BANK OF CREDIT AND COMMERCE HONG KONG LTD. (IN LIQUIDATION) v. OVERSEAS TRADING AND COMPANY (A FIRM)

1993, No. A10695

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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REASONS FOR JUDGMENT

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This Action

1. The plaintiff issued a writ against the defendant in November 1993 claiming that the defendant requested the plaintiff "to discount and/or negotiate certain documents" pursuant to a letter of credit issued by PT Bank Pacific (PT Bank). The plaintiff alleges that it did this. The agreement between the parties provided that, if the plaintiff was not paid, it could have recourse to the defendant. The plaintiff was not so paid, and seeks that recourse.

2. When the trial of the matter concluded, I gave judgment for the plaintiff and said that I would hand down my reasons later. These are those reasons.

The Defence

3. On the first day of the trial, the defence, as amended, raised only one defence. This was that the plaintiff had agreed, on 17 January 1991, that, upon negotiation of the letter of credit, the defendant "would be completely out of the picture and that the plaintiff would not pursue any payment from the defendant but from" PT Bank.

4. On that day, Mr Pirie sought leave to re-amend the defence to introduce other completely new defences. I refused this leave for the reasons I gave at the time.

The Original Defence

5. The only defence tried depended entirely on the evidence of Mr Lau Sik Wei, who, with his wife, is the defendant. Mr Lau was a witness who was totally unworthy of belief. Mr Pirie, very sensibly, recognised this, and did not attempt to argue that the defendant had established this original defence.

6. Mr Lau gave different versions of his conversation with the plaintiff's officials in affirmations filed for the purposes of Order 14 proceedings. He gave unsatisfactory explanations for this. I found that he was not a man I could trust to give truthful evidence. For example, he said that he had kept a note of his conversation with the plaintiff's officials. He showed this note to his solicitor, and gave it to him. When pressed on this, Mr Lau said that there was no such note, or he could not remember whether there was any such note. I am satisfied, at least as a matter of probability, that Mr Lau lied to me about this.

7. Quite apart from Mr Lau's inherent lack of credibility, what he says is contrary to the probabilities and the contemporaneous events. Mr Lau says that, after he was assured that the plaintiff would not have recourse to him, he signed documents agreeing that the bank would have such recourse. It is improbable that Mr Lau, being an experienced businessman, would sign documents contradicting what he says was agreed. There is also the fact that, when the plaintiff as pursuing the defendant for payment, the defendant had several opportunities of saying that the plaintiff had agreed that it would not have recourse to him, including an opportunity of doing so when he consulted his solicitors. But nothing was heard of the defence now raised until the plaintiff commenced proceedings under Order 14. Even then, he did not advance the defence in its present form at his first attempt. He did so only after, he says, he refreshed his memory from documents, including the fictitious contemporaneous note mentioned earlier.

8. Accordingly, I rejected that defence.

The Other Defences

9. At the end of the trial, Mr Pirie attempted to raise other defences by seeking, once again, to amend the amended defence. Some of these defences were the same as those he sought to raise at the beginning of the trial; some of the defences he sought to raise at the beginning of the trial were abandoned, no doubt in the light of the unsatisfactory nature of Mr Lau's evidence.

10. The main defence that Mr Pirie again seeks to plead is, distilled, that the plaintiff had a duty not to impair the security under the letter of credit, and breached that duty. It follows, he argues, that the plaintiff should not be allowed to enforce the right of recourse. This is based on the allegation that the plaintiff did not perfect the bill of exchange given by the defendant to the plaintiff. This bill of exchange was drawn by the defendant in favour of the plaintiff and addressed to the purchaser of the plaintiff's goods. It was said to be payable 180 days after the bill of lading date and drawn under the letter of credit.

11. The evidence of the plaintiff is that it was not interested in the bill of exchange. It was obtained from the defendant only because the letter of credit required this.

12. The defendant's sales contract with the purchaser required payment by letter of credit, not by bill of exchange, and that was what the purchaser supplied. It was that letter of credit that the plaintiff says the defendant wished to discount, and the defendant does not deny this. I do not see anything in the contract between the plaintiff and the defendant that required the plaintiff to discount or negotiate the bill of exchange. Indeed, Mr Pirie's amendments do not allege that the plaintiff was obliged to discount or negotiate the bill of exchange. He bases his pleading on a general duty resting on the plaintiff to safeguard the "security" underlying the letter of credit; that is, the bill of exchange.

13. There is, of course, a general duty on a person holding a security for payment of a debt to protect that security. It is upon that duty that Mr Pirie rests his case. But the bill of exchange is not a "security" under that rule. A bill of exchange is, of course, often referred to as a "security", just as that term is used to describe many documents giving rights, such as share certificates, but that is not the sense in which the term "security" is used for the purposes of the rule I have mentioned. The type of "security" concerned there is some form of property to which the creditor is entitled to have recourse for the payment of the debt if the debtor defaults so that one could describe the debt as secured. All the authorities to which Mr Pirie referred me were of this type of case. He was unable to produce any authority for the proposition that, where a debtor provides a creditor with more than one right to recover a debt, the creditor is obliged to ensure that he is able to exercise one right rather than another. And I do not understand how it can be said that the defendant has suffered any prejudice by the plaintiff not ensuring that it could pursue its rights under the bill of exchange, if that is the case. As I have said, the purchaser's obligation was to arrange payment by letter of credit. This it did. The purchaser was not obliged, in addition, to accept a bill of exchange.

14. In my view, there is nothing in this defence.

15. The defendant also seeks to raise some vague defence that the plaintiff is estopped by its conduct from making its claim. I do not begin to understand this defence. There has been no attempt to point to any conduct by the plaintiff that caused to defendant to act to his detriment. Mr Pirie points to the doctrine of election, but this applies when a plaintiff elects to pursue one of two alternative and mutually exclusive courses of action, and the plaintiff becomes estopped from pursuing the course of action he rejected. I do not see how this rule is applicable to the case before me.

16. The last defence that the defendant seeks to raise is that the plaintiff refused to accept an offer by PT Bank to pay US$21,916 in settlement of the amount due under the letter of credit, without asking the defendant if he wished to accept the offer.

17. The plaintiff went into liquidation on the day that the letter was due for payment. Thereafter, PT Bank raised several ill-founded points to delay and avoid making payment to the plaintiff under the letter. Finally, it offered the sum of US$21,916 in settlement after purporting to set-off money owed to it by another BCC company, which was a separate legal entity to the plaintiff. PT Bank must have well known that it was not entitled to behave in this way. Its conduct was totally immoral. To suggest, in these circumstances, that the plaintiff should have submitted to being "ripped off" by PT Bank; to accept US$21,916 instead of the US$165,816 fairly and properly due, is, in my view, little short of impudent. Indeed, in my judgment, the plaintiff could have been rightly criticised by the defendant if it had accepted this offer, and thereby debarred the defendant from suing PT Bank under a subrogation it would have been entitled to upon paying the plaintiff.

18. The interesting thing about this offer is that the defendant and its solicitors knew all about it. The communication in which the offer was contained was copied to the solicitors. The defendant complains that it was not asked whether it wished to accept this offer. The short answer to that is, of course, if the defendant wished to urge the plaintiff to accept the offer, it was open for it to do so. It did not. Clearly, the defendant did not wish the plaintiff to accept the offer. If it had, it would have said so.

19. There is no merit in this defence either.

Leave to Amend

20. In view of my findings, whether or not the defendant should have leave to amend to raise these additional defences is academic. But I should say that I formally refuse leave to so amend. The amendments are sought far too late. The case was conducted by Mr Bleach on the basis of the existing pleadings. Mr Pirie says that Mr Bleach did not object to the leading of the evidence to establish these defences, but this is not true. On several occasions, with justifiable exasperation, Mr Bleach asked me to stop Mr Pirie adducing evidence not relevant to only defence on the pleadings. I told Mr Pirie not to do so, but sometimes it is quicker and easier to allow evidence to be led than to exclude it by giving formal rulings. This was the case here. But I made it quite clear to Mr Pirie, and, no doubt, Mr Bleach noted this, that I was interested only in the defence raised on the pleadings. The situation was quite clear; the plaintiff did object to any evidence being adduced that was not relevant to the matter of the subsisting defence.

21. In my view, the overall justice of the matter did not require that I give leave to amend at this late stage.

The Costs

22. The matter of costs has not been argued, but it seems obvious that costs should follow the event. Mr Bleach intimated that he would seek costs on an indemnity basis, and, indeed, this is the scale on which costs are claimed in the statement of claim. The agreement between the parties provides, in clause 22, that the defendant is liable for all legal costs incurred by the plaintiff. So, it seems to me, that the defendant has undertaken to pay legal costs on an indemnity basis. In any event, because the defendant raised a defence that was so obviously without merit, there is a prima facie case for ordering payment of costs on the higher scale. Accordingly, I make an order nisi that the defendant pay the plaintiff's costs on an indemnity basis.