Re Fenn Wright & Manson (Asia) Ltd

HCCW 394/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 394 OF 2012

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DECISION
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1.I have before me 2 associated applications issued in the liquidation of Fenn Wright & Manson (Asia) Limited (“Company”). The first is issued by Draper Company Limited. It challenges a notice of adjudication of proof of debt dated 20 November 2014. It seeks to have the adjudication reversed and its proof admitted. The figure appearing in the summons has been amended. It is now US$200,173.84. The second application is issued by Trillion Asia Limited. It seeks a similar reversal of adjudication of its proof of debt dated 20 November 2014. It seeks to have its proof of debt admitted in the sum of US$757,371.92.

2.There is no dispute over the figures and the parties have agreed that regardless of my determination of the applications there should be no order as to costs between them.

3.The dispute between the Applicants and the Liquidators is as follows.  The claims arise pursuant to various purchase orders for the purchase of garments from the Applicants.  The Applicants had been selling garments for approximately 20 years to the Company and its English affiliate, Fenn Wright & Manson Ltd. (“English Company”). Both companies are in liquidation.

4.The purchase orders all seem to have been in the same form.  They are headed “Fenn Wright & Manson (Asia) Ltd)” but are signed “Buyer, for and on behalf of Fenn Wright & Manson Ltd.”.  On the reverse of the purchase orders are standard terms of contract, which I will consider later.

5.At the time the 2 companies went into liquidation, payments under a number of the purchase orders were outstanding.  Proofs have been submitted in the liquidation of the English Company and have been admitted.  The proofs submitted in the liquidation of the Company are in respect of the sums not recovered in the liquidation of the English Company.  The Applicants contended that under the purchase orders both the Company and the English Company are liable to pay the respective Applicants the purchase price.  The Liquidators argue that it is clear on the face of each of the purchase orders that the Company signed merely as agent for the English Company and, as a consequence, has no liability to pay any part of the purchase price.

6.The authorities establish that where a person signs a contract describing himself in language which indicates he does so as an agent he generally does not acquire any personal liability for the contract’s performance.  It is sufficient to cite 2 authorities to substantiate this and explain the rationale behind the principle.  The first is Universal Steam Navigation Co v James McKelvie [1].  At page 501 Lord Sumner explains:

“They are more, too, than words of description of the signatory’s business.  It has sometimes been said that when “agents” is the word added to the signature, it is a mere word of description, and so does not qualify the liability which the act of signing imports. I question this explanation. One’s signature is not the place in which to advertise one’s calling, nor is “agent” ordinarily used to describe a trade, as “tailor” or “butcher” would be. I have no doubt that, when people add “agent” to a signature to a contract, they are trying to escape personal liability, but are unaware that the attempt will fail. The result, however, is the same. When words added to a signature in themselves qualify liability, it is because, as words, they can be so construed in conjunction with the contract as a whole.

In construing the words “as agents”, there is a distinction to be taken. Though it may be somewhat subtle, it has been mentioned in the older cases. Do the words “as agents” mean “and as agents”, or “only as agents”? The positive affirmation, that I sign “as agent” – that is, for another – is formally consistent with my signing for myself as well. If the act of signing raises a presumption of personal assent and obligation, which has to be sufficiently negatived or qualified by apt words, are the words “as agent” apt or sufficient to exclude personal liability? For myself, I think that, standing alone, they are. To say “as agent”, meaning thereby “also as agent” for some one undisclosed, is substantially useless. If the agent refuses to disclose, the opposite party is no better off. If the statement is true, the rights and liabilities of the principal can be established at any time by proof. The statement only acquires a business efficacy as distinct from a formal content, if it means “I am not liable but someone else is and he only”, and this is what I think it does mean.”

7.As is apparent from this passage where a person signs describing himself "as an agent", or in some similar way, this gives rise to the presumption that he is signing only as an agent for his principal and is not agreeing to accept any liability himself for the performance of the contract.  This presumption can be rebutted if other terms of the contract and the circumstances in which it came to be made demonstrate that the intention of the parties was otherwise.

8.In Dragages Et Tavaux Publics & others v Gladhover Ltd & another [2], Clough JA is to similar effect:

“The question that arises depends on the objective intentions of the parties determined by the construction of the 1985 agreement in the light of the nature of the contract and the surrounding circumstances. As Bankes, L.J. observed in Ariadne Steamship Co. v. James McKelvie & Co. [1922] 1 KB 518 at p. 524, in such a situation decided cases can serve only as guides and not as authorities unless the language of two documents is practically identical. However the decided authorities establish certain clear principles which are material to the present circumstances. Thus although the general rule is that where a person contracts as agent for a principal, the contract is the contract of the principal and not that of the agent, so that the agent “drops out” of the transaction, nevertheless, if there are indications to the contrary it is possible for an agent to be a contracting party instead of or in addition to his principal: Bowstead on Agency, 15th ed. at p. 424.

As Lord Scarman observed in Yeung Kai Yung v. Hong Kong and Shanghai Banking Corpn. [1981] AC 787 at p. 795 C-D:

“The true principle of the law is that a person is liable for his engagements (as for his torts) even though he is acting for another, unless he can show that by the law of agency he is to be held to have expressly or impliedly negatived his personal liability.”

One of the accepted ways for an agent to negative his personal liability is to state in the contract or by way of qualification of his signature that he makes the contract “as agent for”, “on account of”, “on behalf of” or “for” a principal. Where the agent makes such a qualification to his signature of the contact, thereby qualifying all that has gone before, the case is strong for negativing personal liability in the absence of compelling indications to the contrary in the earlier part of the contractual instrument: Universal Steam Navigation Co. Ltd. v. James McKelvie & Co. [1923] AC 492; approving Gadd v. Houghton (1876) 1 Ex D 357; Halsbury’s Laws of England, 4th ed., Vol. 1, para. 854 where the editors express the view that qualification of the signature is conclusive.

In the present case Gladhover has used express language (“for and on behalf of”), which is commonly accepted as apt to qualify its capacity, both when named as a party in the 1985 agreement and in the attestation clause. It has also done so by implication in the testimonium clause where the defined expression “employer” is used. The same words are frequently used in other contractual documents, including the letter of confirmation of acceptance of the award of the contract dated 29th November 1984 and written on behalf of the contractors. It is difficult to see how the agreement can be capable of any construction which imposes personal liability on Gladhover if violence is not to be done to the plain meaning of the words “for and on behalf of”. Those were not the words under consideration in the McKelvie case or in Gadd v. Houghton but they are words which have frequently been judicially accepted as clearly negativing personal liability: see for example W. & T. Avery (Ltd.) v. Charlesworth (1914) 31 TLR 52; Ariadne Steamship Co. Ltd. v. James McKelvie & Co. per Atkin, L.J. at pp. 535‑6; The Swan at p.13 and The Santa Carina [1977] 1 Lloyd’s Rep 478 per Lord Denning, M.R. at p. 481.

….

However when seeking to ascertain the objective intention of the parties under the 1985 agreement and the contractual documents it seems to us, as it seemed to Barnett, J., that none of the above factors are of sufficient weight individually or in aggregate to require the 1985 agreement to be construed as imposing personal liability on Gladhover. The consistent use of the words “for and on behalf of” Nozesco are too strong and decisive in all the circumstances.

Moreover we consider that, as in the case of the words “as agents” which were under consideration in the James McKelvie case, the words “for and on behalf of” have for many years been commonly accepted in the commercial community as, in the words of Bankes, L.J. in the English Court of Appeal in that case Ariadne Steamship Co. v. James McKelvie & Co. at p. 529, “a deliberate expression of intention to exclude any personal liability of the signatory”. In our view it is in the best interests of the commercial community that such words should continue to be so construed in the absence of very compelling reasons to the contrary.”

9.The Liquidators say that given the language used in the purchase orders which make it clear that the Company was signing as agent for a disclosed principle the present case falls squarely within the ambit of the principles explained in these 2 decisions and the Company has no liability to pay any part of the purchase price.  This conclusion is supported when the practice of the parties in terms of payment are considered; a practice which forms part of the background against which the relevant purchase orders came to be made and which, therefore, are relevant and admissible considerations in determining what the parties have agreed.  In practice it appears that in the case of Trillion the English Company always paid.  In the case of Draper the position is less clear, but I accept the submission of Ms. Cheung’s, who appeared for the Liquidators, that it appears from an email sent by the Applicants’ English solicitors dated 5 March 2013 that this was also so in Draper’s case.

10.The Applicants argue that the description of the capacity in which the Company signed is not decisive in the present case.  It points to the following standard conditions of the purchase orders:

“4. It is a condition of this Contract that the goods shall correspond with the hereof in nature, substance and quantity, and in cases where samples have been supplied to and approved by the buying office – Fenn Wright & Manson (Asia) Ltd. (hereinafter called “the Company”),

….

7. The Company shall be entitled to rescind the Contract if the Company and / or the Seller shall be unable for any reason whatsoever to obtain the requisite import and / or export licenses and / or permits from the appropriate Government Authorities in Hong Kong and / or in the territories in which the goods are manufactured and / or in the territories to which the goods are to be shipped and / or transhipped.

8. The Sellers shall indemnify the Company against all liability in respect of any infringement or alleged infringement of Trade Marks, Trade Names, Patents, Registered Designs or the rights in relation to the goods of Third parties, and shall indemnify the Company against all proceeding, costs, expenses, claims and demands arising from any such liability.

9. The Company shall be entitled to set off any payment due to the Sellers under this Contract against any debt or other money due and payable to the Company by the Seller under any other documents, transactions, agreements or Contracts between the parties.

10. This Contract shall be deemed to have been made in Hong Kong. The construction validity and performance of this Contract shall be governed in all respects by the Law of Hong Kong.

11. Without prejudice to Condition 10 hereof, the Company shall have the right to submit to the jurisdiction of the courts of the Country of the Sellers in the event of any claims or disputes arising out of this Contract.”

11.The Applicants argue that these provisions gave the Company extensive rights in respect of the commercial transactions embodied in the purchase orders and this is more consistent with the Company being an agent and principle rather than just being an agent.  I should note here that the Liquidators accept that if the Company was both an agent and principle it was jointly and severally liable for payment of the purchase price with the English Company.

12.In my view it is necessary to consider the nature of the transaction and how the rights in the relevant clauses operate. There is not much evidence concerning the transactions, but the Applicants suggest that the purchase orders were commonly, at least as far as they can see, instigated by the Company.  They argue that this indicates that the Company had a material commercial involvement in the transactions.  The rights arising under the relevant clauses echo this and indicate that the Company did not merely have an administrative role and act as the English Company’s representative.

13.Although I can see some force in this argument, it does not seem to me that it necessarily follows that because the Company had, or potentially had, a substantial role to play in the underlying commercial transaction (and I accept for present purposes that the rights it is given are enforceable and not unenforceable for want of consideration), it follows that it was agreeing to be liable for the purchase price.  The authorities I have referred to are clear.  If a person signs an agreement clearly describing himself as an agent as Clough JA explains at 303H of Dragages ibid, it needs something compelling to rebut the presumption that he has not accepted personal liability for performance of the agreement. 

14.Where the performance involves payment, what is likely to be necessary is something associated with payment, which indicates in some way the acceptance of responsibility personally to make payment.  Here there is nothing.  As I have already mentioned the background facts are consistent with it being only the English Company’s obligation to pay. 

15.I therefore dismiss the applications with no order as to costs.

Mr Danny Fung, instructed by Edward Lau, Wong & Lou, for the applicants

Ms Elizabeth Cheung, instructed by Johnnie Yam, Jacky Lee & Co, for the respondents