LINNA TEXTILES MANUFACTURING LTD. v. THE HONGKONG AND SHANGHAI BANKING CORP.

1997, No. CL-133

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

COMMERCIAL LIST

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J U D G M E N T

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1. This application first came before me on an ex-parte basis yesterday morning, Monday 21st July 1997. Mr. Fung appeared for the Plaintiff. At that stage no proceedings had been issued. It became clear to me on a perusal of the papers, and to his credit Mr. Fung did not demur nor seek to persuade me otherwise, that the Plaintiff had been having a dialogue with the Bank since 8th July, and in the circumstances I found it difficult to understand why the Plaintiff had chosen to come ex parte. Accordingly, I directed Mr. Fung forthwith to issue his proceedings, to serve the Defendant, and if necessary to appear before me the following day on an inter-partes basis, albeit with the assistance of abridgement of time.

2. He has done so, and he has renewed his application this morning. He seeks a draconian order. He seeks an order whereby the Defendant bank is to be enjoined from paying out upon a letter of credit. Normally such an application would not be entertained, but in this instance Mr. Fung cries fraud. He says that in all the circumstances it must be obvious to the Defendant that there is fraud by the letter of credit beneficiary, the Chinese vendor of the goods in question.

3. Mr. Lam of Messrs. Johnson Stokes & Master appeared before me this morning at very short notice. He had not even seen a copy of the affidavit in support of the application, which I gather had been served on the head office of the Bank. He did his best in the circumstances, but it was quite clear that he was in difficulties. Accordingly, I adjourned the matter to this afternoon at 3:00 p.m. This, I hoped, gave Mr. Lam time to take instructions upon what seemed likely to be a highly contentious matter. I had hoped, given that the Plaintiff's dialogue with the Bank had been going on since early July, that the Bank would take the view that, providing the matter came on quickly, the fact that an application for an injunction was before the Court would suffice, and that there would be no payment out under the letter of credit until that application has been heard. However, that is not to be. Mr. Lam, who again appears this afternoon after having taken instructions, says that so far as he is concerned his client will neither consent nor oppose the order of an interim injunction pending argument. He says that his client's position is that unless there is an injunction in place the Bank will have to make payment to the Agricultural Bank of China, whom I presume is the Defendant's correspondent bank (although I have not actually been told), which in turn has negotiated the documents submitted to it by the beneficiary. Accordingly, the position is that the Bank will give no undertaking to preserve the status quo pending argument but, as I have said, adopts the position that it will neither consent nor oppose.

4. In the very particular circumstances of this case I am willing to hold the situation and accede to Mr. Fung's application on an interim basis only. Accordingly, I will grant an interim order in terms of Mr. Fung's draft order, as amended, until the conclusion of the next hearing in this matter, which now I have fixed for Wednesday 30th July at 11:00 a.m. I perceive that this course should give the Bank the protection it sought in relation to its own correspondent bank, to whom it felt it would otherwise have had to make payment, and at the same time it will give Mr. Fung the protection his client seeks pro tem.

5. I emphasise, however, indeed I cannot emphasise too strongly, that injunction orders against banks in these terms are rare birds indeed. This may or may not be one of the exceptional cases which attracts such an order. In this connection, Mr. Fung has drawn my attention to the judgment of Lord Justice Ackner in United Trading v. Allied Arab Bank [1985] 2 Lloyd's 554 at 561, which provides some support for this application. In the well-known words of Lord Justice Ackner: "it cannot be in the interests of international commerce or of the banking community as a whole that this important machinery that is provided for traders should be misused for the purposes of fraud." That is well and good so as far as it goes, but let it not be forgotten that the burden is on the Plaintiff to establish notice of fraud on the part of the Bank. Whether the Plaintiff will be able to discharge that burden is a matter which no doubt will be canvassed next week.

6. Costs are reserved, and I will now hear the parties on any consequential directions that may be necessary.