HCCT45/2006 SINOM SHANGHAI IMPORT & EXPORT CO LTD v. EXFIN (INDIA) MINERAL ORE CO PVT LTD - LawHero
HCCT45/2006
高等法院（建築及仲裁）Mr Recorder K Kwok SC18/6/2006
HCCT45/2006
由此
A A
B B
HCCT 45/2006
C C
IN THE HIGH COURT OF THE
D D
HONG KONG SPECIAL ADMINISTRATIVE REGION
E COURT OF FIRST INSTANCE E
F
CONSTRUCTION AND ARBITRATION PROCEEDINGS F
NO. 45 OF 2006
G G
____________
H H
BETWEEN
I SINOM SHANGHAI IMPORT & EXPORT I
CO. LTD. Plaintiff
J J
and
K K
EXFIN (INDIA) MINERAL ORE
L CO. PVT. LTD. Defendant L
____________
M M
Before: Mr Recorder K Kwok SC in Chambers
N N
Date of Hearing: 12 June 2006
O
Date of Reasons for Judgment: 19 June 2006 O
P P
__________________________________
Q REASO N S F OR J U DGM E NT Q
__________________________________
R R
S S
The applications and the Order made
T T
1. By an Order dated 29 May 2006, Reyes J granted the
U following injunction against the defendant:- U
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“The Intended Defendant be restrained from dealing with or
B attempting to deal with the proceeds of the letter of credit and in B
particular be restrained from continuing to request Standard
Chartered Bank to remit any of the proceeds of [the letter of
C C
credit issued by Standard Chartered Bank on 15th March 2006
Ref 333-01-001861-S] until further order.”
D D
2. By summons dated 30 May 2006, the plaintiff applied to E
E
continue the injunction. By summons dated 1 June 2006, the defendant
F F
applied to discharge the injunction. Both summons came before me on
G
12 June 2006. After hearing counsel for the parties, I formed the clear G
view that the injunction should be discharged and not be continued. At
H H
about 4 pm I pronounced my judgment to discharge the injunction and said
I that reasons for my judgment would be handed down. Mr John Kerr, I
counsel for the plaintiff, applied for a stay of the discharge of the
J J
injunction pending the plaintiff’s appeal. As I was clearly of the view that
K the injunction should be discharged, I declined to grant a stay of the K
discharge of the injunction pending appeal. However, I was prepared to
L L
preserve the position to give the plaintiff time to apply to the Court of
M Appeal. M
N N
3. I made the following Order:-
O “1. The injunction order made herein on the 29th day of May O
2006 by the Honourable Mr Justice Reyes be discharged.
P P
2. The Plaintiff and/or Messrs Sinom (Hong Kong) Limited
do pay to the Defendant compensation for losses caused by
Q the issuing of the said injunction. Q
3. There be an inquiry as to the amount of the losses so
R caused. R
4. The costs of this application be paid by the Plaintiff to the
S S
Defendant forthwith, to be taxed if not agreed.
T 5. Notwithstanding paragraph 1, the Order of Reyes J dated T
29 May 2006 be continued until 2 days after the Court shall
have handed down reasons for its Judgment.”
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4. Reasons for my judgment follow.
B B
C C
The background
D 5. The plaintiff is a Shanghai based company carrying on the D
business of, inter alia, iron ore trading. The plaintiff does not carry on any
E E
business in Hong Kong and makes no allegation that it has any asset in
F Hong Kong. F
G G
6. The defendant is an Indian business carrying on the business
H of, inter alia, trading and exporting of iron ore. The plaintiff makes no H
allegation that the defendant has any presence or asset in Hong Kong.
I I
J 7. By a contract dated 4 January 2006 the defendant sold and J
Sinom (Hong Kong) Ltd, an associated company of the plaintiff, purchased K
K
iron ore. There is no complaint about this transaction.
L L
8. By a contract dated 9 March 2006 as amended by an M
M
Addendum dated 3 April 2006, the defendant sold and the plaintiff
N N
purchased 50,000 wet metric tons +/- 10% at the defendant’s option iron
O
ore fines at US$55.50 per dry metric ton CFR FO one main port China O
based on 60% Fe.
P P
Q
9. Clause 6 of the sale and purchase contract provided for Q
payment by letter of credit, payable at sight at the counters of the
R R
negotiating bank (not the issuing bank) by negotiation of documents:-
S “The buyer shall open within 4 bank working days from signing S
this contract, an irrevocable, freely negotiable with any bank in
India, workable letter of credit payable at sight at the counters of
T T
negotiating bank, by negotiation of documents as specified in
Clause 7 in favour of the seller from any prime bank for an
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amount in USD to cover 100% of the shipment value along with
B price adjustment, if any. All banking charges after establishment B
of LC shall be paid by the seller.
C Seller should provide the full background information of the C
beneficiary which should be acceptable to buyer and buyer’s
D
bank. Otherwise, the buyer shall bear no responsibility for LC D
opening.”
E E
10. Clause 17 is a provision on title and risk and it also confirms
F F
the parties’ contemplation of the involvement of a negotiating bank:-
G “The Title with respect to each shipment shall pass from Seller to G
the Buyers when Seller receives the proceeds from the opening
bank through the negotiating bank against the relative shipping
H H
documents as set forth in clause 7A after completion of loading
on board the vessel at loading port, with effect retrospective to
I the time of delivery of ore. I
All Risk of loss, damage or destruction with respect to the ore
J delivered shall pass to Buyer’s at the time of discharge of the Ore J
from the loading devices into the vessel.
K K
All taxes/dues on cargo at load port for sellers account.”
L L
11. The letter of credit, as amended on 7 April 2006, was issued
M M
by Standard Chartered Bank on the application of the plaintiff. The
plaintiff’s case is that the letter of credit complied with the contract, in N
N
particular clause 6. Mr Lee Siu Yung deposed in paragraph 10 of his [first]
O O
Affirmation that:-
P “In compliance with the terms of the Contract, in particular P
Clause 6, the Intended Plaintiff arranged with Standard
Chartered Bank Shanghai Branch for the issuance of a letter of
Q Q
credit No. 333-01-0011861-3 dated 15 March 2006 and amended
on 7 April 2006 in the sum of US$2,725,000 as payment for the
R Cargo”. R
S S
12. The letter of credit was sent to Bank of Baroda in India. It
T
was irrevocable, and:- T
“:41D: AVAILABLE WITH … BY …
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ANY BANK
B B
BY NEGOTIATION
C :42C DRAFTS AT C
AT SIGHT COVERING 100 PCT CFR VALUE
D D
42A: DRAWEE
E E
SCBL CNSXSHA
F … F
:78: INSTRUCTIONS TO THE PAY/ACCEP/NEG BANK
G G
THE NEGOTIATING BANK IS TO FORWARD ALL
DOCUMENTS BY COURIER TO Standard Chartered Bank …
H H
Shanghai … IN ONE LOT”
I I
13. Article 3 a of The Uniform Customs and Practice for
J J
Documentary Credits (1993 Revision) ICC Publication No. 500 provides
that:- K
K
“Credits, by their nature, are separate transactions from the sales
L or other contract(s) on which they may be based and banks are in L
no way concerned with or bound by such contract(s), even if any
reference whatsoever to such contract(s) is included in the Credit.
M M
Consequently, the undertaking of a bank to pay, accept and pay
Draft(s) or negotiate and/or to fulfil any other obligation under
N the Credit, is not subject to claims or defences by the Applicant N
resulting from his relationships with the Issuing Bank or the
Beneficiary.”
O O
P 14. Article 4 provides that:- P
“In Credit operations all parties concerned deal with documents,
Q Q
and not with goods, services and/or other performances to which
the documents may relate.”
R R
15. Article 9 a iv provides that:- S
S
“An irrevocable Credit constitutes a definite undertaking of the
T Issuing Bank, provided that the stipulated documents are T
presented to the Nominated Bank or to the Issuing Bank and that
the terms and conditions of the Credit are complied with … if the
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Credit provides for negotiation – to pay without recourse to
B drawers and/or bona fide holders, Draft(s) drawn by the B
Beneficiary and/or documents presented under the Credit.”
C C
16. Article 10 b i & ii provide that:-
D D
“i Unless the Credit stipulates that it is available only with the
Issuing Bank, all Credits must nominate the bank (the E
E
‘Nominated Bank’) which is authorised to pay, to incur a
deferred payment undertaking, to accept Draft(s) or to
F negotiate. In a freely negotiable Credit, any bank is a F
Nominated Bank.
G Presentation of documents must be made to the Issuing G
Bank or the Confirming Bank, if any, or any other
H
Nominated Bank. H
ii Negotiation means the giving of value for Draft(s) and/or
I document(s) by the bank authorised to negotiate. Mere I
examination of the documents without giving of value does
not constitute a negotiation.”
J J
K 17. Article 10 d provides that:- K
“By nominating another bank, or by allowing for negotiation by L
L
any bank, or by authorising or requesting another bank to add its
confirmation, the Issuing Bank authorises such bank to pay,
M accept Draft(s) or negotiate as the case may be, against M
documents which appear on their face to be in compliance with
the terms and conditions of the Credit and undertakes to
N N
reimburse such bank in accordance with the provisions of these
Articles.”
O O
P
18. The plaintiff’s case is that Bank of Baroda is the negotiating P
bank. Standard Chartered Bank accepted that Bank of Baroda is the
Q Q
negotiating bank. Mr Lee Siu Yung deposed in paragraph 21 of his [first]
R
Affirmation that:- R
“I refer to two emails from Ms. Freda Shen of Standard
S Chartered Bank to Ms. Jessica Leung, an accounts staff of the S
Intended Plaintiff on 23 and 24 May 2005 wherein the
negotiating bank in India had been chasing Standard Chartered T
T
Bank who in turn chased the Intended Plaintiff.”
U U
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In the email which appeared to be dated 24 May, Ms Freda Shen wrote:-
B B
“Now we receive the daily tracer from the negotiating bank,
below please see the incoming message received today. Please C
C
give your help.”
D D
19. In proceedings issued in England by Bank of Baroda against
E E
Standard Chartered Bank PLC, Bank of Baroda claimed that documents
F
required by the letter of credit were presented by the defendant to Bank of F
Baroda on about 19 April 2006; that Bank of Baroda negotiated the same
G G
documents by presenting them at the Standard Chartered Bank’s Shanghai
H branch to obtain payment by Standard Chartered Bank of the sum of H
US$2,338,138.62; and that the documents thus presented and negotiated
I I
included a bill of exchange for an amount of U$2,338,138.62 dated
J 19 April 2006 drawn by the defendant on Standard Chartered Bank in J
favour of Bank of Baroda.
K K
L 20. The plaintiff’s case is that “the Cargo was laden on board the L
vessel MV Uttarkashi at Haldia and Vizag, India on or around 13 April
M M
2006 as evidenced by a bill of lading dated 13 April 2006, see
N paragraph 11 of Mr Lee Siu Yung’s [first] Affirmation. N
O O
21. By a fax dated 25 April 2006, Standard Chartered Bank
P informed the plaintiff that a set of documents drawn under the letter of P
credit had been received and that the set of documents were available for
Q Q
inspection at Standard Chartered Bank’s office and asked for instructions
R as per the bank’s Document Instruction form. R
S S
22. By 29 April 2006, the parties came to know about an order
T made by the Dalian Maritime Court in China on the application of one Red T
Horse Resources (H.K.) Ltd attaching 17,000 metric tons iron ore fines on
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board M/V Uttarkashi and owned by the defendant and ordering the
B B
defendant to provide security in the sum of US$1,084,800.
C C
23. On about 29 April 2006, the defendant sent the following
D D
email:-
E E
“We have discussed with our lawyer at Hongkong in detail. He
had informed us that if the ownership of the cargo is not of Exfin,
F they can do nothing and Sinom will have full right on cargo and F
get the delivery. For this Sinom has to declare that they have
made payments to Exfin. The Cargo belongs to them. This they
G can discuss with their legal department, and further also from our G
lawyers at Hongkong, Mr. H.W. Dunlop …
H H
As sson (sic) as you do this you will get the release of the cargo.
Please go as fast as possible and inform us so that we inform our
I lawyers and he will depute his counter part at Dalian Court for I
smooth release of cargo to Sinom.
J Pl get back asap.” J
K K
24. On 1 May 2006, the defendant sent another email:-
L L
“This in reference to our vessel MC Uttarkashi, we have to bring
to your notice the following.
M M
1. This contract on M.V. Uttarkashi is between Exfin (India)
Mineral Ore Company Pvt. Ltd. (shipper) and Sinom
N Import and Export Co. Ltd. (as receivers/buyers) N
2. So, the contract is very clear with the obligation of Exfin
O O
Mineral to supply iron ore to Sinom or CFR basis which
has been done.
P P
3. The vessel M.V. Uttarkashi is already discharging the
cargo and awaiting original B/L from Sinom
Q (buyer/receivers) and you are requested to kindly take the Q
custodian of this cargo as per contract.
R R
4. Any other obligatory issues between Exfin Minerals (as
shippers) and any other party (other than SINOM) will be
S dealt with separately. Hence SINOM need not have to S
worry about any claim, which is coming from any other
third party.
T T
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5. In case SINOM is receiving any notice of claim from any
B other buyer or third party in respect of issues/problems B
caused by Exfin Minerals will be dealt directly here by
Exfin Mineral. Therefore it is very clear that SINOM need
C C
not be perturbed by any claim. In case of any court notice,
it is expected out of SINOM that they approach the court
D and on the basis of the contract, irrevocable L/C issued by D
SINOM, tell the court that the cargo belongs to SINOM
and not EXFIN. Whatever claims against EXFIN they are
E already pending for arbitration at Hong Kong. Therefore E
the cargo should be handed over to SINOM.
F F
6. In case there is any delay in taking delivery of cargo by the
receivers due TO this reason, all the delay, cost, time will
G be purely on Sinom (as receivers) account. G
Request you to take the matter very seriously and act.”
H H
I 25. Mr Lee Siu Yung stated in paragraph 3 of his [first] I
Affirmation that the plaintiff was applying for an injunction prohibiting the
J J
defendant from “drawing down funds against” the letter of credit.
K K
26. Mr Lee Siu Yung deposed in paragraph 7 of his second
L L
Affirmation that:-
M M
“I understand from my discussions … that if the Intended
Plaintiff cannot produce a Court Order or equivalent to the effect
N that the Intended Defendant are prohibited from attempting to N
draw down on the L/C or in the alternative the Intended
Defendant are ordered to take back the L/C documents already
O presented to the negotiating bank or Standard Chartered Bank for O
payment under the L/C, then it is probable that Standard
Chartered Bank would be obliged to effect payment under the P
P
L/C without further delay and hence the urgency of the present
application.”
Q Q
R 27. Various other matters had been raised in the plaintiff’s R
affirmations. There is a suggestion that the documents do not comply with
S S
the documentary credit. If that suggestion is correct and if Standard
T Chartered Bank pays, the plaintiff will have its remedies against Standard T
Charter Bank. The plaintiff does not question Standard Chartered Bank’s
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financial ability to satisfy any judgment which may be awarded against it
B B
in connection with the letter of credit.
C C
D
Hearing bundles D
28. Copy documents produced by the deponents in their
E E
affirmations were put together in one exhibit for each affirmation, without
F separate identification of any document and without a list or index. F
Solicitors’ convenience means that I had to spend much time trying to
G G
locate or search for a particular document. My task was eased to some
H extent by Mr Clifford Smith SC who helpfully submitted a Chronology H
with page references.
I I
J 29. There are 2 copies of the letter of credit in the hearing bundle. J
They look different. They also seem incomplete. I asked for but did not K
K
get a better and complete copy of the letter of credit.
L L
30. I asked for but did not get a copy of ICC Publication No. 500. M
M
I had to consult leading textbooks on documentary credit.
N N
O
31. I asked for but did not get a copy of the draft or bill of O
exchange under the letter of credit.
P P
Q The fraud point Q
R 32. Mr John Kerr alleged and argued fraud against the defendant R
at the hearing before Reyes J. He told me that the learned judge was of the
S S
view that fraud had not been established. I would have thought that that
T should be the end of the matter so far as fraud was concerned. However, T
Mr John Kerr raised fraud at the hearing before me. He contended that as
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the defendant was represented, I might be satisfied that the plaintiff had a
B B
good arguable case of fraud against the defendant. I have no hesitation in
C rejecting this contention. The defendant has no case to answer on fraud C
and the plaintiff’s position cannot and is not improved by any alleged
D D
failure of the defendant to exonerate itself on a charge on which the
E learned judge held that the defendant had no case to answer. There are E
other reasons why the plaintiff must fail on the fraud point and I shall
F F
come back to them below.
G G
H Jurisdiction H
33. By clause 16 of the sale and purchase contract, the parties
I I
agreed to settle disputes or differences by friendly negotiations, failing
J J
which by arbitration at the Hong Kong International Arbitration Centre by
applying English law. Counsel agreed that for the purpose of the hearing K
K
before me, I should assume (without deciding) that the Court has
L L
jurisdiction to grant an injunction against the defendant. Both parties
reserved their position on the jurisdiction point. M
M
N N
Scope of order sought by plaintiff
O O
34. It was not clear to me from the terms of the Order whether
P
Standard Chartered Bank would be in breach of the Order if it should pay P
in accordance with the letter of credit. I asked Mr John Kerr whether he
Q Q
was seeking to prevent Standard Chartered Bank from paying. I hope I am
R not doing him an injustice when I say that he did not give me an R
unequivocal answer. If the plaintiff was seeking to prevent Standard
S S
Chartered Bank from paying, it should be forthcoming and say so
T expressly by seeking an order in terms which make it clear what Standard T
Chartered Bank must not do. Banks have an international reputation to
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protect, and unless they are enjoined by a clear and precise court order,
B B
they should not be put at risk of losing their credibility in the banking and
C commercial communities. C
D D
Seller’s assured right to be paid under documentary credit and the fraud
E point E
35. United City Merchants (Investments) Ltd v Royal Bank of
F F
Canada [1983] AC 168 is a case which raised a question of law which is
G G
of general importance to all those engaged in the conduct and financing of
international trade for it challenges the basic principle of documentary H
H
credit operations that banks that are parties to them deal in documents only,
I I
not in the goods to which those documents purport to relate, per
Lord Diplock at p. 180. J
J
K K
36. The whole commercial purpose for which the system of
L
confirmed (Mr John Kerr did not argue that there is any difference for L
negotiable) irrevocable documentary credits has been developed in
M M
international trade is to give to the seller an assured right to be paid before
N he parts with control of the goods that does not permit of any dispute with N
the buyer as to the performance of the contract of sale being used as a
O O
ground for non-payment or reduction or deferment of payment.
P Lord Diplock stated the governing principles and commercial purpose at P
pp. 182 – 183:-
Q Q
“My Lords, for the proposition upon the documentary credit
point, both in the broad form for which counsel for the
R R
confirming bank have strenuously argued at all stages of this
appeal and in the narrower form or “halfway house” that
S commended itself to the Court of Appeal, there is no direct S
authority to be found either in English or Privy Council cases or
among the numerous decisions of courts in the United States of
T America to which reference is made in the judgments of the T
Court of Appeal in the instant case. So the point falls to be
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decided by reference to first principles as to the legal nature of
B the contractual obligations assumed by the various parties to a B
transaction consisting of an international sale of goods to be
financed by means of a confirmed irrevocable documentary
C C
credit. It is trite law that there are four autonomous though
interconnected contractual relationships involved. (1) The
D underlying contract for the sale of goods, to which the only D
parties are the buyer and the seller; (2) the contract between the
buyer and the issuing bank under which the latter agrees to issue
E the credit and either itself or through a confirming bank to notify E
the credit to the seller and to make payments to or to the order of
the seller (or to pay, accept or negotiate bills of exchange drawn F
F
by the seller) against presentation of stipulated documents; and
the buyer agrees to reimburse the issuing bank for payments
G made under the credit. For such reimbursement the stipulated G
documents, if they include a document of title such as a bill of
lading, constitute a security available to the issuing bank; (3) if
H H
payment is to be made through a confirming bank the contract
between the issuing bank and the confirming bank authorising
I and requiring the latter to make such payments and to remit the I
stipulated documents to the issuing bank when they are received,
the issuing bank in turn agreeing to reimburse the confirming
J bank for payments made under the credit; (4) the contract J
between the confirming bank and the seller under which the
K confirming bank undertakes to pay to the seller (or to accept or K
negotiate without recourse to drawer bills of exchange drawn by
him) up to the amount of the credit against presentation of the
L stipulated documents. L
Again, it is trite law that in contract (4), with which alone the
M M
instant appeal is directly concerned, the parties to it, the seller
and the confirming bank, “deal in documents and not in goods,”
N as article 8 of the Uniform Customs puts it. If, on their face, the N
documents presented to the confirming bank by the seller
conform with the requirements of the credit as notified to him by
O the confirming bank, that bank is under a contractual obligation O
to the seller to honour the credit, notwithstanding that the bank
P
has knowledge that the seller at the time of presentation of the P
conforming documents is alleged by the buyer to have, and in
fact has already, committed a breach of his contract with the
Q buyer for the sale of the goods to which the documents appear on Q
their face to relate, that would have entitled the buyer to treat the
contract of sale as rescinded and to reject the goods and refuse to
R R
pay the seller the purchase price. The whole commercial purpose
for which the system of confirmed irrevocable documentary
S credits has been developed in international trade is to give to the S
seller an assured right to be paid before he parts with control of
the goods that does not permit of any dispute with the buyer as to
T T
the performance of the contract of sale being used as a ground
for non-payment or reduction or deferment of payment.”
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37. Fraud is the established exception. The relevant time is the
B B
presentation by the beneficiary to the confirming bank, or the negotiating
C bank in this case. To come within this exception, bank documents must C
contain, expressly or by implication, material representations of fact that
D D
are to the knowledge of the beneficiary untrue. The following is another
E oft-cited passage by Lord Diplock (at pp. 183 – 184):- E
“To this general statement of principle as to the contractual F
F
obligations of the confirming bank to the seller, there is one
established exception: that is, where the seller, for the purpose of
G drawing on the credit, fraudulently presents to the confirming G
bank documents that contain, expressly or by implication,
material representations of fact that to his knowledge are untrue.
H H
Although there does not appear among the English authorities
any case in which this exception has been applied, it is well
I established in the American cases of which the leading or I
“landmark” case is Sztejn v. J. Henry Schroder Banking
Corporation (1941) 31 N.Y.S. 2d 631. This judgment of the New
J York Court of Appeals was referred to with approval by the J
English Court of Appeal in Edward Owen Engineering Ltd. v.
K
Barclays Bank International Ltd. [1978] Q.B. 159, though this K
was actually a case about a performance bond under which a
bank assumes obligations to a buyer analogous to those assumed
L by a confirming bank to the seller under a documentary credit. L
The exception for fraud on the part of the beneficiary seeking to
avail himself of the credit is a clear application of the maxim ex
M M
turpi causa non oritur actio or, if plain English is to be preferred,
“fraud unravels all.” The courts will not allow their process to be
N used by a dishonest person to carry out a fraud.” N
O O
38. In Group Jose Re v Walbrook Insurance Co. [1996] 1 WLR
P 1152 at pp. 1160 – 1162, Staughton LJ cited United City Merchants and P
held that knowledge acquired subsequent to the presentation of documents
Q Q
was irrelevant and that applications to restrain the beneficiary from asking
R for payment should fail:- R
“As the decision in that case shows, it is nothing to the point that
S S
at the time of trial the beneficiary knows, and the bank knows,
that the documents presented under the letter of credit were not
T truthful in a material respect. It is the time of presentation that is T
critical.
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…
B B
However, it is argued by Mr. Bartlett for the reinsurers that the
case is altogether different, and the rule which I have been
C discussing does not apply, when an injunction is sought not C
against the bank but against the beneficiary of a letter of credit.
D
In my opinion that cannot be right. The effect on the lifeblood of D
commerce will be precisely the same whether the bank is
restrained from paying or the beneficiary is restrained from
E asking for payment. That was the view of Sir John Donaldson E
M.R. in Bolivinter Oil S.A. v. Chase Manhattan Bank N.A.
(Practice Note) [1984] 1 Lloyd's Rep. 251, 254, of Donaldson
F F
L.J. in Intraco Ltd. v. Notis Shipping Corporation [1981] 2
Lloyd's Rep. 256, of Lloyd L.J. in the Dong Jin Metal case,
G 13 July 1993, and of both Clarke and Phillips JJ. in the present G
case.”
H H
39. There is simply no evidence that the defendant knew at the
I I
time of the presentation of the documents to Bank of Baroda that the bill of
J lading, or any other document presented, contained, whether expressly or J
by implication, any material representation of fact which was untrue. I
K K
decline to speculate on when the defendant might have acquired
L knowledge that Red Horse was seeking to attach part of the cargo. L
M M
40. Fraud should never have been raised again in this case.
N N
41. Even if fraud was established, that is not the end of the matter.
O O
Balance of convenience has to be considered. To quote the words of Ma J
P (as he then was) in Prime Deal (HK) Enterprises Limited v The Hongkong P
and Shanghai Banking Corporation Limited and another, unreported,
Q Q
HCA 2142/2002, 15 July 2002, at paragraph 14 (8) and (9):-
R R
“(8) The balance of convenience of course does not end with
just proving the fraud. Here, the court will also have to
S examine other factors to see whether the balance of S
convenience is or is not in favour of stopping payment. In
United Trading Corporation, the English Court of Appeal
T T
considered this question by examining not just the position
of the applicant and the beneficiary but also, perhaps most
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important of all in this context, the position of the bank.
B Reference was made by Ackner LJ to the dicta of Kerr J in B
R.D. Harbottle (Mercantile) Limited v. The National
Westminster Bank Limited [1978] QB 146, at 155. Owing
C C
to the strict mandate under which banks operate as far as
their customers are concerned and also to the reputation
D and integrity so essential to the operation of banks, the D
consequences to the bank of stopping payment must be
considered by the court.
E E
(9) There is another aspect of the balance of convenience to
which I ought to allude. In Guangdong Transport Limited,
F F
the Court of Appeal considered the question whether, even
if the applicant were correct in its contentions on fraud,
G damages would provide an adequate remedy : see the G
judgment at 931F. This question must of course be
considered for both the bank and the beneficiary. If
H H
damages were to be an adequate remedy, this would be a
significant factor in refusing an interlocutory injunction.”
I I
42. The letter of credit was freely negotiable. The inherent J
J
probabilities are that a freely negotiable letter of credit would have been
K K
negotiated before shipment. The plaintiff’s evidence was that Bank of
Baroda was the negotiating bank. That points to Bank of Baroda having L
L
given value and being entitled under the credit to be reimbursed by
M M
Standard Chartered Bank. Even if fraud had been established, I would still
N
have declined to grant an injunction. I am appalled by the possible N
ramifications of the granting of an injunction in the circumstances of this
O O
case on the innocent third parties, i.e. Standard Chartered Bank and Bank
P of Baroda. The plaintiff cannot possibly be entitled to obtain the P
advantage of an order restraining payment at the expense of the business
Q Q
rights of innocent third parties, merely by proffering him an indemnity in
R whatever form, cf Galaxia Maritime S.A. v Mineralimportexport [1982] 1 R
WLR 539.
S S
T 43. On the second aspect, there is no allegation and no evidence of T
any inability on the part of the defendant to pay damages.
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44. For reasons given above and my reasons below for rejecting
B B
the plaintiff’s contention, that part of the Order which restrained the
C defendant from continuing to request Standard Chartered Bank to remit C
any of the proceeds of the letter of credit must be discharged.
D D
E E
Plaintiff’s contention
F 45. I hope I have not misunderstood Mr John Kerr by F
summarising his contention as follows:-
G G
(a) the letter of credit is payable at the branch of the issuing bank
H H
in Shanghai and nowhere else;
I (b) once the issuing bank decides to pay, the money becomes the I
defendant’s money, and
J J
(c) as the money in the issuing bank’s hands becomes the
K K
defendant’s, the court can restrain the defendant from dealing
L with it. L
M M
46. I reject his contention for the following reasons.
N N
47. No authority is cited in support of his contention. The Bhoja
O O
Trader case is against it, see paragraphs 54 and 55 below.
P P
48. His contention seems to me to be an attempt to circumvent the
Q Q
documentary credit point.
R R
49. Payment under the letter of credit is by sight drafts drawn on
S S
Standard Chartered Bank. I do not have a copy of the draft and do not
T know if it was drawn by the defendant and payable to Bank of Baroda, as T
alleged by Bank of Baroda. I interpose to state that it is incumbent on the
U U
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plaintiff to satisfy me that an injunction should be granted. What Mr John
B B
Kerr is contending is that once the drawee of the draft, i.e. Standard
C Chartered Bank, decides to pay, the amount payable under the draft C
becomes the defendant’s money:-
D D
(a) if the defendant is the drawer;
E E
(b) if the defendant is the payee; and
F F
(c) if the defendant is not a party to the draft.
G G
50. The proposition that once the drawee of a draft decides to pay,
H H
the funds payable under the draft becomes the drawer’s money is
I intrinsically wrong. I
J J
51. Propositions (b) and (c) are quite novel to me and I reject them
K in the absence of any compelling or persuasive authority. K
L L
Restraining defendant from dealing with the proceeds of the letter of credit
M M
52. Next, I have to consider whether an order should be made
N restricting or restraining the beneficiary from dealing with the proceeds of N
the letter of credit.
O O
P 53. To quote Ma J again (at paragraph 14(10) & (11)):- P
“(10) Where, for whatever reason, the court does not grant an Q
Q
interlocutory injunction restraining payment, the next
question that arises is whether an order should be made
R restricting or restraining the beneficiary from dealing R
with the proceeds of the letter of credit. This is the 2nd
issue I have earlier identified. This situation is expressly
S S
referred to in the authorities : see Bolivinter at 393E-F;
the Bhoja Trader [1981] 2 Lloyd’s Rep. 256; Gee :
T Mareva Injunctions and Anton Piller Relief (4th Edition) T
at 37.
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(11) Here, the application for an injunction is akin to that of
B (if not actually) a Mareva injunction. In other words, an B
injunction would only be granted preventing the
beneficiary from dealing with the proceeds of a letter of
C C
credit if there is a risk that he will dissipate the proceeds
and thereby thwart any judgment that the plaintiff may
D obtain against him. It is important to bear in mind that D
such an injunction is not dependent on fraud being
shown (or even alleged). Like all Mareva injunctions,
E all that is needed to be demonstrated is a good arguable E
case, usually a breach of contract (or any other cause of
action), the risk of dissipation and the balance of F
F
convenience.”
G G
54. In Intraco Ltd. v Notis Shipping Corporation (the ‘Bhoja
H H
Trader’) [1981] 2 Lloyd’s Rep 256, at pp. 257 – 258, Donaldson DJ,
I delivering the judgment of the Court of Appeal, stated:- I
“Irrevocable letters of credit and bank guarantees given in
J circumstances such that they are the equivalent of an irrevocable J
letter of credit have been said to be the life blood of commerce.
Thrombosis will occur if, unless fraud is involved, the Courts K
K
intervene and thereby disturb the mercantile practice of treating
rights thereunder as being the equivalent of cash in hand.
L L
The learned Judge went on to say that this did not prevent the
Court, in an appropriate case, from imposing a Mareva
M injunction upon the fruits of the letter of credit or guarantee. M
Again we agree. It is the natural corollary of the proposition that
N
a letter of credit or bank guarantee is to be treated as cash that N
when the bank pays and cash is received by the beneficiary, it
should be subject to the same restraints as any other of his cash
O assets. Enjoining the beneficiary from removing the cash asset O
from the jurisdiction is not the same as taking action, whether by
injunction or an order staying execution, which will prevent him P
P
obtaining the cash (see Montecchi v Shimco (U.K.) Ltd., [1980] 1
Lloyd’s Rep. 50; [1979] 1 WLR 1180).”
Q Q
R
55. It is noteworthy that Donaldson LJ was referring to the stage R
of cash being “received” by the beneficiary, not the earlier stage of the
S S
issuing bank deciding to pay. Donaldson LJ was contrasting that with an
T injunction preventing the beneficiary from obtaining the cash which is T
what the plaintiff is seeking under the second part of the Order.
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56. No attempt has been made by Mr John Kerr to identify the
B B
proceeds of the letter of credit or the cash in the defendant’s hands.
C Nevertheless, it is clear that the proceeds of the letter of credit are assets C
outside Hong Kong’s jurisdiction.
D D
E 57. In Bank of India v Bhagwandas Kewalram Murjani and others E
[1989] 2 HKLR 318, the Court of Appeal considered the circumstances in
F F
which a Mareva injunction restraining the disposition of assets outside the
G jurisdiction and gave the following guidance at pp. 319 – 320. G
“That the relief operates in personam as regards a defendant but, H
H
in effect, ad rem as against third parties and does not amount to a
pre-trial attachment of assets was common ground. In our
I opinion a Mareva injunction affecting assets outside the I
jurisdiction may be granted when there is a good arguable case
that the plaintiff will recover judgment, reason to think both that
J J
the defendant, properly before the court, has such assets
available to satisfy it but insufficient assets within the
K jurisdiction for the purpose and the Court is satisfied that there is K
a real risk that the defendant may take steps designed so to
dispose of or conceal such foreign assets as to render the
L L
judgment nugatory by the time that it is given. Further, the
defendant may be ordered to make discovery as to his assets in a
M proper case and the jurisdiction in that regard is not limited to M
tracing actions. Thus, subject to provisos and undertakings apt to
allow the defendant to carry on his business and private life in
N the ordinary way and to limit the effect of the order on third N
parties outside the jurisdiction, the principles applicable to the
grant of an injunction inhibiting the disposition of assets within O
O
the jurisdiction are, as Barnett, J. held, equally applicable to the
grant of such an injunction directed to assets outside it. We so
P conclude in the light of the several persuasive authorities decided P
between June and December 1988 during which the practice in
the English Court of Appeal was developed and clarified and, in
Q Q
particular, of Derby & Co. Ltd. v. Weldon (Nos. 3 & 4) [1989] 2
WLR 412.”
R R
58. A “good arguable case” is no doubt the minimum which the S
S
plaintiff must show in order to cross the threshold for the exercise of the
T T
jurisdiction, but at the end of the day the court must consider the evidence
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as a whole in deciding whether or not to exercise this jurisdiction, see
B B
Ninemia Maritime Corp. v Trave GmbH [1983] 1 WLR 1412 at p. 1417.
C The ultimate test is (at p. 1426):- C
“The ultimate test for the exercise of the jurisdiction is whether,
D D
in all the circumstances, the case is one in which it appears to the
court “to be just and convenient” to grant the injunction: see
E section 37 of the Supreme Court Act 1981 which we have E
already set out. Thus, the conduct of the plaintiffs may be
material, and the rights of any third parties who may be affected
F F
by the grant of an injunction may often also have to be borne in
mind: see Galaxia Maritime S.A. v. Mineralimportexport [1982]
G 1 W.L.R. 539 Further, it must always be remembered that if, or G
to the extent that, the grant of a Mareva injunction inflicts
hardship on the defendants, their legitimate interests must prevail
H over those of the plaintiffs, who seek to obtain security for a H
claim which may appear to be well-founded but which still
remains to be established at the trial. These is no need to repeat I
I
here what was said in that connection in Z Ltd. v. A-Z and AA-LL
[1982] Q.B. 558, 585, 586, If the plaintiffs are in a position to
J contend that their claim is not open to doubt, then they must J
satisfy the requirements of an application for summary judgment
under R.S.C., Ord. 14. But if they apply for a Mareva injunction
K K
on the ground that they have “a good arguable case,” then the
balance should be weighed as we have indicated above.”
L L
59. I have to be satisfied on the materials before me that it is just M
M
and equitable to grant an injunction restraining dealings with assets outside
N N
the jurisdiction on the application of a plaintiff which has no presence or
O
assets in Hong Kong against a defendant which has no presence or assets O
in Hong Kong in the absence of any evidence that the defendant does not
P P
have the financial means to satisfy any monetary award.
Q Q
60. Unless the Court is satisfied that there is a real risk that the
R R
defendant may take steps designed so to dispose of or conceal foreign
S assets as to render the judgment nugatory by the time that it is given, an S
injunction restraining the defendant from dealing with the proceeds of the
T T
letter of credit may not be granted.
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61. Plainly, there is no evidence of dissipation of assets. Mr John
B B
Kerr argued that there were 2 aspects of dishonesty or commercial
C immorality:- C
D
(a) the defendant demanded payment under the letter of credit D
when it knew that it could not deliver all the cargo and did not
E E
have title to all the cargo; and
F (b) by the emails referred to in paragraphs 23 and 24 above, the F
defendant exhibited such an unacceptably low standard of
G G
commercial morality in its dealings with the plaintiff.
H H
62. On the first point, the parties to the documentary credit dealt
I I
with documents, not goods and the defendant had an assured right to be
J J
paid before he parted with control of the goods. The defendant has
presented a set of documents to Bank of Baroda. If they are conforming K
K
documents, the defendant has an assured right to be paid. If they are not
L L
and if Standard Chartered Bank pays, the plaintiff will have its recourse
against Standard Chartered Bank. Just as there is nothing dishonest or M
M
commercially immoral for a holder of a cheque to prosecute a claim on a
N N
dishonoured cheque to final judgment and to enforce payment,
O
notwithstanding and despite any dispute in respect of the underlying O
contract, there is no dishonesty or commercial immorality for the
P P
defendant to obtain its assured right under the documentary credit. A
Q beneficiary under a documentary credit is entitled to press for payment Q
under the credit for cargo lost in transit. Unless an insurance document
R R
forms part of the documents under a credit, the presence or absence of any
S insurance contract is irrelevant under the credit. S
T T
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63. On a fair construction of the email referred to in paragraph 23
B B
above, the defendant was passing on what its then lawyers said. That the
C defendant was not devious is clear from the fact that the defendant said C
that the recipient could discuss with its own legal department and with the
D D
defendant’s then lawyers. I see nothing devious in the email referred to in
E paragraph 24. This case is quite different from Honsaico Trading Ltd v E
Hong Yiah Seng Co. Ltd. [1990] 1 HKLR 235, and does not come near
F F
unacceptably low standard.
G G
64. For the reasons given above, the plaintiff has not made out a
H H
case for restricting or restraining the defendant from dealing with the
I proceeds of the letter of credit and that part of the Order restraining the I
defendant from dealing with or attempting to deal with the proceeds of the
J J
letter of credit must be discharged.
K K
L Conclusion L
65. The Order must be discharged. M
M
N N
O O
P P
(Kenneth Kwok, SC)
Q Recorder of the Court of First Instance Q
of the High Court
R R
S S
Mr John Kerr, instructed by Messrs Ince & Co., for the Plaintiff
T T
Mr Clifford Smith SC, instructed by Messrs Stephenson Harwood & Lo,
for the Defendant
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SINOM SHANGHAI IMPORT & EXPORT CO LTD v. EXFIN (INDIA) MINERAL ORE CO PVT LTD
由此
A A
B B
HCCT 45/2006
C C
IN THE HIGH COURT OF THE
D D
HONG KONG SPECIAL ADMINISTRATIVE REGION
E COURT OF FIRST INSTANCE E
F
CONSTRUCTION AND ARBITRATION PROCEEDINGS F
NO. 45 OF 2006
G G
____________
H H
BETWEEN
I SINOM SHANGHAI IMPORT & EXPORT I
CO. LTD. Plaintiff
J J
and
K K
EXFIN (INDIA) MINERAL ORE
L CO. PVT. LTD. Defendant L
____________
M M
Before: Mr Recorder K Kwok SC in Chambers
N N
Date of Hearing: 12 June 2006
O
Date of Reasons for Judgment: 19 June 2006 O
P P
__________________________________
Q REASO N S F OR J U DGM E NT Q
__________________________________
R R
S S
The applications and the Order made
T T
1. By an Order dated 29 May 2006, Reyes J granted the
U following injunction against the defendant:- U
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“The Intended Defendant be restrained from dealing with or
B attempting to deal with the proceeds of the letter of credit and in B
particular be restrained from continuing to request Standard
Chartered Bank to remit any of the proceeds of [the letter of
C C
credit issued by Standard Chartered Bank on 15th March 2006
Ref 333-01-001861-S] until further order.”
D D
2. By summons dated 30 May 2006, the plaintiff applied to E
E
continue the injunction. By summons dated 1 June 2006, the defendant
F F
applied to discharge the injunction. Both summons came before me on
G
12 June 2006. After hearing counsel for the parties, I formed the clear G
view that the injunction should be discharged and not be continued. At
H H
about 4 pm I pronounced my judgment to discharge the injunction and said
I that reasons for my judgment would be handed down. Mr John Kerr, I
counsel for the plaintiff, applied for a stay of the discharge of the
J J
injunction pending the plaintiff’s appeal. As I was clearly of the view that
K the injunction should be discharged, I declined to grant a stay of the K
discharge of the injunction pending appeal. However, I was prepared to
L L
preserve the position to give the plaintiff time to apply to the Court of
M Appeal. M
N N
3. I made the following Order:-
O “1. The injunction order made herein on the 29th day of May O
2006 by the Honourable Mr Justice Reyes be discharged.
P P
2. The Plaintiff and/or Messrs Sinom (Hong Kong) Limited
do pay to the Defendant compensation for losses caused by
Q the issuing of the said injunction. Q
3. There be an inquiry as to the amount of the losses so
R caused. R
4. The costs of this application be paid by the Plaintiff to the
S S
Defendant forthwith, to be taxed if not agreed.
T 5. Notwithstanding paragraph 1, the Order of Reyes J dated T
29 May 2006 be continued until 2 days after the Court shall
have handed down reasons for its Judgment.”
U U
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4. Reasons for my judgment follow.
B B
C C
The background
D 5. The plaintiff is a Shanghai based company carrying on the D
business of, inter alia, iron ore trading. The plaintiff does not carry on any
E E
business in Hong Kong and makes no allegation that it has any asset in
F Hong Kong. F
G G
6. The defendant is an Indian business carrying on the business
H of, inter alia, trading and exporting of iron ore. The plaintiff makes no H
allegation that the defendant has any presence or asset in Hong Kong.
I I
J 7. By a contract dated 4 January 2006 the defendant sold and J
Sinom (Hong Kong) Ltd, an associated company of the plaintiff, purchased K
K
iron ore. There is no complaint about this transaction.
L L
8. By a contract dated 9 March 2006 as amended by an M
M
Addendum dated 3 April 2006, the defendant sold and the plaintiff
N N
purchased 50,000 wet metric tons +/- 10% at the defendant’s option iron
O
ore fines at US$55.50 per dry metric ton CFR FO one main port China O
based on 60% Fe.
P P
Q
9. Clause 6 of the sale and purchase contract provided for Q
payment by letter of credit, payable at sight at the counters of the
R R
negotiating bank (not the issuing bank) by negotiation of documents:-
S “The buyer shall open within 4 bank working days from signing S
this contract, an irrevocable, freely negotiable with any bank in
India, workable letter of credit payable at sight at the counters of
T T
negotiating bank, by negotiation of documents as specified in
Clause 7 in favour of the seller from any prime bank for an
U U
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amount in USD to cover 100% of the shipment value along with
B price adjustment, if any. All banking charges after establishment B
of LC shall be paid by the seller.
C Seller should provide the full background information of the C
beneficiary which should be acceptable to buyer and buyer’s
D
bank. Otherwise, the buyer shall bear no responsibility for LC D
opening.”
E E
10. Clause 17 is a provision on title and risk and it also confirms
F F
the parties’ contemplation of the involvement of a negotiating bank:-
G “The Title with respect to each shipment shall pass from Seller to G
the Buyers when Seller receives the proceeds from the opening
bank through the negotiating bank against the relative shipping
H H
documents as set forth in clause 7A after completion of loading
on board the vessel at loading port, with effect retrospective to
I the time of delivery of ore. I
All Risk of loss, damage or destruction with respect to the ore
J delivered shall pass to Buyer’s at the time of discharge of the Ore J
from the loading devices into the vessel.
K K
All taxes/dues on cargo at load port for sellers account.”
L L
11. The letter of credit, as amended on 7 April 2006, was issued
M M
by Standard Chartered Bank on the application of the plaintiff. The
plaintiff’s case is that the letter of credit complied with the contract, in N
N
particular clause 6. Mr Lee Siu Yung deposed in paragraph 10 of his [first]
O O
Affirmation that:-
P “In compliance with the terms of the Contract, in particular P
Clause 6, the Intended Plaintiff arranged with Standard
Chartered Bank Shanghai Branch for the issuance of a letter of
Q Q
credit No. 333-01-0011861-3 dated 15 March 2006 and amended
on 7 April 2006 in the sum of US$2,725,000 as payment for the
R Cargo”. R
S S
12. The letter of credit was sent to Bank of Baroda in India. It
T
was irrevocable, and:- T
“:41D: AVAILABLE WITH … BY …
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ANY BANK
B B
BY NEGOTIATION
C :42C DRAFTS AT C
AT SIGHT COVERING 100 PCT CFR VALUE
D D
42A: DRAWEE
E E
SCBL CNSXSHA
F … F
:78: INSTRUCTIONS TO THE PAY/ACCEP/NEG BANK
G G
THE NEGOTIATING BANK IS TO FORWARD ALL
DOCUMENTS BY COURIER TO Standard Chartered Bank …
H H
Shanghai … IN ONE LOT”
I I
13. Article 3 a of The Uniform Customs and Practice for
J J
Documentary Credits (1993 Revision) ICC Publication No. 500 provides
that:- K
K
“Credits, by their nature, are separate transactions from the sales
L or other contract(s) on which they may be based and banks are in L
no way concerned with or bound by such contract(s), even if any
reference whatsoever to such contract(s) is included in the Credit.
M M
Consequently, the undertaking of a bank to pay, accept and pay
Draft(s) or negotiate and/or to fulfil any other obligation under
N the Credit, is not subject to claims or defences by the Applicant N
resulting from his relationships with the Issuing Bank or the
Beneficiary.”
O O
P 14. Article 4 provides that:- P
“In Credit operations all parties concerned deal with documents,
Q Q
and not with goods, services and/or other performances to which
the documents may relate.”
R R
15. Article 9 a iv provides that:- S
S
“An irrevocable Credit constitutes a definite undertaking of the
T Issuing Bank, provided that the stipulated documents are T
presented to the Nominated Bank or to the Issuing Bank and that
the terms and conditions of the Credit are complied with … if the
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Credit provides for negotiation – to pay without recourse to
B drawers and/or bona fide holders, Draft(s) drawn by the B
Beneficiary and/or documents presented under the Credit.”
C C
16. Article 10 b i & ii provide that:-
D D
“i Unless the Credit stipulates that it is available only with the
Issuing Bank, all Credits must nominate the bank (the E
E
‘Nominated Bank’) which is authorised to pay, to incur a
deferred payment undertaking, to accept Draft(s) or to
F negotiate. In a freely negotiable Credit, any bank is a F
Nominated Bank.
G Presentation of documents must be made to the Issuing G
Bank or the Confirming Bank, if any, or any other
H
Nominated Bank. H
ii Negotiation means the giving of value for Draft(s) and/or
I document(s) by the bank authorised to negotiate. Mere I
examination of the documents without giving of value does
not constitute a negotiation.”
J J
K 17. Article 10 d provides that:- K
“By nominating another bank, or by allowing for negotiation by L
L
any bank, or by authorising or requesting another bank to add its
confirmation, the Issuing Bank authorises such bank to pay,
M accept Draft(s) or negotiate as the case may be, against M
documents which appear on their face to be in compliance with
the terms and conditions of the Credit and undertakes to
N N
reimburse such bank in accordance with the provisions of these
Articles.”
O O
P
18. The plaintiff’s case is that Bank of Baroda is the negotiating P
bank. Standard Chartered Bank accepted that Bank of Baroda is the
Q Q
negotiating bank. Mr Lee Siu Yung deposed in paragraph 21 of his [first]
R
Affirmation that:- R
“I refer to two emails from Ms. Freda Shen of Standard
S Chartered Bank to Ms. Jessica Leung, an accounts staff of the S
Intended Plaintiff on 23 and 24 May 2005 wherein the
negotiating bank in India had been chasing Standard Chartered T
T
Bank who in turn chased the Intended Plaintiff.”
U U
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由此
A
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In the email which appeared to be dated 24 May, Ms Freda Shen wrote:-
B B
“Now we receive the daily tracer from the negotiating bank,
below please see the incoming message received today. Please C
C
give your help.”
D D
19. In proceedings issued in England by Bank of Baroda against
E E
Standard Chartered Bank PLC, Bank of Baroda claimed that documents
F
required by the letter of credit were presented by the defendant to Bank of F
Baroda on about 19 April 2006; that Bank of Baroda negotiated the same
G G
documents by presenting them at the Standard Chartered Bank’s Shanghai
H branch to obtain payment by Standard Chartered Bank of the sum of H
US$2,338,138.62; and that the documents thus presented and negotiated
I I
included a bill of exchange for an amount of U$2,338,138.62 dated
J 19 April 2006 drawn by the defendant on Standard Chartered Bank in J
favour of Bank of Baroda.
K K
L 20. The plaintiff’s case is that “the Cargo was laden on board the L
vessel MV Uttarkashi at Haldia and Vizag, India on or around 13 April
M M
2006 as evidenced by a bill of lading dated 13 April 2006, see
N paragraph 11 of Mr Lee Siu Yung’s [first] Affirmation. N
O O
21. By a fax dated 25 April 2006, Standard Chartered Bank
P informed the plaintiff that a set of documents drawn under the letter of P
credit had been received and that the set of documents were available for
Q Q
inspection at Standard Chartered Bank’s office and asked for instructions
R as per the bank’s Document Instruction form. R
S S
22. By 29 April 2006, the parties came to know about an order
T made by the Dalian Maritime Court in China on the application of one Red T
Horse Resources (H.K.) Ltd attaching 17,000 metric tons iron ore fines on
U U
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由此
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board M/V Uttarkashi and owned by the defendant and ordering the
B B
defendant to provide security in the sum of US$1,084,800.
C C
23. On about 29 April 2006, the defendant sent the following
D D
email:-
E E
“We have discussed with our lawyer at Hongkong in detail. He
had informed us that if the ownership of the cargo is not of Exfin,
F they can do nothing and Sinom will have full right on cargo and F
get the delivery. For this Sinom has to declare that they have
made payments to Exfin. The Cargo belongs to them. This they
G can discuss with their legal department, and further also from our G
lawyers at Hongkong, Mr. H.W. Dunlop …
H H
As sson (sic) as you do this you will get the release of the cargo.
Please go as fast as possible and inform us so that we inform our
I lawyers and he will depute his counter part at Dalian Court for I
smooth release of cargo to Sinom.
J Pl get back asap.” J
K K
24. On 1 May 2006, the defendant sent another email:-
L L
“This in reference to our vessel MC Uttarkashi, we have to bring
to your notice the following.
M M
1. This contract on M.V. Uttarkashi is between Exfin (India)
Mineral Ore Company Pvt. Ltd. (shipper) and Sinom
N Import and Export Co. Ltd. (as receivers/buyers) N
2. So, the contract is very clear with the obligation of Exfin
O O
Mineral to supply iron ore to Sinom or CFR basis which
has been done.
P P
3. The vessel M.V. Uttarkashi is already discharging the
cargo and awaiting original B/L from Sinom
Q (buyer/receivers) and you are requested to kindly take the Q
custodian of this cargo as per contract.
R R
4. Any other obligatory issues between Exfin Minerals (as
shippers) and any other party (other than SINOM) will be
S dealt with separately. Hence SINOM need not have to S
worry about any claim, which is coming from any other
third party.
T T
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5. In case SINOM is receiving any notice of claim from any
B other buyer or third party in respect of issues/problems B
caused by Exfin Minerals will be dealt directly here by
Exfin Mineral. Therefore it is very clear that SINOM need
C C
not be perturbed by any claim. In case of any court notice,
it is expected out of SINOM that they approach the court
D and on the basis of the contract, irrevocable L/C issued by D
SINOM, tell the court that the cargo belongs to SINOM
and not EXFIN. Whatever claims against EXFIN they are
E already pending for arbitration at Hong Kong. Therefore E
the cargo should be handed over to SINOM.
F F
6. In case there is any delay in taking delivery of cargo by the
receivers due TO this reason, all the delay, cost, time will
G be purely on Sinom (as receivers) account. G
Request you to take the matter very seriously and act.”
H H
I 25. Mr Lee Siu Yung stated in paragraph 3 of his [first] I
Affirmation that the plaintiff was applying for an injunction prohibiting the
J J
defendant from “drawing down funds against” the letter of credit.
K K
26. Mr Lee Siu Yung deposed in paragraph 7 of his second
L L
Affirmation that:-
M M
“I understand from my discussions … that if the Intended
Plaintiff cannot produce a Court Order or equivalent to the effect
N that the Intended Defendant are prohibited from attempting to N
draw down on the L/C or in the alternative the Intended
Defendant are ordered to take back the L/C documents already
O presented to the negotiating bank or Standard Chartered Bank for O
payment under the L/C, then it is probable that Standard
Chartered Bank would be obliged to effect payment under the P
P
L/C without further delay and hence the urgency of the present
application.”
Q Q
R 27. Various other matters had been raised in the plaintiff’s R
affirmations. There is a suggestion that the documents do not comply with
S S
the documentary credit. If that suggestion is correct and if Standard
T Chartered Bank pays, the plaintiff will have its remedies against Standard T
Charter Bank. The plaintiff does not question Standard Chartered Bank’s
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financial ability to satisfy any judgment which may be awarded against it
B B
in connection with the letter of credit.
C C
D
Hearing bundles D
28. Copy documents produced by the deponents in their
E E
affirmations were put together in one exhibit for each affirmation, without
F separate identification of any document and without a list or index. F
Solicitors’ convenience means that I had to spend much time trying to
G G
locate or search for a particular document. My task was eased to some
H extent by Mr Clifford Smith SC who helpfully submitted a Chronology H
with page references.
I I
J 29. There are 2 copies of the letter of credit in the hearing bundle. J
They look different. They also seem incomplete. I asked for but did not K
K
get a better and complete copy of the letter of credit.
L L
30. I asked for but did not get a copy of ICC Publication No. 500. M
M
I had to consult leading textbooks on documentary credit.
N N
O
31. I asked for but did not get a copy of the draft or bill of O
exchange under the letter of credit.
P P
Q The fraud point Q
R 32. Mr John Kerr alleged and argued fraud against the defendant R
at the hearing before Reyes J. He told me that the learned judge was of the
S S
view that fraud had not been established. I would have thought that that
T should be the end of the matter so far as fraud was concerned. However, T
Mr John Kerr raised fraud at the hearing before me. He contended that as
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the defendant was represented, I might be satisfied that the plaintiff had a
B B
good arguable case of fraud against the defendant. I have no hesitation in
C rejecting this contention. The defendant has no case to answer on fraud C
and the plaintiff’s position cannot and is not improved by any alleged
D D
failure of the defendant to exonerate itself on a charge on which the
E learned judge held that the defendant had no case to answer. There are E
other reasons why the plaintiff must fail on the fraud point and I shall
F F
come back to them below.
G G
H Jurisdiction H
33. By clause 16 of the sale and purchase contract, the parties
I I
agreed to settle disputes or differences by friendly negotiations, failing
J J
which by arbitration at the Hong Kong International Arbitration Centre by
applying English law. Counsel agreed that for the purpose of the hearing K
K
before me, I should assume (without deciding) that the Court has
L L
jurisdiction to grant an injunction against the defendant. Both parties
reserved their position on the jurisdiction point. M
M
N N
Scope of order sought by plaintiff
O O
34. It was not clear to me from the terms of the Order whether
P
Standard Chartered Bank would be in breach of the Order if it should pay P
in accordance with the letter of credit. I asked Mr John Kerr whether he
Q Q
was seeking to prevent Standard Chartered Bank from paying. I hope I am
R not doing him an injustice when I say that he did not give me an R
unequivocal answer. If the plaintiff was seeking to prevent Standard
S S
Chartered Bank from paying, it should be forthcoming and say so
T expressly by seeking an order in terms which make it clear what Standard T
Chartered Bank must not do. Banks have an international reputation to
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protect, and unless they are enjoined by a clear and precise court order,
B B
they should not be put at risk of losing their credibility in the banking and
C commercial communities. C
D D
Seller’s assured right to be paid under documentary credit and the fraud
E point E
35. United City Merchants (Investments) Ltd v Royal Bank of
F F
Canada [1983] AC 168 is a case which raised a question of law which is
G G
of general importance to all those engaged in the conduct and financing of
international trade for it challenges the basic principle of documentary H
H
credit operations that banks that are parties to them deal in documents only,
I I
not in the goods to which those documents purport to relate, per
Lord Diplock at p. 180. J
J
K K
36. The whole commercial purpose for which the system of
L
confirmed (Mr John Kerr did not argue that there is any difference for L
negotiable) irrevocable documentary credits has been developed in
M M
international trade is to give to the seller an assured right to be paid before
N he parts with control of the goods that does not permit of any dispute with N
the buyer as to the performance of the contract of sale being used as a
O O
ground for non-payment or reduction or deferment of payment.
P Lord Diplock stated the governing principles and commercial purpose at P
pp. 182 – 183:-
Q Q
“My Lords, for the proposition upon the documentary credit
point, both in the broad form for which counsel for the
R R
confirming bank have strenuously argued at all stages of this
appeal and in the narrower form or “halfway house” that
S commended itself to the Court of Appeal, there is no direct S
authority to be found either in English or Privy Council cases or
among the numerous decisions of courts in the United States of
T America to which reference is made in the judgments of the T
Court of Appeal in the instant case. So the point falls to be
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decided by reference to first principles as to the legal nature of
B the contractual obligations assumed by the various parties to a B
transaction consisting of an international sale of goods to be
financed by means of a confirmed irrevocable documentary
C C
credit. It is trite law that there are four autonomous though
interconnected contractual relationships involved. (1) The
D underlying contract for the sale of goods, to which the only D
parties are the buyer and the seller; (2) the contract between the
buyer and the issuing bank under which the latter agrees to issue
E the credit and either itself or through a confirming bank to notify E
the credit to the seller and to make payments to or to the order of
the seller (or to pay, accept or negotiate bills of exchange drawn F
F
by the seller) against presentation of stipulated documents; and
the buyer agrees to reimburse the issuing bank for payments
G made under the credit. For such reimbursement the stipulated G
documents, if they include a document of title such as a bill of
lading, constitute a security available to the issuing bank; (3) if
H H
payment is to be made through a confirming bank the contract
between the issuing bank and the confirming bank authorising
I and requiring the latter to make such payments and to remit the I
stipulated documents to the issuing bank when they are received,
the issuing bank in turn agreeing to reimburse the confirming
J bank for payments made under the credit; (4) the contract J
between the confirming bank and the seller under which the
K confirming bank undertakes to pay to the seller (or to accept or K
negotiate without recourse to drawer bills of exchange drawn by
him) up to the amount of the credit against presentation of the
L stipulated documents. L
Again, it is trite law that in contract (4), with which alone the
M M
instant appeal is directly concerned, the parties to it, the seller
and the confirming bank, “deal in documents and not in goods,”
N as article 8 of the Uniform Customs puts it. If, on their face, the N
documents presented to the confirming bank by the seller
conform with the requirements of the credit as notified to him by
O the confirming bank, that bank is under a contractual obligation O
to the seller to honour the credit, notwithstanding that the bank
P
has knowledge that the seller at the time of presentation of the P
conforming documents is alleged by the buyer to have, and in
fact has already, committed a breach of his contract with the
Q buyer for the sale of the goods to which the documents appear on Q
their face to relate, that would have entitled the buyer to treat the
contract of sale as rescinded and to reject the goods and refuse to
R R
pay the seller the purchase price. The whole commercial purpose
for which the system of confirmed irrevocable documentary
S credits has been developed in international trade is to give to the S
seller an assured right to be paid before he parts with control of
the goods that does not permit of any dispute with the buyer as to
T T
the performance of the contract of sale being used as a ground
for non-payment or reduction or deferment of payment.”
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37. Fraud is the established exception. The relevant time is the
B B
presentation by the beneficiary to the confirming bank, or the negotiating
C bank in this case. To come within this exception, bank documents must C
contain, expressly or by implication, material representations of fact that
D D
are to the knowledge of the beneficiary untrue. The following is another
E oft-cited passage by Lord Diplock (at pp. 183 – 184):- E
“To this general statement of principle as to the contractual F
F
obligations of the confirming bank to the seller, there is one
established exception: that is, where the seller, for the purpose of
G drawing on the credit, fraudulently presents to the confirming G
bank documents that contain, expressly or by implication,
material representations of fact that to his knowledge are untrue.
H H
Although there does not appear among the English authorities
any case in which this exception has been applied, it is well
I established in the American cases of which the leading or I
“landmark” case is Sztejn v. J. Henry Schroder Banking
Corporation (1941) 31 N.Y.S. 2d 631. This judgment of the New
J York Court of Appeals was referred to with approval by the J
English Court of Appeal in Edward Owen Engineering Ltd. v.
K
Barclays Bank International Ltd. [1978] Q.B. 159, though this K
was actually a case about a performance bond under which a
bank assumes obligations to a buyer analogous to those assumed
L by a confirming bank to the seller under a documentary credit. L
The exception for fraud on the part of the beneficiary seeking to
avail himself of the credit is a clear application of the maxim ex
M M
turpi causa non oritur actio or, if plain English is to be preferred,
“fraud unravels all.” The courts will not allow their process to be
N used by a dishonest person to carry out a fraud.” N
O O
38. In Group Jose Re v Walbrook Insurance Co. [1996] 1 WLR
P 1152 at pp. 1160 – 1162, Staughton LJ cited United City Merchants and P
held that knowledge acquired subsequent to the presentation of documents
Q Q
was irrelevant and that applications to restrain the beneficiary from asking
R for payment should fail:- R
“As the decision in that case shows, it is nothing to the point that
S S
at the time of trial the beneficiary knows, and the bank knows,
that the documents presented under the letter of credit were not
T truthful in a material respect. It is the time of presentation that is T
critical.
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…
B B
However, it is argued by Mr. Bartlett for the reinsurers that the
case is altogether different, and the rule which I have been
C discussing does not apply, when an injunction is sought not C
against the bank but against the beneficiary of a letter of credit.
D
In my opinion that cannot be right. The effect on the lifeblood of D
commerce will be precisely the same whether the bank is
restrained from paying or the beneficiary is restrained from
E asking for payment. That was the view of Sir John Donaldson E
M.R. in Bolivinter Oil S.A. v. Chase Manhattan Bank N.A.
(Practice Note) [1984] 1 Lloyd's Rep. 251, 254, of Donaldson
F F
L.J. in Intraco Ltd. v. Notis Shipping Corporation [1981] 2
Lloyd's Rep. 256, of Lloyd L.J. in the Dong Jin Metal case,
G 13 July 1993, and of both Clarke and Phillips JJ. in the present G
case.”
H H
39. There is simply no evidence that the defendant knew at the
I I
time of the presentation of the documents to Bank of Baroda that the bill of
J lading, or any other document presented, contained, whether expressly or J
by implication, any material representation of fact which was untrue. I
K K
decline to speculate on when the defendant might have acquired
L knowledge that Red Horse was seeking to attach part of the cargo. L
M M
40. Fraud should never have been raised again in this case.
N N
41. Even if fraud was established, that is not the end of the matter.
O O
Balance of convenience has to be considered. To quote the words of Ma J
P (as he then was) in Prime Deal (HK) Enterprises Limited v The Hongkong P
and Shanghai Banking Corporation Limited and another, unreported,
Q Q
HCA 2142/2002, 15 July 2002, at paragraph 14 (8) and (9):-
R R
“(8) The balance of convenience of course does not end with
just proving the fraud. Here, the court will also have to
S examine other factors to see whether the balance of S
convenience is or is not in favour of stopping payment. In
United Trading Corporation, the English Court of Appeal
T T
considered this question by examining not just the position
of the applicant and the beneficiary but also, perhaps most
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important of all in this context, the position of the bank.
B Reference was made by Ackner LJ to the dicta of Kerr J in B
R.D. Harbottle (Mercantile) Limited v. The National
Westminster Bank Limited [1978] QB 146, at 155. Owing
C C
to the strict mandate under which banks operate as far as
their customers are concerned and also to the reputation
D and integrity so essential to the operation of banks, the D
consequences to the bank of stopping payment must be
considered by the court.
E E
(9) There is another aspect of the balance of convenience to
which I ought to allude. In Guangdong Transport Limited,
F F
the Court of Appeal considered the question whether, even
if the applicant were correct in its contentions on fraud,
G damages would provide an adequate remedy : see the G
judgment at 931F. This question must of course be
considered for both the bank and the beneficiary. If
H H
damages were to be an adequate remedy, this would be a
significant factor in refusing an interlocutory injunction.”
I I
42. The letter of credit was freely negotiable. The inherent J
J
probabilities are that a freely negotiable letter of credit would have been
K K
negotiated before shipment. The plaintiff’s evidence was that Bank of
Baroda was the negotiating bank. That points to Bank of Baroda having L
L
given value and being entitled under the credit to be reimbursed by
M M
Standard Chartered Bank. Even if fraud had been established, I would still
N
have declined to grant an injunction. I am appalled by the possible N
ramifications of the granting of an injunction in the circumstances of this
O O
case on the innocent third parties, i.e. Standard Chartered Bank and Bank
P of Baroda. The plaintiff cannot possibly be entitled to obtain the P
advantage of an order restraining payment at the expense of the business
Q Q
rights of innocent third parties, merely by proffering him an indemnity in
R whatever form, cf Galaxia Maritime S.A. v Mineralimportexport [1982] 1 R
WLR 539.
S S
T 43. On the second aspect, there is no allegation and no evidence of T
any inability on the part of the defendant to pay damages.
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44. For reasons given above and my reasons below for rejecting
B B
the plaintiff’s contention, that part of the Order which restrained the
C defendant from continuing to request Standard Chartered Bank to remit C
any of the proceeds of the letter of credit must be discharged.
D D
E E
Plaintiff’s contention
F 45. I hope I have not misunderstood Mr John Kerr by F
summarising his contention as follows:-
G G
(a) the letter of credit is payable at the branch of the issuing bank
H H
in Shanghai and nowhere else;
I (b) once the issuing bank decides to pay, the money becomes the I
defendant’s money, and
J J
(c) as the money in the issuing bank’s hands becomes the
K K
defendant’s, the court can restrain the defendant from dealing
L with it. L
M M
46. I reject his contention for the following reasons.
N N
47. No authority is cited in support of his contention. The Bhoja
O O
Trader case is against it, see paragraphs 54 and 55 below.
P P
48. His contention seems to me to be an attempt to circumvent the
Q Q
documentary credit point.
R R
49. Payment under the letter of credit is by sight drafts drawn on
S S
Standard Chartered Bank. I do not have a copy of the draft and do not
T know if it was drawn by the defendant and payable to Bank of Baroda, as T
alleged by Bank of Baroda. I interpose to state that it is incumbent on the
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plaintiff to satisfy me that an injunction should be granted. What Mr John
B B
Kerr is contending is that once the drawee of the draft, i.e. Standard
C Chartered Bank, decides to pay, the amount payable under the draft C
becomes the defendant’s money:-
D D
(a) if the defendant is the drawer;
E E
(b) if the defendant is the payee; and
F F
(c) if the defendant is not a party to the draft.
G G
50. The proposition that once the drawee of a draft decides to pay,
H H
the funds payable under the draft becomes the drawer’s money is
I intrinsically wrong. I
J J
51. Propositions (b) and (c) are quite novel to me and I reject them
K in the absence of any compelling or persuasive authority. K
L L
Restraining defendant from dealing with the proceeds of the letter of credit
M M
52. Next, I have to consider whether an order should be made
N restricting or restraining the beneficiary from dealing with the proceeds of N
the letter of credit.
O O
P 53. To quote Ma J again (at paragraph 14(10) & (11)):- P
“(10) Where, for whatever reason, the court does not grant an Q
Q
interlocutory injunction restraining payment, the next
question that arises is whether an order should be made
R restricting or restraining the beneficiary from dealing R
with the proceeds of the letter of credit. This is the 2nd
issue I have earlier identified. This situation is expressly
S S
referred to in the authorities : see Bolivinter at 393E-F;
the Bhoja Trader [1981] 2 Lloyd’s Rep. 256; Gee :
T Mareva Injunctions and Anton Piller Relief (4th Edition) T
at 37.
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(11) Here, the application for an injunction is akin to that of
B (if not actually) a Mareva injunction. In other words, an B
injunction would only be granted preventing the
beneficiary from dealing with the proceeds of a letter of
C C
credit if there is a risk that he will dissipate the proceeds
and thereby thwart any judgment that the plaintiff may
D obtain against him. It is important to bear in mind that D
such an injunction is not dependent on fraud being
shown (or even alleged). Like all Mareva injunctions,
E all that is needed to be demonstrated is a good arguable E
case, usually a breach of contract (or any other cause of
action), the risk of dissipation and the balance of F
F
convenience.”
G G
54. In Intraco Ltd. v Notis Shipping Corporation (the ‘Bhoja
H H
Trader’) [1981] 2 Lloyd’s Rep 256, at pp. 257 – 258, Donaldson DJ,
I delivering the judgment of the Court of Appeal, stated:- I
“Irrevocable letters of credit and bank guarantees given in
J circumstances such that they are the equivalent of an irrevocable J
letter of credit have been said to be the life blood of commerce.
Thrombosis will occur if, unless fraud is involved, the Courts K
K
intervene and thereby disturb the mercantile practice of treating
rights thereunder as being the equivalent of cash in hand.
L L
The learned Judge went on to say that this did not prevent the
Court, in an appropriate case, from imposing a Mareva
M injunction upon the fruits of the letter of credit or guarantee. M
Again we agree. It is the natural corollary of the proposition that
N
a letter of credit or bank guarantee is to be treated as cash that N
when the bank pays and cash is received by the beneficiary, it
should be subject to the same restraints as any other of his cash
O assets. Enjoining the beneficiary from removing the cash asset O
from the jurisdiction is not the same as taking action, whether by
injunction or an order staying execution, which will prevent him P
P
obtaining the cash (see Montecchi v Shimco (U.K.) Ltd., [1980] 1
Lloyd’s Rep. 50; [1979] 1 WLR 1180).”
Q Q
R
55. It is noteworthy that Donaldson LJ was referring to the stage R
of cash being “received” by the beneficiary, not the earlier stage of the
S S
issuing bank deciding to pay. Donaldson LJ was contrasting that with an
T injunction preventing the beneficiary from obtaining the cash which is T
what the plaintiff is seeking under the second part of the Order.
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56. No attempt has been made by Mr John Kerr to identify the
B B
proceeds of the letter of credit or the cash in the defendant’s hands.
C Nevertheless, it is clear that the proceeds of the letter of credit are assets C
outside Hong Kong’s jurisdiction.
D D
E 57. In Bank of India v Bhagwandas Kewalram Murjani and others E
[1989] 2 HKLR 318, the Court of Appeal considered the circumstances in
F F
which a Mareva injunction restraining the disposition of assets outside the
G jurisdiction and gave the following guidance at pp. 319 – 320. G
“That the relief operates in personam as regards a defendant but, H
H
in effect, ad rem as against third parties and does not amount to a
pre-trial attachment of assets was common ground. In our
I opinion a Mareva injunction affecting assets outside the I
jurisdiction may be granted when there is a good arguable case
that the plaintiff will recover judgment, reason to think both that
J J
the defendant, properly before the court, has such assets
available to satisfy it but insufficient assets within the
K jurisdiction for the purpose and the Court is satisfied that there is K
a real risk that the defendant may take steps designed so to
dispose of or conceal such foreign assets as to render the
L L
judgment nugatory by the time that it is given. Further, the
defendant may be ordered to make discovery as to his assets in a
M proper case and the jurisdiction in that regard is not limited to M
tracing actions. Thus, subject to provisos and undertakings apt to
allow the defendant to carry on his business and private life in
N the ordinary way and to limit the effect of the order on third N
parties outside the jurisdiction, the principles applicable to the
grant of an injunction inhibiting the disposition of assets within O
O
the jurisdiction are, as Barnett, J. held, equally applicable to the
grant of such an injunction directed to assets outside it. We so
P conclude in the light of the several persuasive authorities decided P
between June and December 1988 during which the practice in
the English Court of Appeal was developed and clarified and, in
Q Q
particular, of Derby & Co. Ltd. v. Weldon (Nos. 3 & 4) [1989] 2
WLR 412.”
R R
58. A “good arguable case” is no doubt the minimum which the S
S
plaintiff must show in order to cross the threshold for the exercise of the
T T
jurisdiction, but at the end of the day the court must consider the evidence
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as a whole in deciding whether or not to exercise this jurisdiction, see
B B
Ninemia Maritime Corp. v Trave GmbH [1983] 1 WLR 1412 at p. 1417.
C The ultimate test is (at p. 1426):- C
“The ultimate test for the exercise of the jurisdiction is whether,
D D
in all the circumstances, the case is one in which it appears to the
court “to be just and convenient” to grant the injunction: see
E section 37 of the Supreme Court Act 1981 which we have E
already set out. Thus, the conduct of the plaintiffs may be
material, and the rights of any third parties who may be affected
F F
by the grant of an injunction may often also have to be borne in
mind: see Galaxia Maritime S.A. v. Mineralimportexport [1982]
G 1 W.L.R. 539 Further, it must always be remembered that if, or G
to the extent that, the grant of a Mareva injunction inflicts
hardship on the defendants, their legitimate interests must prevail
H over those of the plaintiffs, who seek to obtain security for a H
claim which may appear to be well-founded but which still
remains to be established at the trial. These is no need to repeat I
I
here what was said in that connection in Z Ltd. v. A-Z and AA-LL
[1982] Q.B. 558, 585, 586, If the plaintiffs are in a position to
J contend that their claim is not open to doubt, then they must J
satisfy the requirements of an application for summary judgment
under R.S.C., Ord. 14. But if they apply for a Mareva injunction
K K
on the ground that they have “a good arguable case,” then the
balance should be weighed as we have indicated above.”
L L
59. I have to be satisfied on the materials before me that it is just M
M
and equitable to grant an injunction restraining dealings with assets outside
N N
the jurisdiction on the application of a plaintiff which has no presence or
O
assets in Hong Kong against a defendant which has no presence or assets O
in Hong Kong in the absence of any evidence that the defendant does not
P P
have the financial means to satisfy any monetary award.
Q Q
60. Unless the Court is satisfied that there is a real risk that the
R R
defendant may take steps designed so to dispose of or conceal foreign
S assets as to render the judgment nugatory by the time that it is given, an S
injunction restraining the defendant from dealing with the proceeds of the
T T
letter of credit may not be granted.
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61. Plainly, there is no evidence of dissipation of assets. Mr John
B B
Kerr argued that there were 2 aspects of dishonesty or commercial
C immorality:- C
D
(a) the defendant demanded payment under the letter of credit D
when it knew that it could not deliver all the cargo and did not
E E
have title to all the cargo; and
F (b) by the emails referred to in paragraphs 23 and 24 above, the F
defendant exhibited such an unacceptably low standard of
G G
commercial morality in its dealings with the plaintiff.
H H
62. On the first point, the parties to the documentary credit dealt
I I
with documents, not goods and the defendant had an assured right to be
J J
paid before he parted with control of the goods. The defendant has
presented a set of documents to Bank of Baroda. If they are conforming K
K
documents, the defendant has an assured right to be paid. If they are not
L L
and if Standard Chartered Bank pays, the plaintiff will have its recourse
against Standard Chartered Bank. Just as there is nothing dishonest or M
M
commercially immoral for a holder of a cheque to prosecute a claim on a
N N
dishonoured cheque to final judgment and to enforce payment,
O
notwithstanding and despite any dispute in respect of the underlying O
contract, there is no dishonesty or commercial immorality for the
P P
defendant to obtain its assured right under the documentary credit. A
Q beneficiary under a documentary credit is entitled to press for payment Q
under the credit for cargo lost in transit. Unless an insurance document
R R
forms part of the documents under a credit, the presence or absence of any
S insurance contract is irrelevant under the credit. S
T T
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63. On a fair construction of the email referred to in paragraph 23
B B
above, the defendant was passing on what its then lawyers said. That the
C defendant was not devious is clear from the fact that the defendant said C
that the recipient could discuss with its own legal department and with the
D D
defendant’s then lawyers. I see nothing devious in the email referred to in
E paragraph 24. This case is quite different from Honsaico Trading Ltd v E
Hong Yiah Seng Co. Ltd. [1990] 1 HKLR 235, and does not come near
F F
unacceptably low standard.
G G
64. For the reasons given above, the plaintiff has not made out a
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case for restricting or restraining the defendant from dealing with the
I proceeds of the letter of credit and that part of the Order restraining the I
defendant from dealing with or attempting to deal with the proceeds of the
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letter of credit must be discharged.
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L Conclusion L
65. The Order must be discharged. M
M
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O O
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(Kenneth Kwok, SC)
Q Recorder of the Court of First Instance Q
of the High Court
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S S
Mr John Kerr, instructed by Messrs Ince & Co., for the Plaintiff
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Mr Clifford Smith SC, instructed by Messrs Stephenson Harwood & Lo,
for the Defendant
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