HONSAICO TRADING LTD v. HONG YIAH SENG CO LTD

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JUDGMENT

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Hunter, JA :

1. This is an appeal from the judgment of Godfrey J given on 2nd November 1989, [1990] 1 HKLR 235, whereby he ordered the continuance of a Mareva injunction originally granted by Nazareth J on 19th October. The effective part of the injunction reads : -

"That the defendants are restrained from removing or causing or permitting to be removed or taking any steps to remove out of the jurisdiction of this court any of their assets money or goods, within the jurisdiction or from disposing of or transferring charging or diminishing or in any way howsoever dealing with any of the respective assets money or goods within the jurisdiction ... save insofar as the value of such assets, money and goods exceed the sum of US$1.4 million (the original figure of US$2,000,000 was reduced as part of Godfrey J's order)."

2. The background is this. The plaintiff is a Hong Kong company which is in effect a trading arm of the Vietnamese government. The defendant is a company carrying on a substantial business in Thailand. The injunction was granted in support of the plaintiff's claim against the defendant for damages for breach of contract.

3. That claim arose in these circumstances. On 8th July 1989 the defendant entered into a contract with the President of India, which was in fact managed by the Food Corporation of India, for the supply of Vietnamese rice. The contract quantity was 100,000 metric tonnes, the price being US$258 per metric tonne FOB Ho Chi Minh City Port. The delivery schedule was July - 30,000 metric tonnes; August - 45,000 metric tonnes; September - 25,000 metric tonnes, and that was meant to be completed by 15th September.

4. Under the shipping provisions of the contract, it was set out, that the buyers had to furnish ocean-going Vessels. It also specified the rate of loading to be at 600 metric tonnes per weather working day.

5. Having entered into that contract with the Food Corporation of India, on 11th July the defendant entered into a contract with the plaintiff. That contract was in the same terms as far as quantities, delivery and loading rate are concerned. The price in this case was US$230 per metric tonne, again FOB Ho Chi Minh. Payment was to be by irrevocable letter of credit at sight to be opened two weeks before shipment.

6. Two things, I think, emerge form that position straight away. First, it is common ground that at this particular time of the year, July to September, there was very considerable congestion in the port at Ho Chi Minh City, because during that period the defendant itself said that the Indian government had contracted to take up 270,000 metric tonnes of rice, and the Sri Lankan government another 70,000 metric tonnes. It is a small port with limited facilities. We can see from the documents that the rice ships coming in vary in tonnage between about 10 and 13,000 tonnes. We have been told that the maximum tonnage is 15,000 tonnes. The loading rate of 600 metric tonnes a weather working day is a modest rate. It necessarily follows from this that by mid-July, when this contract was entered into, the schedule was very tight indeed. Unless immediate steps were taken by the defendant, the whole of the July shipment period was going to be lost. Indeed in this case it and part of August was lost because the first letter of credit was not in fact opened until about the last day of July. That simple fact may explain much of what happened afterwards.

7. Having entered into that contract with the plaintiff, the defendant entered into two contracts with a firm called "Pilkon International Co Ltd", another Hong Kong company, apparently associated with a Mr Ho. The contracts appear to be dated 19th July. The first was for 30,000 metric tonnes of Vietnamese rice for delivery in August and September, at US$230 per metric tonne FOB Ho Chi Minh City. In this particular case the letter of credit was to be opened within two weeks of confirmation of the contract. The second contract was on identical terms for the supply of 20,000 metric tonnes, same delivery periods. Both Pilkon's and the plaintiff's contract have identical terms permitting the Food Corporation of India to be associated with the inspection of the goods in Ho Chi Minh City.

8. It is quite apparent that as from the date of entering into those two contracts, the defendant had no intention whatever of taking up the balance of 50,000 metric tonnes under the plaintiff's contract. It decided for itself to split the 100,000 tonnes it had to deliver to India between the plaintiff and Pilkon and that is exactly what it did. A total of eight ships in all presented themselves at the port from August onwards, presumably nominated initially by the Indians. On its own initiative the defendant applied four of those ships to Pilkon in the period August to October, and those ships loaded a total of 52,000 metric tonnes. The defendant nominated four of those ships to the plaintiff. Those four ships took a total of 48,000 metric tonnes over the like period. From August, and particularly September onwards, the plaintiff was pressing for nominations of ships to take the balance of the 50,000 tonnes under their contract. None came and eventually the defendant refused to give any such instructions for reasons which I will have to look at more closely in a moment. That happened at a time when the rice market had collapsed.

9. It is quite apparent from this statement of facts that the defendant has no defence to a claim for damages for breach of contract unless it can justify the diversion in effect of 50,000 metric tonnes from the plaintiff to Pilkon. It seeks to do that by an allegation of anticipatory breach. That allegation rests upon a single disputed telephone conversation which was not thereafter referred to in any document in any shape or form. It is perhaps therefore not surprising that before Godfrey J there was no question but that the plaintiff had a good arguable case. The only issue which was argued before him was that which is normally called "real risk" in this type of care. One finds this in his judgment at p 9 : -

"Here ... I have the advantage of an agreement between counsel as to what the question is that I have to decide. The question is: On the whole of the evidence, would the refusal of a Mareva injunction involve a real risk that the judgment in favour of the plaintiff would remain unsatisfied?"

That was the agreed question and he notes that it was in fact precisely supported by the decision of the Court of Appeal in Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbh und Co KG [1983] 1 WLR 1412.

10. Before turning to that issue in more detail I should say this. The defendant is a Thai company. It is controlled by a Mr Prachai, who it is common ground is himself a very wealthy man. The company has a substantial paid up capital of the equivalent of HK$18 million and an annual turnover of HK$750 million. Unfortunately for the plaintiffs all those assets are in Thailand. There is no provision for reciprocal enforcement of Hong Kong judgments in Thailand, and on the evidence the enforcement of a judgment in Thailand make take anything between six and nine years.

11. Precisely what assets the defendant has in Hong Kong at the moment is a mystery. It has a close relationship with a particular Hong Kong bank, which was the banker named in both the Indian contract and the plaintiff's contract. Precisely what sums were in that bank account when this Mareva was originally granted is unknown. It is the hope and expectation of the plaintiffs that some substantial part of the proceeds of the sale to be remitted from India were there. The position is fairly plain that whether or not that bank account is kept in funds is solely at this defendant's choice. Therefore the issue is whether there is a real risk, that in the face of an adverse judgment this defendant will empty that bank account. The judge took the view, with that I agree, the only way of testing this, and it is certainly not suggested that in this respect he erred in principle, is by looking at the probity of the defendant company. Here there is a useful sentence in the judgment of Mustill J in the Ninemia case at first instance [1983] 2 Lloyds Rep 600 at p 606 where commenting upon the evidence which the plaintiff may lead, he says this : -

"It may consist of direct evidence that the defendant has previously acted in a way which shows that its probity is not to be relied upon."

Indeed that has been the plaintiff's case throughout this application.

12. The judge concluded that the case disclosed "devious conduct" on the part of the defendant in its dealings with the plaintiff. He summarised the position in this way : -

"I have, however, come to the conclusion that the defendant has exhibited an unacceptably low standard of commercial morality in its dealings with the plaintiff; and this drives me to conclude that there is a danger that if the defendant thought it was in its best interests to do it, it would not shrink from attempting to defeat the interests of the plaintiff under any judgment the plaintiff might obtain here.

 

        I can understand that the defendant would wish to protest at such a conclusion; but as it seems to me, it has, by its own conduct, brought this upon itself. That there is such a danger is a view which I have formed with reluctance; and I would be anxious to do what I can to avoid damaging the interests of the defendant more than is necessary in line with that conclusion. If, for example, the court were to be offered, even at this late stage, an undertaking from the defendant not to dispose of its assets ...."

or some similar machinery he would not make an order. That offer was not taken up. Therefore it is a little hollow now for the defendant to complain about any extended damage it may suffer consequent upon the granting of a Mareva injunction.

13. This was the conclusion the judge reached in the exercise of his discretion. There are well known limitations upon this court's readiness and willingness to interfere with a judgment so based. Two attacks are made upon this conclusion. First it said that there was no sufficient evidence upon which the judge could reach that conclusion. Secondly, it said, it was made without a proper evaluation of the whole of the evidence. It is to those two matters that I must now turn.

14. The plaintiff's contract with the defendant was made on 11th July. The trouble started shortly after that date when Mr Prachai says that he spoke on the telephone to Mr Sach, who was the gentleman dealing with this matter on behalf of the plaintiff company. What Mr Prachai says in his affirmation is this : -

"Shortly after the contract between the plaintiffs and the defendants was signed on 11th July, I was verbally informed by Mr Sach when we spoke on the telephone that the plaintiffs were only able to supply 50,000 metric tons of the goods by 15th September 1989. He explained that this was because there were so many ships coming into Vietnam in July and August for loading that shipping arrangements must be made to provide that vessels be berthed in Vietnam for loading at two weeks' intervals between the loading of each shipment. It is clear from such a schedule of loading, ie two vessels every four weeks, that it would be impossible for the plaintiffs to arrange for the entire quantity of 100,000 metric tons ... to be delivered within the contract period. ..."

He then complained about this to Mr Sach : -

"Despite my complaint to Mr Sach, there was nothing which can be done at that time because at the material time I did not want to antagonise the defendant's relationship with the plaintiffs, which may result in the defendants not being able to obtain any supply of rice at all for performance under their contract with the Indian government."

15. That was the explanation then advanced and maintained why this crucial telephone conversation, said to constitute an anticipatory breach of contract by the plaintiffs days after the contracts were made, far from being confirmed in writing was not even alluded to anywhere in any document at any time thereafter.

16. The judge was persuaded to take what seems to me to be a very benevolent view of this conversation. He was prepared to deal with the matter upon the basis that the defendant had a bona fide belief that the plaintiff would be unable to perform its contract based upon this telephone call, because he could see no other reasonable explanation. Upon that basis, he plainly thought that it was dubious conduct for a party who had this bona fide belief not to record it and explain it in writing to the other party with whom he was dealing. Commercial morality required something more than the total silence which followed.

17. I described that attitude as benevolent because I have great problems with it. We have been told that the version as given in the paragraph that I have read from Mr Prachai's affirmation (notwithstanding the fact that it is repeated in the identical terms in the Defence many months later) is in fact completely wrong. The timetable upon which the whole of this allegation depends is out by a factor of two. The timetable which was being discussed was not two vessels every four weeks, but four vessels every four weeks. When one looks at the arithmetic it can be seen that the whole thing collapses if the proper timetable is fitted in. It is very difficult to see how you can have a bona fide belief based upon a totally fictitious timetable. At least it has to be a mistaken belief..

18. If the defendant then thought that there was going to be trouble and delay in the port of Ho Chi Minh City, I can totally understand it. That may have been the reason why it then went out and entered into another contract. But that had nothing whatever to do with this loading capacity or, as far as I can see, anything to do with the plaintiff's conduct. This is said to be an anticipatory breach of a contract. It is said to reveal an inability to deliver FOB by this seller. I simply do not start to understand that, if, as the matter plainly suggests, this was due to congestion in the port. There is no suggestion any where that this particular plaintiff is directly or indirectly responsible for such congestion, or contracted in any form expressly or impliedly to relieve it to this defendant's advantage.

19. My own feeling is this. I question this explanation of the judge's. It seems to me that this was something which the defendant could not reveal to the plaintiff partly for the reason that he gave, because he would be revealing to the plaintiff that he was going out to break their contract, and would give them the opportunity, which he dare not offer of repudiating their obligations to him, of giving him no rice at all. There was every reason not to reveal what was going on to this plaintiff. That makes the conduct morally more reprehensible than the view taken by the trial judge. I am quite prepared for the purposes of this appeal to adopt his approach rather than mine.

20. The next thing that happened on the documentation come the end of July when there was still no nomination and no letter of credit opened, is that by telex of 27th July Mr Sach pressed the defendant for a nomination and for the opening of a letter of credit. The telex goes on : -

"Although understand that delay is caused by your Indian buyers side, please take up this matter urgently ... "

Plainly he had been led to believe that the shipping responsibility was the Indians, which was true; and that the problem had arisen from a failure of the Indians to attend to their responsibility. This was confirmed by the answer which simply says that : -

"We are sending you the letter of credit details. We are pushing Indians to nominate more vessels."

The judge plainly took the view that was duplicitous. I agree with him. "Pushing the Indians" required a further explanation having regard to what had happened. On whose behalf? The plaintiff's contract, or the Pilkon contract, or of which the plaintiff at that stage plainly knew nothing.

21. Shortly after that rumours of a Pilkon contract reached Ho Chi Minh City, no doubt because you cannot start to load a vessel there without everybody knowing all about it. A question was asked as to whether it was right that the defendant had bought 260,000 tonnes of rice from Paul Ho, who controls Pilkon, on the terms that the letter of credit had been opened already whereas at that stage, 28th July, the first letter of credit in favour of the plaintiffs had not been opened at all. That telex again was never answered. A very similar excuse or reason is given by Mr Prachai of "not rocking the boat" or disturbing the relationship.

22. What he says about this in his affirmation is this. Having said that he got this telex and answered it in a way which did not reply to the question at all : -

".... I telephoned Mr Sach in Hong Kong and explained that the defendants had only purchased 50,000 metric tonnes of the goods from Pilkon at the same price as that at which we purchased the goods from the plaintiffs, and explained that this was because of his indication that there must be two weeks' intervals between the loading of each vessel, which has made it clear that the plaintiffs would not be able to supply the goods to the defendants within the contractual period on or before 15th September 1989. Mr Sach simply explained that this was because the berthing in Vietnam was jammed. He did not protest to the defendants' separate contract with Pilkon, as he must have also realised that it was abundantly clear that the plaintiffs would not be able to perform their contractual obligation under their contract with the defendants, and that the defendants would be put in an extremely difficult position with the Indian government. This verbal discussion was not recorded in writing, as I was then anxious to preserve the good relationship between the plaintiffs and the defendants, and did not wish to register any formal complaint in writing."

23. Again, the judge took the same benevolent view about this conversation, having regard to his starting point of bona fide belief. He said : -

"I cannot get into the question - who said what to whom - in conversations over the telephone. I can only read the material which has been placed before me and I observe that there is no such material at a time when one would have been entitled to expect it."

That was plainly a reference to the fact that this crucial conversation "explaining" this contract and revealing part of its terms, was never again referred to in writing anywhere. He plainly took the view consistently with his earlier view that this was not acceptable commercial behaviour. If a person had a bona fide belief and felt that he was being forced into this contract, which is what is now being asserted, there was every reason to tell this plaintiff about it with total confidence. There is also a problem when you come to consider the plaintiff's telexes after this. They were pressing in telex after telex for nominations for the balance of the 50,000 metric tonnes under their contract. These telexes would have been clearly dishonest on the part of Mr Sach if he had known, as has been strenuously submitted to us, that this contract with Pilkon was intended to take away the balance of the 50,000 metric tonnes under the plaintiff's contract. From my part. I can see no basis for drawing that inference at all.

24. I can see no reason for assuming that the plaintiffs at this time discovered, what it seems to me was being kept from them quite deliberately. Looking somewhat more cynically at this telephone conversation account, I find it simply lacks any credibility at all. The whole thing depends upon the same timing as the earlier telephone conversation, and upon the same number of vessels. Once that goes, the whole basis of this explanation goes with it. Added to which there is no clear statement at all, that the Pilkon contract was to take away from the plaintiff the 50,000 metric tonnes.

25. Again I am prepared to go along with the more generous approach taken by the trial judge. But there is no substance that I can see in any criticism that he was not giving the defendant "the benefit of the doubt" which was one of the submissions made to us.

26. Thereafter there was complete silence an the documentation either as to the fact that this contract was doomed to failure, or that the Pilkon 50,000 metric tonnes had been taken from the plaintiff. As I have said, four vessels were nominated to each party during the period that I have indicated. There were then repeated requests for nominations for the balance of the plaintiff's 50,000 metric tonnes. At long last by a telex, which we have now seen was in fact dated 6th October, for the first time the defendant offered an explanation in writing : -

27. I do find it very difficult to describe that telex in temperate language. It starts off by a reference to past performance as the excuse, which bears no relation to the Defence now being advanced. It talks about persuading the Indians to extend the time when no such attempt at all is actually sworn to. No such attempt was necessary. The Indians had by this time got their 100,000 metric tonnes because Pilkon had supplied the balance. As for these totally hypocritical remarks about friendship and mutual cooperation, in view of this history I find them very difficult to stomach.

28. When again presses to give deliveries and instructions, the last straw seems to me to be the telex of 18th October : -

"Due to your inability to load fast for Indian buyer within 15th September they decided against the additional quantity of 50,000 metric tonnes, so please note accordingly."

I cannot improve upon the judge's cryptic comment on that communication.

"This is another disingenuous attempt to obscure what on the face of the documents appears to be the true position. The 50,000 metric tonnes the defendant was not taking from the plaintiff was in fact being supplied through Pilkon."

29. In those circumstances it seems to me that there is no substance whatever in either of the criticisms which are sought to be made of this judgement. The judge very carefully assessed the whole of the evidence. He assessed the impact of the telephone conversations which it is now asserted that he ignored, very much more benevolently than I would be minded to assess them myself. No possible complaint can be made about that. As for the suggestion there was no basis for this inference, it stands out from all the documents to which I have referred. When the judge said that this is a conclusion that the defendant by its own conduct had brought upon itself, I entirely agree. For my part I would dismiss this appeal.

Fuad, V-P :

30. I agree that the appeal should be dismissed. I, too, have not been persuaded that the learned judge exercised his discretion wrongly in granting the plaintiffs the relief that they sought.

Penlington, JA :

31. I too would dismiss this appeal. There is nothing that I feel I can usefully add.