SHANGHAI TONGJI SCIENCE & TECHNOLOGY INDUSTRIAL CO. LTD. v. CASIL CLEARING LTD.

HCCL 140/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 140 OF 1999

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J U D G M E N T

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Introduction

1. The court has before it a combination of matters arising in these two actions. Some are consequential upon a judgment already delivered (and presently subject to appeal), and some arise in terms of an action, highly similar to the first, which is yet to be tried and in which, among other things, there is an application for summary judgment.

2. Although no application was made for these two actions to be tried together, in my view it would have been advantageous had this occurred, and it is regrettable that it did not. There is no doubt that one interacts upon the other, as in fact the matters presently requiring adjudication serve to demonstrate.

3. For the purpose of this judgment, I take first the issues arising from the concluded action, that is HCCL 140 of 1999. For obvious reasons, I shall refer to this as the 'Tongji action', whilst I shall call the proceedings currently requiring adjudication the 'Aero-Technology action'.

The Tongji Action

4. On 22 August 2002 judgment was handed down in favour of the plaintiff against the defendant in the sum of HK$401,394.84. That judgment speaks for itself.

5. By a Notice of Appeal dated 3 September 2002 the defendant seeks to set aside that judgment on the grounds therein pleaded, one of the principal of which is that at first instance the court erred in finding the existence of a contract between the plaintiff and the defendant.

6. The existence of this judgment and the consequent appeal provide the backdrop to the applications now made by both plaintiff and defendant. I take them in turn.

(i) Defendant's summons dated 4 September 2002

7. This is an application for a stay of execution of the judgment of 22 August 2002 pending the outcome of the defendant's appeal.

8 . Mr Chain on behalf of the defendant stated that in the circumstances the defendant is willing to make payment into court of the judgment sum. For his part Mr Ling for the plaintiff had no instructions to resist the application, save that he asked that the principal sum plus accrued interest, plus a certain amount of post-judgment interest, immediately be paid into court.

9. There is thus no real dispute on the point, and all that remains is the mathematics, the calculation of which I will leave to the parties to agree.

10. Accordingly I order that there be a stay of execution on condition that the defendant do pay into court within 21 days of the date hereof such sum as comprises the principal sum adjudged due, plus pre-judgment interest accruing thereon at the rate stipulated in the judgment, plus such interest upon such principal sum as has accrued as at the date of payment into court at the judgment rate from time to time prevailing. Naturally the sum as is paid into court is to be held in an interest-bearing account.

11. I decline Mr Ling's request that 'advance' interest at the judgment rate now be paid for a period not yet accrued. I appreciate his concern that there is as yet no date fixed for the hearing of the appeal, but I see no reason why this issue cannot be revisited should it transpire that there is going to be an unduly long period of delay prior to the appeal.

12. In the circumstances it seems to me that costs of this application must be costs in the appeal. I make an order nisi to this effect.

(ii) Plaintiff's summons dated 30 August 2002

13. By this application the plaintiff asks that the sum of HK$1,150,000.00 presently standing in court as security for the defendant's costs be paid out to the plaintiff together with interest accrued thereon. This is opposed by the defendant in light of the forthcoming appeal.

14. In this connection Mr Ling very properly drew the attention of the court to the decision of the English Court of Appeal in Stabilad Ltd v Stephens & Carter Ltd [1999] 1 WLR 1201 wherein the Court held that whether an order was to be made for the payment out of a sum lodged in court by way of security for costs was a matter of discretion and balance, and the simple fact of the plaintiff's success in the court below, which was all it had to put into the balance, was not enough to outweigh the result for the defendant of being unable to recover any of its costs of the trial should it succeed on appeal.

15. This ruling plainly represents a departure from what hitherto had been regarded as the "invariable practice" upon such applications. It does not, of course, bind this court, although Mr Chain asks that this decision be followed, not least because, I suspect, he derives cold comfort from Mr Ling's observation during argument that his client "is not impecunious" and that it was open to this defendant, if successful on appeal, to "come to Shanghai and enforce a costs order".

16. Such a situation, of course, is precisely what security for costs itself is designed to avoid, and in this case, as in Stabilad, op cit., there was nothing which this plaintiff was able to proffer to put into the balance save for its undoubted success at first instance, which success, of course, is soon to be under attack.

17. At the end of the day the issue is purely one of discretion to be exercised in the particular circumstances. I am not willing in this case, wherein security for costs already reposes in court, now to sanction the payment out requested, although clearly it is not unreasonable for the plaintiff, which has succeeded at trial, to have mounted the application.

18. I order, therefore, that the summons be dismissed. As to costs, I make an order nisi that the costs of the application be costs in the appeal.

(iii) Certificate for two counsel

19. The costs order made at the conclusion of the judgment omitted to consider the issue of whether it was appropriate to certify this trial as fit for two counsel. Mr Ling has asked that it be so certified in order to guide the taxing master, and Mr Chain opposes, praying in aid the abolition of the two counsel rule and the factual circumstances of this case.

20. This matter essentially is one for the impression of the court. In my view this unusual case merits the application, and I am prepared to grant a certificate for two counsel as requested.

(iv) Housekeeping Matters

21. Mr Chain seeks to "tidy up" what he says are 'hanging' costs orders left outstanding from previous interlocutory proceedings.

22. On 9 January 2001 this court made a composite order governing a range of matters - indeed, I think it is fair to say that this case attracted more than its fair share of interlocutory dispute.

23. Cost were reserved in terms of item 9 of that Order (plaintiff's application for interrogatories), item 11 (plaintiff's application for specific discovery) and item 13 (plaintiff's further application for specific discovery).

24. Mr Chain submits that these applications ultimately were not proceeded with, and therefore that the costs of these applications should be to the defendant.

25. It is hard to fault his logic. I agree, and so order.

26. I am also requested to clarify that the costs awarded to the defendant on the plaintiff's summons for amendment dated 24 November 2000 and the defendant's summons for additional security dated 27 November 2000 include the costs of the hearing on 29 November 2000 in addition to the hearing on 9 January 2001. In so far as the Order of the latter date fails to make this clear, I confirm that this is the case.

The Aero-Technology Action

27. As earlier noted, this action is closely akin to the Tongji action. The plaintiff is a different Shanghai corporate entity, but the defendant, Casil Clearing Limited, is the same. The modus operandi giving rise to the claim is virtually identical, with one significant factual difference, to which I refer below. Procedurally, however, the present case remains at a relatively early stage. There are three summonses before the court.

(i) Defendant's summons dated 4 September 2002

28. By this summons the defendant applied for an order that all further proceedings in this case be stayed pending the outcome of the appeal presently launched by the defendant in the Tongji action.

29. This application was strongly resisted, and was refused immediately after it was made. In the circumstances, and given that the appeal in the Tongji action has not yet been fixed, Mr Chain was unable to convince me that these proceedings should remain in abeyance. It seemed to me to be appropriate immediately to deal with the other matters which have now been raised in this action, and if necessary further to consider the position subsequent to the orders which now are to be made in the two outstanding applications respectively issued by the plaintiff and defendant.

30. Accordingly, the order on this summons is that the application is dismissed, with costs to the plaintiff in any event, such costs to be taxed if not agreed.

(ii) Plaintiff's summons dated 16 November 2002

31. I suspect that it was with this summons particularly in mind that Mr Chain mounted his application for a stay of proceedings. This is the plaintiff's application for summary judgment in this action, the claim being for the sum of US$921,740 together with interest and costs.

32. Reference to this claim was made in the judgment in the Tongji action (at page 16), and in so far as there is any factual difference of substance between that case and the present, it is that in the present case there exists a contract signed both by the plaintiff herein, Shanghai Aerotechnology, and the defendant, Casil Clearing Ltd. On the basis of the existing Tongji judgment, therefore, the present claim is a fortiori, an aspect readily recognized by Mr Chain, who couched his submissions accordingly.

33. At bottom, the unfortunate situation faced by Shanghai Aerotechnology was precisely that which confronted Shanghai Tongji in the earlier action, save that in the present instance more than twice as much money is involved. In essence, as the result of the dealings the subject of the present case the problem facing the plaintiff was thus: It had paid US$921,740.00 pursuant to a letter of credit it had applied to be opened, the beneficiary being Casil Clearing Ltd., which credit was drawn down by Casil upon its presentation of conforming documents. However, the plaintiff had received no goods for which this sum of money purportedly was paid, and the defendant, Casil, has declined and continues to decline to repay this sum. Hence the present action.

34. The devil is often in the detail, and there is much of that, although it is fair to say that, as with the Tongji action, the present case is not what normally would be regarded as 'fact sensitive'. In outline, the essential facts are as follows.

35. By a written contract dated 7 August 1998 the plaintiff agreed to buy from the defendant certain items of beauty equipment for the price of US$921,740.00. In purported performance, on 15 August 1998 the defendant shipped, or caused to be shipped, a container to China, which subsequently was discovered to contain completely different, and relatively worthless, goods.

36. On 17 August 1998 the plaintiff caused to be opened an irrevocable letter of credit in favour of the defendant, which credit was drawn down by the defendant upon presentation of conforming documents.

37. In mid-November 1998 the plaintiff received a letter on the defendant's letterhead, dated 15 September 1998, bearing the defendant's chop and the relevant Invoice number, the translation of which reads:

"With much regret, we hereby formally notify your esteemed company that the goods in respect of the above invoice are not correct. Because colleagues from the transportation department of our company have made some errors in the course of dispatching the goods that they erroneously packed different goods in the container[s] and deliver same to your company. We have to trouble your company to return the non-suitable goods back to our company. Kindly forgive us for the inconvenience caused."

38. The container in question was shipped back to Hong Kong as thus requested, but no container was ever re-shipped back to China with the contractual goods therein. It was not until October 1998, during the course of its investigations, that the plaintiff discovered the contents of the container which actually was sent to Tientsin before being returned to Hong Kong. The Tientsin Customs records established in evidence disclose that the goods originally delivered in purported compliance with the contract of sale and purchase between the plaintiff and defendant were numbers of computer-operated hot oil steamers and sterilizers for tools and towels. Whilst perhaps it does not much matter, the estimated value of these goods apparently was placed by Tientsin Customs at HK$94,350.00.

39. The factual parallels with the Tongji case follow closely, save and except, as earlier noted, that unlike the position in the Tongji action (wherein the contract in question had been signed by Tongji but had remained unsigned by the defendant), in this instance a contract signed by both parties was in place.

40. Similarly the defences raised in the former case are once again in play, in particular that the contract was not binding on the defendant because it did not intend to enter into any contract to sell goods to anyone, and that in any event the "real seller" was Hong Kong Collina, the defendant's role being "essentially that of a financier", and its motivation being to obtain repayment from Hong Kong Collina for the debt owed by the latter to the defendant.

41. Given the factual similarity of the two cases, and the adverse decisions made against his client in the Tongji judgment upon the like defences therein raised, the only point presently persisted in by Mr Chain (who accepted that in light of the earlier judgment he would otherwise lose), was that his client was entitled to put the plaintiff to proof of the identity of the goods which were in fact shipped, that this had not been established, and that the defendant was entitled to consider taking evidence on the mainland.

42. In this context Mr Ling relied upon the documentary records subsequently obtained by the plaintiff from the Tientsin Customs as to the different goods as were initially shipped, namely the Customs Import and Export Declarations which came into being when the container in question came into, and thereafter went out of, the Chinese port. He further argued that the defendant, which had purported to sell the contract goods to his client, had itself been requested in correspondence to tell the plaintiff what was in the container, but to that request the plaintiff had received no response. He submitted that unless the defendant condescended to particulars of what was in fact so shipped, the only inference open to the court was that the imported goods were non-conforming and did not represent that which purportedly had been purchased by the plaintiff pursuant to its contract with the defendant.

43. In my view the 'identity of the goods' point cannot be elevated to the status of a triable issue. I go further. Whatever be the merits or demerits of the other arguments raised, and indeed to be raised, given the circumstances both of this and of the Tongji case the possibility of contractually-conforming goods actually having been shipped is so remote as not to be worth serious consideration. Mr Chain, of course, found himself in a difficult position on this application given the result of the trial which but recently has taken place, and he did his best with what was open to him, particularly in light of the apparently arbitrary valuation which appears to have been accorded by Chinese Customs to such non-contractual goods as were found in the container. Nevertheless, I am firmly resistant to his submissions in this regard, and to the notion that there is some real doubt about the goods as were found in the container, and I decline to permit this matter to proceed to trial on a basis which in my judgment is little more than specious. To hold otherwise in these circumstances would be to stretch credulity beyond acceptable limits.

44. In moving his application for summary judgment, Mr Ling was prepared to deduct from the principal sum claimed the assessed value (I know not precisely by whom, and on what basis) of that which he termed the "bogus goods". It is not clear to me why he should be willing to make this accomodation. I see no reason why his client cannot recover the price paid by means of the letter of credit, for which, of course, ultimately it has received nothing.

45. It follows from the foregoing that my Order on the plaintiff's application is thus:

(a) The plaintiff is to have final judgment against the defendant in the sum of US$921,740.00.

(b) I make an order nisi that there is to be interest upon such principal sum at the rate of 1% over US dollar prime rate from time to time prevailing from the date of the issue of the writ herein until the date hereof, and thereafter upon such principal sum at the judgment rate from time to time prevailing until payment.

(c) I also make an order nisi that the costs of and occasioned by this action, including the costs of this application, be paid by the defendant to the plaintiff, such costs to be taxed if not agreed. In so far as may be necessary, I certify this application as fit for counsel.

(iii) Defendant's summons dated 16 November 2001

46. This is the defendant's application for security for costs in the sum of $1.32 million, and for an interim stay pending provision of such security.

47. For his part Mr Chain sensibly accepted that on this application the court is entitled to take a broad view of the matter, and he was content not to make submissions at this stage, albeit only on the basis that the judgment in the Tongji action continued to stand and is not reversed.

48. In light of the finding that the plaintiff is to have summary judgment against the defendant this application necessarily has become otiose, and must be dismissed with costs to the plaintiff, such costs to be taxed if not agreed. I so order.

49. If and in so far as I be held to be wrong with regard to the grant of summary judgment, I ought nevertheless to state that in my view this is one of those relatively rare instances wherein it is appropriate for the court to exercise its discretion not to order security notwithstanding the usual practice in cases in which there is a foreign plaintiff. I accept Mr Ling's submission that if this matter had to proceed to trial the plaintiff nevertheless has a sufficiently high probability of success such that security for costs should not be ordered, citing in this connection the observations of Le Pichon JA in Re Greater Beijing Region Expressways Ltd (No 3), [2000] 3 HKC 608 at 625H.

50. I am obliged to counsel on each side for the efficient and sensible manner in which they argued these disparate applications.

Remarks: