HONG KONG HUIHUANG INDUSTRIAL CO LTD v. ALLAHABAD BANK

HCA 1062/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1062 OF 2015

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D E C I S I O N

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Background

1. The background facts that I now set out are not in dispute.

2. In August 2012, the plaintiff (Huihuang) entered into an agreement with a company called Sonex TV Appliances Pvt Ltd, (Sonex) to supply 1200 LCD television sets to Sonex in India.  The contract price was US$125,750.  Sonex opened an irrevocable letter of credit with Allahabad Bank (Allahabad) for that sum on 17 August 2012.

3. The TV sets were made and shipped to Calcutta.  On 27 December 2012, Huihuang presented the letter of credit together with all the relevant documentations through the Standard Chartered Bank in Shenzhen. Allahabad received the letter of credit and the supporting documents, which would have included the original bill of lading, on 29 December 2012.

4. On 10 January 2013, Allahabad issued a notice of default on the letter of credit based upon an alleged non-compliance with the terms of the letter of credit.  Consequently, although Huihuang had apparently delivered the television sets to India, payment had not been received by Huihuang from Sonex, via the letter of credit issued by Allahabad.

5. On 4 February 2013, Sonex commenced an action in the High Court in Calcutta against Standard Chartered Bank, Allahabad and Huihuang as co-defendants claiming that payment should not be made under the letter of credit by Allahabad to Huihuang.

6. Sonex failed in its action.  On 6 May 2013, the Calcutta court ordered Allahabad to make payment to Huihuang under the letter of credit.  The court required that the payment should first be made by Allahabad to a receiver appointed by the Calcutta court, and a further order would be made following an inspection of the goods to achieve payment to Huihuang.

7. Allahabad says that it paid the full sum due under the letter of credit to the receiver on 13 June 2013.  The payment is proved by a confirmation of the receipt of the funds by the receiver dated 2 July 2013.  Huihuang does not dispute this fact.

8. Notwithstanding an order apparently in its favour, Huihuang appealed against the order to the appellate jurisdiction in the High Court in Calcutta.  On 8 November 2013, the appeal was dismissed subject to a variation of the order requiring the payment that had been made to the receiver to be paid to Huihuang with the sum to be kept on fixed deposit pending the inspection.  A further appeal by Huihuang to the Calcutta appeal court was dismissed on 9 December 2013.

9. Ms Siu was obliged to concede that the sum due under the letter of credit has been paid by Allahabad to the receiver, and that it has now been placed on fixed deposit by Huihuang, to the credit of Huihuang, and the receiver discharged from his duties.  Huihuang holds the fixed deposit receipt.

Payment not released

10. Notwithstanding the fact that Huihuang has received the amount due, held on deposit, pending delivery, it appears that the inspection has not been able to take place, and consequently Huihuang has not been able to release the sum from the term deposit for its own benefit.

11. It appears that the question that must be resolved before the term deposit can be released revolves around the production of the original bill of lading.  According to the affidavit filed on behalf of Allahabad, the import documents, which must have included the original bill of lading, were submitted by Allahabad to the receiver.

The PRC proceedings

12. On 21 August 2013, Huihuang issued proceedings in the PRC, based on the letter of credit, seeking the sum of US$125,750.  Allahabad elected not to respond to those proceedings.  Although it had obtained judgment in Calcutta, and was legally in possession of the funds, albeit held on deposit, subject to the production of an original bill of lading allowing the release of the funds, on 9 April 2014, judgment was entered in favour of Huihuang in the PRC for that sum together with interest and other fees.

13. It is clear from the judgment of the PRC court that Huihuang did not inform that court of the judgment it had obtained in Calcutta, nor that the sum claimed had been received by Huihuang subject to the production of documentation.

14. Allahabad has apparently now closed its Shenzhen office and has no assets in the PRC and accordingly the PRC judgment cannot now be enforced in the PRC.  It is asserted by Huihuang that this step was taken by Allahabad to avoid the PRC judgment.  Allahabad denies that, but that point is irrelevant to the present issues before me.

The present proceedings

15. On 14 May 2015, Huihuang issued proceedings in Hong Kong against Allahabad.  Those proceedings are based first on the letter of credit, and second, on the PRC judgment.  Allahabad, as it is entitled, has not yet filed a defence to the proceedings but instead has moved to strike out the proceedings under Order 18 rule 19(1)(a - d).

Res Judicata

16. Mr To says that the proceedings based on the letter of credit are an abuse of the process of the court because Huihuang already has a judgment on the letter of credit against Allahabad in the Calcutta proceedings.

17. The argument turns on the point of res judicata.  Both parties are in agreement that it is an abuse of procedure to litigate matters which have, or could have been, decided in earlier proceedings.  The leading authority in Hong Kong on this point is to be found in the decision of the Court of Final Appeal in Ko Hon Yue v Chiu Pik Yuk (2012) 15 HKCFAR 72, at §§82 - 83.  There it was held that it is essential when striking out a claim on the basis of abuse of process, and thus preventing a litigation of that claim, that an abuse is found to exist in seeking to raise in subsequent proceedings claims or issues which could and should have been raised in earlier proceedings.

18. There is no doubt that a foreign judicial decision may be conclusive between parties for the purpose of an argument of res judicata: see Indyka [1969] 1 AC 33.

19. In particular, I note the following statement from the decision of the High Court in Calcutta:

“I am of the opinion that the Court has only to see whether the terms and conditions of the Letter of Credit have been complied with. If the requirement was with regard to the bill of lading, the Court had to see, whether the original bill of lading had been lodged with the bank. It appears that such is the case here. In my opinion, it is not for the Court to probe further and see whether the importer would be able to obtain delivery of goods on the basis of the original bill of lading. If he cannot and a further bill of lading is necessary as appears to be the case here, then there is fault on the part of the seller for which there is an independent remedy. The Court should not stop payment of the Letter of Credit for this reason.”

20. It is clear that the High Court of Calcutta has comprehensively resolved the issue of the letter of credit as between the bank issuing the letter of credit, Allahabad, and the party entitled to the benefit of the payment due, Huihuang.  It is difficult to imagine a clearer case of res judicata.

21. Ms Siu relied upon a passage in Res Judicata, Estoppel, and Foreign Judgments, Barnett, at 3.08 - 09 to say that the parties in the Calcutta proceedings are not the same as in the Hong Kong proceedings.  Her submission was that as they litigated in the Hong Kong proceedings in a different capacity or with different rights, they were separate persons.  It is instructive to read the paragraphs from the textbook as a whole:

“3.09 In most cases, the identity of the parties in former and subsequent proceedings is a straightforward assessment: are the same parties named on the respective records? The onus is on the party asserting the estoppel to establish the identity of a party, with any question of physical identity being a question of fact. Once identity is established:

[i]t makes no difference…. That on the first proceeding the party was a plaintiff, claimant or petitioner, or even in some circumstances a co‑defendant and in the subsequent proceedings is attempting to controvert the decision by action or claim, counterclaim, set‑off, or any other form of claim or affirmative defence.

3.10  The important proviso, however, is that the parties to the subsequent litigation must claim or defend in the same right as they represented in the former proceedings; for a party who litigates in a different capacity or in different rights is in law a separate person.”

22. It is clear in the present proceedings and in the Calcutta proceedings that Huihuang litigated as the beneficiary of the letter of credit.  It is equally clear that, in Calcutta Allahabad litigated as the issuing bank in respect of the letter of credit.  They litigate in these proceedings in precisely the same capacities.  Arguments made by Sonex in the Calcutta proceedings do not impact upon the capacity or rights of Huihuang or Allahabad.  Indeed, as Ms Siu said herself in her skeleton:

“The main issue of the Calcutta proceeding was whether Allahabad should pay the sum due under the letter of credit to Huihuang. In the Calcutta judgment Allahabad was ordered to pay the credit sum under the letter of credit to Huihuang.”

That is precisely the issue that Huihuang seeks to raise against Allahabad in the letter of credit proceedings now before me in Hong Kong.

23. For the foregoing reasons I am satisfied that the doctrine of res judicata and the existence of the Calcutta judgment renders the Hong Kong proceedings on the letter of credit an abuse of process.

24. If there is any issue over inspection, that is an issue to be dealt with by the Calcutta court.  That is clear from the decision of the Court of Appeal in Calcutta in which the following passage appears:

“(Huihuang’s lawyer) submits the goods are lying in the Calcutta Port. Let (Huihuang) cooperate with (Allahabad and other parties) in getting delivery of the consignment. At the time of delivery of the goods the parties would have a joint inspection by an appropriate expert whose report would be kept in a sealed cover to be considered at the time of hearing of the suit. The order of the learned Single Judge stands modified accordingly.”

25. The affidavit for Huihuang contains the following statement:

“9. In respect of the original bill of lading, it is denied that Huihuang has failed to surrender the original bill of lading to Sonex. Given the fact that the LCD TV sets were shipped by World-Game Logistics (SZ) Ltd (WGL) as a forwarder, the original bill of lading by WGA shall be surrendered to WGA for either issuance of a fresh bill of lading by Yanming, the carrier of the LCD TV sets, or direct arrangement by WGL with Yanming without the need of a fresh bill of lading at all. As a matter of fact, it is a common practice for shipping through forwarders and not a fraud as alleged by Sonex or at all.

10.   In any event, as the original bill of lading issued by WGL has already been surrendered to Allahabad by Huihuang, it is impossible for Huihuang to obtain a fresh bill of lading by Yanming.  Instead, Allahabad shall produce the original bill of lading by a WGL for the issuance of a fresh bill of lading by Yanming.”

26. If there is an issue in respect of the original bill of lading and Huihuang cannot get the cooperation of other parties the proper remedy is to go to the Calcutta court, which has plainly jurisdiction over the matter.  A lack of cooperation of parties in Calcutta is no basis to bring new, identical, proceedings in Hong Kong against a defendant seeking payment of a sum that that defendant has already paid and is in the possession of Huihuang.

Enforcement of a foreign judgment

27. Ms Siu next argues that the proceedings are an action to enforce a foreign judgment, namely the PRC judgment, and not an action on the letter of credit.  That is correct, but it does not save the proceedings.  There are two answers to this submission.

28. First, an action on a foreign judgment is not sustainable where that foreign judgment is contrary to English principles of public policy: see Private International Law, 14^th Edn, Cheshire, North & Fawcett at 556. An abuse of the process of the court is plainly contrary to public policy. Where a foreign judgment is obtained in a circumstances where, at English law, a plea of res judicata could be raised, that judgment should not be able to be the subject of an action.

29. It is clear that the PRC proceedings were an action by Huihuang against Allahabad on the letter of credit.  Just as the argument of res judicata can be made on the letter of credit action in Hong Kong, so must that principle apply to the letter of credit action in the PRC.  It would accordingly be contrary to public policy to enforce the PRC judgment in Hong Kong in that judgment has been obtained in a manner that would be considered an abuse of process in Hong Kong.

30. Second, the law is that where there are conflicting foreign judgments the court should give effect to the first in time to the exclusion of the other: See Private International Law, at 569.  In the present case the judgment in the Calcutta court and the judgment in the PRC do not conflict, but are consistent.  When it comes, effectively to enforcement, as is the essence of these proceedings, I see no reason why the same principle should not apply.

31. For the foregoing reasons I am satisfied that an action on the PRC judgment in Hong Kong constitutes, in the peculiar circumstances of this case, an abuse of process.

Disposal

32. The appeal from the decision of the Master is accordingly allowed.  There will be an order striking out the statement of claim.

Costs

33. Sensibly, Ms Siu did not seek to oppose an order for costs.  The parties had agreed that in the event of the success of the appeal against the decision of the Master, the costs to Allahabad below would be fixed at the sum of HK$100,000.  Huihuang must refund to Allahabad costs paid below in the sum of HK$50,356.  I assessed the costs on the appeal in the sum of HK$101,914.