alleged Tri Party Meeting on 26.10.2005

14.The Plaintiff denies the existence of the Tri Party Meeting between RS, Victor Chen and Kash.  Virginia Chen said that she sent an email to Victor less than an hour after the meeting had ended.  But she did not send any record of this meeting to Kash, although he had participated in the meeting.  According to her, there were other witnesses to the Tri Party Meeting, e.g. Andrew Xu and Kash.  But they were not called to give evidence.  This debt of US$25,000 was the central issue of this Tri Party Meeting.  But the email (P. 114 of the trial bundle) does not refer to any debt of US$25,000.  Inconsistent with the first paragraph of the email, no agreement was signed on 26.10.2005.  It is simply inconceivable that the Plaintiff would agree to accept a debt of US$25,000, which it never owed to the 3^rd Defendant.

15.There was a report (filed by the Defendants) made by the computer technician who verifies that the emails relating to the Tri Party meeting and the agreement found in the computer server of the 3^rd Defendant.  But this technician did not testify in Court.  I attach no weight to his report.

16.The Tri Party Agreement (disputed document, P.368 of the trial bundle) contains a provision for a receipt to be provided by the Defendants.  But Virginia Chen admitted that no receipt was ever provided.

17.The Plaintiff’s witnesses are honest witness. I accept their evidence.  The evidence of the Defendants’ witnesses is not credible.  In so far as such evidence contradicts those of the Plaintiff’s evidence, I reject the evidence of the Defendants. 

Quantum

18.The Plaintiff claims the following amounts:-

	(a)   amount paid for the non-delivered goods	US$72,873.00
	(b)   loss of profit on sale to Rich Brother	US$10,972
	(c)   Interest	US$18,879.00
	(d)   Other	US$10,000.00 ____________
		US$112,724 =========

(a) Amount paid for the non-delivered goods

19.This figure is not in dispute, and was confirmed by the 1^st Defendant in his evidence.

(b) Loss of profit

20.The loss of profit calculation, i.e. the Plaintiff’s sale to the Rich Brothers, is as follows:-

(a)  2 × 40 Feet container of TVs – 21 inches to be shipped to the Plaintiff, for which the Plaintiff made full payment.

Cost price is US$60.  The Selling Price for fob is US$69.5

Hence the total quantity shipped is 820 pieces × US$9.5 = US$7,790.

(b)  One 40foot container of TVs (29 inches) intended to be shipped to P.      The cost price is US$83.  The selling price is US$97.    US$97 – US$83 = US$14.  Hence US$14 × 220 sets = US$3,080.  

Hence the total profit on TVs is US$10,870 (US$7,790 + US$3,080).  US$172 is the profit on freight charges. Hence total profit is US$11,042.  But it only claimed US$10,972.

Other expenses

21.The Plaintiff paid 30% for the 4^th container that had never been shipped on behalf of the Plaintiff.  This container was related to the 29 inch televisions.  220 sets × US$97 – US$93 = US$14.  Hence US$14 × 220 sets = US$3,080 profit.  Insurance was paid for the 4^th container in the sum of US$790.

22.The Plaintiff incurred US$1,000 with the Allied Law Firm in Mainland China.

23.The Plaintiff incurred HK$80 in the issue of drafts for the freight charges.  A charge in the sum of US$474 (due to the fault of the Defendants) was levied for non compliance after the L/C date had expired.

24.I order that the Defendants do pay, jointly and severally, to the Plaintiff, within 14 days from today, the sum of US$89,189 (US$72,873 + US$10,972 + US$3,080 + US$790 + US$474) and HK$80 with interests on these 2 sums at judgment rate, commencing from 28.12.2006 until satisfaction.

Costs

25.I make an order nisi, to be made absolute in 14 days’ time, that the Defendants do pay costs of this action to the Plaintiff, to be taxed, if not agreed, with certificate for Counsel.

The Plaintiff :  represented by Mr. Kamlesh Sadhwani, instructed by M/S Krishsian & Tsang, Solicitors.

The Defendant:  represented by Mr. Johnny C.M. So, instructed by M/S Li, Wong, Lam & W.I. Cheung, Solicitors.