XCHRX CAN HIGH INTERNATIONAL TRADING LTD. v. BANCO DO BRASIL S.A.

HCCL36/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO.36 OF 1998

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J U D G M E N T

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The applications

1. There are cross-applications before the court. By an Order 14 summons dated 11 March 1999 the plaintiff seeks final judgment against the defendant in the sum of US$415,100, and by a summons taken out the following day, 12 March 1999, the defendant seeks a stay of this action on the ground of forum non conveniens in favour of the courts of the Judicial District of Belo Horizonte in the State of Minas Gerais, Brazil.

The nature of the action

2. The plaintiff ('Can High') is a Hong Kong export trading company. The defendant is a Brazilian bank registered under Part XI of the Companies Ordinance, Cap.32. Jurisdiction has been established in Hong Kong by service on the defendant of a writ issued by the plaintiff on 11 February 1998. The plaintiff's claim relates to two collection orders sent by the plaintiff, via the Bank of China, to the Belo Horizonte branch of the defendant bank. The details are set out in the Statement of Claim, and encompass causes of action in contract, tort and restitution.

3. In essence, it is said that pursuant to these collection orders, the defendant was to collect payment under two sight drafts in the respective sums of US$249,060 and US$166,040 drawn on one Ematex Textile Limited ('Ematex'), a Brazilian importer, and that in breach of its obligations the defendant released commercial documentation, including relevant bills of lading, to Ematex without obtaining acceptance and payment by Ematex of the sight drafts. As a result, the plaintiff complains, not only was Ematex able to obtain delivery of the relevant exported goods (in this case two cargoes of nylon ply) absent full payment therefor, but in addition those monies which were actually collected (in the reduced sums of US$119,076.90 and US$79,384.60 respectively) were not remitted, as per the instructions in the collection orders, to the Bank of China, but instead to a third party, one My Trade International Limited, another Hong Kong trading company.

The stay application

4. I take this relatively shortly. The defendant apparently wishes this case to go to the courts of the Judicial District of Belo Horizonte, Brazil, and maintains that those courts are appropriate forum for the trial of this action.

5. That this is a tactical application I have little doubt : the writ was issued on 11 February 1998, and the stay application followed immediately on the heels of the plaintiff's application for summary judgment which, for reasons which are unclear to me, was taken out some 13 months after the writ. The defendant seeks a stay in the context of a case wherein jurisdiction has been founded as of right against a Hong Kong based defendant, and wherein the plaintiff, an unpaid Hong Kong exporter with no apparent link to Brazil, seeks recovery of such monies as have been collected by the defendant from the Brazilian purchaser against delivery of the plaintiff's commercial documents, these monies thereafter being remitted to a third party Hong Kong company, also with no apparent link to Brazil, pursuant to amendments/variations allegedly made to the transactions the subject of the collection orders, to which variations the plaintiff company may (or may not) have been privy. Against this backdrop, the defendant's prospects of successfully defeating this claim must, I should have thought, significantly depend upon the further involvement, either evidentially or by way of third party proceedings, both of the Hong Kong recipient of the monies so transmitted, My Trade, and possibly also of the Bank of China, whose role as the plaintiff's agent and/or as conduit for the variations alleged is likely also to arise for consideration.

6. This court is invited on a very frequent basis to send apparently well-founded commercial cases against Hong Kong based defendants to the other side of the world, and there is perhaps no necessity to set out in detail the usual principles applicable to forum non conveniens applications, which in themselves are tolerably well-known. In this regard, I have little hesitation in holding, on the facts at least as they presently appear, that the defendant has failed to discharge its burden of showing not merely that Hong Kong is not the natural or appropriate forum for the trial of this action, but that the courts of the Judicial District of Belo Horizonte are clearly and distinctly more appropriate.

7. I do not accept that the connection with Hong Kong is as limited as has been suggested by the defendant, nor for that matter that the defendant's case will depend on extensive viva voce evidence located primarily in Brazil; in this context I think there is something in Mr Hingorani's submission that the apparent contractual breaches of the terms of the collection orders are matters of historical fact and are unlikely to be controverted by live witnesses. Nor do I necessarily accept the argument that the applicable law is Brazilian. I shall be interested to see the way that this is pleaded, and in what connection. For the moment, however, it seems reasonably clear that the obligations arising under the collection orders are governed by the ICC Uniform Rules for Collections, 1995 Revision, the terms of which appear to have been expressly incorporated into the contract between plaintiff and defendant.

8. Looked at in the round, and after taking all the evidence into consideration, I have no hesitation in dismissing this application for a stay of these proceedings, which I hereby do. I further make an order nisi that the costs of and occasioned by the application be to the plaintiff, to be taxed if not agreed.

9. I turn now to the other application presently before the court, namely the plaintiff's application for summary judgment.

The Order 14 application

10. The plaintiff's summons seeks final judgment in the sum of US$415,100 "being damages for breach of contract and/or duty and/or conversion".

11. As a preliminary observation, it is not clear how a claim for the entire sum can be pursued, certainly at the summary judgment stage, given the invoice amendments which it is common ground were made in terms of the variation (from US$4 to US$1.81 per kg) in the price of the nylon shipments the subject of the Ematex purchase, and given also the absence of corresponding amendment to the sight drafts. Mr Hingorani recognised this, and in argument expressly confined the plaintiff's claim for summary judgment to the two sums actually collected from Ematex by the defendant bank in the total amount of US$198,461.50 (US$119,076.90 + US$79,384.60). Mr Hingorani conceded that the claim for the balance should go to trial, maintaining on behalf of his client the right to such additional sum on the basis of the face value of the two sight drafts, namely US$415,100 (US$249,060 + $166,040). As an alternative to judgment in such lesser sum, he further suggested the option of payment of the reduced sums into court as a condition upon which the defendant could have leave to defend this action.

12. The nub of the plaintiff's application, as amended, was that the defendant qua collecting bank was in clear breach of its express obligations under the URC in releasing the bills of lading notwithstanding receipt of but partial payment of the face amounts of the two sight drafts drawn on Ematex, and in thereafter remitting such partial payments to My Trade instead of to the plaintiff, Can High, absent instructions to this effect from either the plaintiff or the Bank of China. The case is cut and dried, says Mr Hingorani. The undisputed facts amounted to clear breaches of the URC, and liability necessarily followed.

13. Put thus this line of argument is attractive; indeed, it is fair to say that the simplicity of this approach was not immediately appreciated, given the disputes and uncertainties otherwise present on the face of the evidence. To his credit, Mr Hingorani refused to be daunted in the face of initial judicial resistance, characterising the factual disputes as irrelevant for his purposes, and arguing that the court should disregard the transactions underlying the two collection orders, and by analogy extend the well known principle of the autonomy of documentary credits.

14. To the contrary, Mr Harris for the defendant argued that, absent a stay of proceedings, his client should be given unconditional leave to defend the action. Given that Mr Hingorani now had lowered his sights and sought only the reduced sums actually collected and remitted by the defendant, Mr Harris basically took three points : first, that demonstrably there was a triable issue that there had been a variation of the terms of the collection order contracts; second, that given the issuance of new bills of lading there could have been no causative loss in terms of the alleged wrongful release of the original bills; and third, that there had been a third transaction, mirroring the first two, wherein in essentially similar circumstances the monies collected had been remitted to My Trade absent complaint from the plaintiff. I attach little weight to this last point. There may be a number of reasons why complaint has not been made, and I am not prepared to speculate.

15. In approaching this debate, I remind myself of the well-known principles applicable to the resolution of applications for summary judgment, and in particular the observations of Godfrey JA in Man Earn v. Wing Ting Fong [1996] 1 HKC 225 to the effect that Order 14 is relevant only where the defendant has "clearly no defence to the plaintiff's claim", and to the express adoption of Lord Lindley's observation in Codd v. Delap (1905) 92 LT 210 that unless it is obvious that the defence put forward is "frivolous and practically moonshine", Order 14 ought not to be applied. Has the defendant surmounted this threshold in this case?

16. Looking at the case in the round, in my view the answer is that it has. I am in little doubt that this case ought to go to trial, notwithstanding the attraction of Mr Hingorani's submission that the facts reveal no more than a well-documented and uncontroverted breach of the express terms of the ICC Uniform Collection Rules. It seems to me that, on the basis of what is presently known, the variation argument is Mr Harris' strongest point, although the precise factual position is far from clear cut, not least in terms of the relationship between Can High, the plaintiff, and My Trade, the recipient of the part-payments so collected by the defendant at the Brazilian end of the commercial chain.

17. On the facts, it seems at least possible, as the defendant asserts, that the "negotiations and transactions" for the sale of these two shipments of nylon ply were conducted by Ematex (a Brazilian client of the defendant bank) with My Trade and not the plaintiff : vide the relevant invoices and import licences. However, for reasons which presently are far from clear, the invoices and the bills of lading enclosed with the two collection orders show the plaintiff, Can High, as seller, and the unit prices as US$4.00 as opposed to US$1.81/kg. These documents apparently were not accepted by Ematex because of difficulties in payment in foreign currency to parties other than the shipper named on the import licence, and the invoice statement of what appears to have been the incorrect price.

18. At this stage this problem of the Ematex rejection appears to have been confronted by the issuance of new invoices and new bills of lading. Under the new bills of lading My Trade, not Can High, is named as shipper, and by letter dated 21 January 1997 Can High requested Calberson Limited, the freight forwarding agent, inter alia that the shipper's name be so changed. Can High also issued a new invoice, dated 17 January 1997, in respect of the larger shipment wherein the price for the shipment of 59,490 kgs is stated as US$1.81/kg as opposed to the originally stipulated figure of US$4.00. Mr Harris submitted that Ematex was clearly communicating with My Trade (see the fax of 9 January 1997) and, in turn, he said, My Trade and Can High must also have been communicating in order for these changes to have taken place. It must therefore follow, he argued, that the plaintiff's intention must have been that the terms of the transaction recorded in the collection orders and associated documents was to be changed, and thus it cannot have been intended that payment was to have been made on the original sight drafts given that the amounts stated on their face clearly now were incorrect.

19. In my view there is something in this submission, for present purposes at least. On 17 January 1997 the plaintiff, Can High, apparently wrote to the Outward Bills Department of the Bank of China in the following terms :-

" Re: Your Bill No.A-01-0-N-78787 Our Ref: CH96306
for USD249,060.00 D/L drawn on
EMATEX TEXTIL LTDA, Brasil
through BANCO DO BRAIL S.A. Brasil

Dear Sirs,

Please be advised that the correct amount for the captioned bill should be USD118,776.90 (U.S DOLLARS ONE HUNDRED EIGHTEEN THOUSAND SEVEN HUNDRED SEVENTY-SIX & 90/100 ONLY) instead of our previously presented amount of USD249,060.00.

We enclose herewith our revised invoices (attached with invoice/packing list of 'MY TRADE INTERNATIONAL LTD'.) and drafts, which documents please send to the collecting Bank, BANCO DO BRASIL, by courier service for replacement. Please also telex advise the collecting bank of this amount revision and your forwarding of the replacement documents.

Thank you for your immediate kind actions on this matter."

20. In the context of the present application for summary judgment this letter is of some importance. Curiously, the only explanation from Mr Fan of the plaintiff, at paragraph 3 of his second affidavit, is that :-

"Insofar as instructions given by the Plaintiff or Bank of China to the Defendant are concerned, I crave leave to refer to a letter dated 17th January 1997 allegedly sent by the Plaintiff to Bank of China ... I would like to point out that this letter was never sent to the Defendant or Bank of China by the Plaintiff. If this letter were sent, the Defendant would not have requested certain information or instructions contained in their telex of 13th February 1997 ..." (emphasis added)

21. This latter reference appears to be to a fax of 13 February from the defendant bank which was sent to the Bank of China informing them that the drawee, Ematex, had not accepted the documents by reason of the non-correlation with the relevant information in the import permit wherein -

"... the correct name of the drawer is My Trade International and the correct unitary price is USD1.81. We are waiting for the correct documents in order to present them to the drawee [Ematex]."

22. I am bound to say that I do not find Mr Fan's observations in this connection of any assistance. Why this letter (which is not disavowed) was written and apparently then not sent is a question which is left hanging and which, I should have thought, demands an answer in the present circumstances. Moreover, if it was not sent to the defendant it is unclear how it came into the defendant's possession, and if sent neither to the defendant or the Bank of China it is equally unclear why it was written by the plaintiff at all, or to whom it was sent. Nor is there any mention in Mr Fan's first affirmation of even the existence of My Trade, let alone the role it appears to have played in these transactions, which omission, in light of the changes to the bills of lading and when taken together with the terms of the reissued invoices, strikes me as curious to say the least. Possibly this may be consistent with the argument that all that matters for the success of the plaintiff's present claim is subsumed within the simple allegation of breach by the defendant of the express terms of the collection orders, but for my part I do not consider that events can be so neatly sidestepped in the particular circumstances of this case.

23. Mr Harris further suggested that the tripartite agreement to vary the transaction and the issuance of new invoices and bills of lading was matched by a similar agreement that the correct (and now considerably reduced) sum receivable for the goods in question was to be paid either to My Trade or Can Asia, albeit at this stage he is unable to identify any specific document evidencing such agreement, and is forced to rely upon a fax dated 21 March 1997 from the freight forwarder to the plaintiff as an indication of the plaintiff's knowledge of what had occurred, after which I note that the plaintiff began its correspondence with the Bank of China requesting that they find out what had happened about payment. Thereafter the defendant subsequently returned some, but not all, of the documents to the plaintiff, and, curiously, by a fax to Ematex dated 3 May 1997, My Trade appears to be saying that monies received from Ematex via the defendant had been paid to another company, one Good Lucky Industrial Limited, through which company "we did the deal with Can High". This fax appears to suggest that Good Lucky (which again receives no mention or reference in the affirmation evidence of Mr Fan) "is now in great financial trouble and has disappeared suddenly" - which may, or may not, account for Can High's present, albeit delayed, pursuit of the defendant, and the attempt narrowly to confine both the terms of the present argument and the evidence filed in support thereof.

24. In light of the evidence before the court, together with the slew of queries arising therefrom, in my view this approach is insufficient to get the plaintiff home on its summary judgment application. The plaintiff clearly permitted the purchase price of the nylon (at least as per its original invoice for the larger shipment) to be reduced, and it is at least arguable that by its actions, including authorisation of the issuance of new bills of lading, that the plaintiff had permitted the parties to proceed on the basis of ad hoc changes to the agreements evidenced by the relevant collection orders. Mr Harris must, I think, be correct when he submitted that until the extent of these changes and their effect on the parties' respective rights has been ascertained at trial, the contractual liability aspect of this case cannot properly be determined. It may ultimately be that the restitution element of this claim takes the plaintiff somewhat further, I know not, but in any event I am disinclined, against these background facts, to reach any conclusion either as to that or as to any other aspect of this case, including the alternative conversion plea (which aspect encompasses Mr Harris' second point as to lack of causative loss consequent upon the plaintiff permitting new bills of lading to be put into circulation).

25. In summary, in my judgment this is a case where it is important that the evidence be heard and the facts found at trial, so that the precise obligations arising between the various parties can be identified and the relevant legal conclusions safely drawn. I do not agree that for present purposes these facts, at least as far as they are presently known, can in effect be swept aside by analogous application of the autonomy principle of documentary credits, so that evidence as to what was going on, in particular in terms of the issuance of the new invoices and bills of lading, thus simply can be ignored. These waters are far too murky. The defendant's liability, if liability it be, will have to be crystallised at trial, and it is perhaps unfortunate, fully two years after this case began, that there is yet still some way to go. Nor do I consider, after some reflection on the issue, that this case is an appropriate one for an order for conditional leave to defend upon payment into court of the reduced sums collected from Ematex. As to this, not only are these triable issues arising, but I take into account, also, that the defendant is a bank.

26. The Order of the court upon the plaintiff's Order 14 application, therefore, is that the defendant is to have unconditional leave to defend this action. No doubt the necessary consequential directions can be the subject of agreement.

27. As to costs, however, I am disinclined to make the usual order consequent upon unconditional leave to defend, and in these somewhat unusual circumstances I consider that there is something to be said for retaining room to manoeuvre. Accordingly, I make an Order nisi that the costs of and occasioned by this summary judgment application be reserved to the trial judge, which in all probability is likely to be the court as presently constituted. I will hear counsel as to this, and indeed upon any other matter arising, should such be necessary.