AKTIESELSKABET DAMPSKIBSSELSKABET SVENDBORG OG D/S AF 1912 AND ANOTHER v. YEE TUNG INDUSTRIAB CO (a firm) AND ANOTHER

1985, No. CL-116

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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J U D G M E N T

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1. On 27th July 1985, the plaintff in the issue, Shoman Trading Co. Ltd. agreed to sell to the defendant, Yee Tung Industrial Co. 405 tons of new plastic material. There were three types of material involved Standard Polycarbonate or P.C., 17 tons; Off-grade Polycarbonate 20 tons Polyprophlene or P.P. Off-grade 300 tons and ABS Standard 68 tons. That contract, or I should say contracts because there was both an English and a Chinese version, were signed by Mr. Matsui who was the Governing Director and Shareholder of Shoman and Mr. Tang Pun Kau who is nominally the sole proprietor of Yee Tung. So much is common ground. Its also common ground that on 19th August, goods answering that contract description were loaded on board the steamship "Lars Maersk" for delivery to Hong Kong and the shipping company on that date handed to Mr. Tang a complete set of Bills of Lading, all three bills.

2. When the cargo arrived in HOng Kong, the plaintiffs exercised their right of stoppage in transitu asserting that they were unpaid. The sole issue I have to decide in this case is "Yes" or "No", were the Plaintiffs paid for this cargo.

3. Plaintiff's case is that the method of payment was to be by Letter of Credit and that they were never able to negotiate the Letter of Credit that was opened. Indeed it is common ground that the three bills of lading are still in the defendant's possession. The defendant asserts that the plaintiffs were paid the whole of the purchase price under the Contract 96.180 nillion yen. This is said by the defendants to have been paid in cash in banknotes on two occasions in Tang's hotel room in Tokyo; the first on 14th and the second on 19th August of that year; and that payment was made against two receipts, not the bills of lading, one receipt being dated the 14th and the other the 17th.

4. The answer to that issue of fact, largely depends upon a subsidiary question which is whether or not one or two contracts were made betweea the parties. The plaintiffs assert there was simply one contract. It is plain that if that be right, all the admitted dealings with a Letter of Credit which followed the making of that contract can only relate to that single contract. That is the plaintiffs' case.

5. The defendant on the other hand asserts that there were two contracts; first the written contract which I have already referred to, and secondly an oral contract which was to be evidenced by the terms of the Letter of Credit subsequently opened. That was an oral contract for the sale of 390 tons of plastic waste at a unit price pleaded of 237.8 yen per kilo.

6. How I accept and agree with counsel when they say that this raises a headlong conflict of evidence; it is a straight question of credibility and in herent probability. It is the sort of case, which in the old days, was perhaps be more suitable for trial by a jury than in the commercial list. The first question I have to face up to is which of the two groups of evidence that I have heard, do I regard as most credible. On the plaintiffs' behalf, I have heard evidence from Mr. Matsui himself, some evidence from Mr. Hsieh the interpreter who acted between the parties throughout all those dealings and on paper from Mr. Kuramoto of Fuji Koun, the forwarders appointed to act for the defendant in Japan. For the defendant, I have heard Mr. Tang himself, Mr. Chan Kwok Choy and Mr. Poon Tat Wah. Having listened most carefully to their evidence, I have no hesitation at all in preferring the evidence of Mr. Matsui to any of the other evidence I have heard in this case. He was a most impressive witness. He gave his evidence both convincingly and with considerable care. There were occasions when he could so easily have taken points in his favour but declined to do so. Out of sympathy to Mr. Tang, I think I can almost describe him as a cross-examiner's nightmare. Because the more his evidence was probed, the more convincing it became. So that I could, almost decide this case upon that short ground alone. But I do not think it is a very satisfactory basis because there are a number of compelling reasons why on the whole, I prefer the plaintiffs' case to that of the defendant.

7. The first is that the introduction to this case first advanced by the defendants is to my mind plainly untrue. What happened was that the plaintiff having exercised his right of stoppage in transitu, the shippers were left with the cargo on their hands. They interpleaded. There was an order made by the Court for the sale of the cargo; the payment of that sum into Court; and the trial of an issue between the parties. At a very early stage, in order to bring that result about, the defendant formlated his claim to the cargo. This was done in two affirmations, one affirmed by Mr. Tang and the other by Mr. Chan Kwok Choy, both on the 7th of October. In this respect they told the same story. This was that Tang had gone to Tokyo to negotiate the contract. He was there told by Mr. Matsui that the whole of the contract sum had to be paid in cash. There was then a telephone conversation between Tang in Tokyo and Chan H.G. in Hong Kong about the contract confirming a sub-contract betweon Wang and Chan. On return from Tokyo, Chan then made enquiries of the sub-buyer in mainland China and confirmed that cash was available.

8. That is plainly not true because its common ground now that no such telephone conversation could have taken place because both Tang and Chan were together in Tokyo. It is really impossible to dismiss that as a mistake being made in the drafting of an affirmation so soon after the event, notwithstanding the pressures of time. Equally untrue, in my judgment, was the version being given initially by Mr. Tang in the witness box which followed on similar lines with the substitution of a gentleman who was described as Chan's clan brother, Mr. Chan Chak Nam, on the telephone between Tang and the other Chan in Hong Kong, confirming the sub-contract on the telephone. In support of that Tang, in the early stages of his cross-examination, was forced to tell a series of lies and evasions to avoid revealing part of the true relationship between the various parties.

9. The true positions, I am quite satisfied now, is quite different. One starts with Dong-feng, the ultimate buyers in Mainland China who had apparently the need for plastic and the money to buy it. They knew a concern called Yuen Fai because Yuen Fai operated a plastic flower factory in the village, and likewise an investment company of the same name in Hong Kong. That company was run by the Chans, Chan Kwok Choi and Chan Chak Nam. The Chans in turn had funded a company called Yick Wah. Yick Wah originally consisted of Tang and Mr. Poon. Tang at that stage was conducting, as far as I can see, a fairly low grade and unsophisticated business in plastic waste. Poon, on the other hand, was an experienced buyer with some considerable experience in overseas contracts and a number of prior dealings with Mr. Matsui. They were joined in this company shortly before this material contract by the second Mr. Chan, Chan Chak Nam. He was likewise a man of some experience, apparently in money and at least in banking documents.

10. So one ends up with a totally incredible situation: Poon, the man with experience, who in fact does most of the negotiating and goes to Tokyo on two separate occasions, is apparently not involved in the contract. Chan Chak Nam, likewise, the man who I am told, did all the declings with the Letters of Credit and everything else was not involved in the contract because the contract was not put through Yick Wah. It was put through a brand new organisation formed for the purpose by Tang and nominally Tang alone, i.e. the present defendant Lee Tung. Tang was totally out of his depth in this matter. He was completely lost in all the intricacies of internatonal trade and was quite incapable of running this contract on his own. I have been told that Chan Kwok choy was his secret partner, the man who had largely financedthe business and was going to share in 50% of the profits I have the gravest reservations whether I have been told the whole truth about that, and whether the other Chan and Mr. Poon really had nothing to do with this deal at all.

11. That is periaps by the way. What is much more significant to my mind is that this whole deal was set up before any visit to Tokyo took place at all. Before Tang went to tokyo and as a result of negotiations between Poon and Matsui, they (and I am including there Tang and the person associated with him and I don't know exactly who they were) knew that they could buy this quantity of material in Tokyo for 96.8 million yen. Before the trip, the price was fixed to the ultimate buyer, Dong Feng in Mainland China, which was to yield a profit to the intermediaries of nearly 100%. This was going to be done apparently through a contract with Lee Tung, but Lee Tung was simply a cover for something and it was certainly not Tang alone. It seems to me quite plain that the need for cash originated here in Hong Kong. The suggestion that this was first demanded by Matsui of Poon, first arose in the middle of the case. It was never even canvassed in the early stages. The idea of cash, I am satisfied, originated in Hong Kong. The cash requirement was made by those in Hong Kong of the ultimate buyers in Mainland China. It was they, who wanted it. Exactly how this worked, I do not know, except that it is quite obvious that Dong Feng were, by no means, fully informed as to what the realities were of the dealings in Hong Kong.

12. Tang simply went, as later emerged, to Tokyo to sign the contract. That contract was originally put together in Chinese. I am quite satisfied that the crucial phrase "as agreed" in that contract, a studied ambiguity as describing the method of payment, was deliberate; and I have no difficulty in accepting what Matsui and Hsieh said to me that it was Tang and his friends who were insisting upon that, becuase they did not want any reference to the Letter of Credit in the contract and because they did not want that contract to be seen in that form by the sub-buyer in Mainland. In the light of what emerged later, all that makes sense. It also explained the lies and evasions to which was Tang reduced in the early stages of his cross-examination. I am quite satisfied that this whole case started off on a false presentation, at least to this court.

13. Secondly, the oral agreement relied upon never really started to be convincing for two very simply reasons. It foundered upon two limbs: description and price. The description in the Letter of Credit which was meant to be the contract description is simply "plastic waste". As a contract description, that is pitiful; it is simply not credible. Plastic waste is more of a generic term. There are a whole series of different kinds of plastic wastes, depending upon whether its waste PC, waste PP, or waste ABS. It comes in all sorts of different forms and in a wide range of differing prices. That Mr. Matsui pointed out in the early stages of his evidence. Then as the case developed, the description became more precise. From "plastic waste" in the Letter of Credit and in the pleading, it became "high quality PC waste, transparent". That put it in a very special class which Mr. Matsui has acknowledged did exist, which carried quite high prices, but was available only in very small quantities. So that one starts with a contract description which is not credible.

14. The price problem is more acute. The Letter of Credit Gives a figure for unit price of 232 yen per kilo. That is simple arithmetic. Because the Letter of Credit is opened for 90.48 million yen; relates to 390 metric tons; and dividing 390 into that figure gives you a unit price of 232. That was the unit price sworn to in the initial affirmations. That was the unit price initially asserted in the pleadings which was the first time that this oral contract was in fact advanced at all.

15. Unfortunately for the defendants, at that stage both parties had overlooked the fact in their pleadings that a deposit had been paid. This deposit was paid, so the plaintiff said, in respect to the other contract. But the payment of the deposit was so inextricably linked on the documents with the opening of the Letter of Credit, that this deposit had to be related to the 2nd contract, as far as the defendants case was concerned. Therefore, the defendants and to reconcile the assertion of price based upon the Letter of Credit with the payment of this deposit.

16. The first attempt was to produce a document which is, in my judgment, simply a crude and simple forgery. It is to be found at F6 in the Bundle. It purports to be an invoice issued by Shoman Trading dated 6th August for 43,442 kilogrammes of PSA lump at a price of Yen 52 per kilo, which was certainly the going rate at that time, and which produces an invoice figure of Yen 2,258,984, Yen 16 short of the deposit. I have heard a good deal of evidence about Japanese trading practice in this case. I am quite satisfied that a number of Japanese traders, including Mr. Matsui, adopt the practice of providing their buyers with pre-signed documents, invoices, letter-heads, packing lists and that sort of thing. I have seen a good deal of that material not only from Shoman, but also from other suppliers too. This document shows that this fact was known to Mr. Tang and those associated with him and that they had received some of that material from someone. That I think, explains why they were able to put forward this document, which is over a genuine signature of Mr. Matsui but which is totally false. It is no longer suggested to be an invoice for the simple reason that there was no delivery of material to back-up this invoice of goods. So it became simply a useless and very damaging document because it showed, in my judgment at least, that Mr. Tang, who produced this late in the case in a supplemental list, was quite prepared to advance false and forged documents in support of his case.

17. The second attempt to deal with the price problem was made on the opening day of the hearing, by amending the price. That goes like this: if you add the deposit of 2.259m to the figure of 90.480m, you get a total of 92.739m. You then divide that by 390 tons, and you get a unit price in yen per kilo which is Yen 237.7923 per kilo. One only has to state that figure to see how ridiculous it is. This totally explained why when the three witnesses the defendants called were giving the price that was agreed for this material, there was a great deal of fudging around with answers like, "well, it seems to me it was about so and so". No one could possibly commit themselves to a figure as absurd as that. So on those two simple grounds, this oral agreement, in my judgment, never started to look convincing.

18. Then I turn to documents. The bulk of them were in the plaintiffs' favour. Indeed only after the bills of lading had been taken by Mr. Tang was there any document written which started openly as to suggest an oral contract. But there are certain categories of documents which are particularly destructive of the plaintiff's case. The first are pages 4 and 5 of Bundle B which consist of two copy telexes, one from Hong Kong to Japan and one from Japan to Hong Kong appointing Fuji Koun as Forwarder. They were written in clear English. They refer to the Letter of Credit and the payment of a deposit. Mr. Tang disclaimed all knowledge of those documents. He said he had never seen them before, and none had ever translated the documents to him. This made it to my mind, abundantly clear that there was someone in his team (who he was I do not know) who was quite capable of drafting and sending document written in perfect English; and likewise that Mr. Tang was simply not in touch with some of the things that must have been going on in his office. This shed a great deal of light upon Mr. Tang's ultimate excuse for all English documents which were embarrassing and there were a number. This was to put the blame on Mr. Hsieh and say that they were all drafted by Mr. Hsieh at some stage or other during the time in Tokyo; an excuse which seemed to gain momentum as the case went on, and in which in my judgment, there was no truth as all.

19. The second document which is equally damaging is the shipping order at page 27 of the bundle. This was certainly drafted by Mr. Hsieh. I have seen both the first and final draft. It was the attempt to reconcile the terms of the contract for 405 tons, with the Letter of Credit already opened. Quantum could be dealt with sufficiently by the fact that the Letter of Credit referred to a margin of plus or minus 5%. The unit price could be reconciled by bringing in the deposit. At least it produced a small excess as a contemporary calculation of Mr. Matsui's showed. The description "plastic waste" could be accommodated within the explanation given by Tang, that this was necessary to reduce customs, duty upon import into Mainland China, by adding the real contract descriptions underneath. The names of the consignees were more difficult, and required amendment to the Letter of Credit.

20. As far as the shipping order was concerned, Mr. Tang was compelled to explain it, because it bears his signature, by asserting that he thought it related to the 390 tons contract and that the figures in it were approximate. I accept that it is very difficult for a person who can read no English to deal with a document which is written in English. But Mr. Tang could read the figures. It is perfectly obvious from the figures there that there is no approximation at all, it is a precise figure of 405 tonnes. And the 405 tonnes is the total of the four metric tonnages in the 405 contract, all quite precise. Likewise the figures ABS are international and appear in the Chinese contract as well as this document. I cannot start to accept Mr. Tang's explanation.

21. Equally difficult for Mr. Tang is the document to be found at page 33. As a result of the shipping document and on the afternoon of 7th August, there were a lot of discussion, which Mr. Kuramoto amongst others described, about the amendments necessary to bring the Letter of Credit into line with the terms of contract. I have no difficulty in accepting because they produce it, that the document at page 33 was given to Mr. Matsui by Hr. Tang in support of his assertion that application had already been made by him to the bank, the China and Southseas Bank Limited, to make the necessary amendments to the Letter of Credit in the form of that application. One now knows that the bank never received that document. The Bank in fact acted upon an application to amend which was not dated until 23rd August. It came into existence a long time after this event. Who provided Mr. Tang with his document, I know not. What is plain is that Tang could not possibly have settled the document or produced it for himself. He was forced to say that he had never seen the document before. That was embarrassing because a document in exactly the same form, save that it only had one of his company stamps and not five of it, was exhibited to his original affirmation as Exhibit 3. So there was plainly no truth in that; that explanation simply did not leave the ground. So that that document was a thoroughly misleading document, there can be no other explanation of it, deliberately produced to Matsui to try and show him that attempts were then being made to amend the Letter of Credit when no such attempts were in fact being made.

22. That leads me on to the receipt, B38, which is another impossibly difficult document from Mr. Tang to explain. Again the copy bears his signature, and he plainly realised at the time that this was a receipt. It was another English document, but the two figures there closely associated are 405 metric tons which he can read and ND 18934 which was the number on the Letter of Credit. this was all part and partial of the steps that had to be taken to amend the Letter of Credit to bring it into line with the 405 contract.

23. Finally, one gets to the two letters at pages 41 and 55, 41 is the letter to Mr. Kuramoto dated 22nd August and admittedly signed by Mr. Tang. That purports to apologise to Mr. Kuramoto for Mr. Tang having gone to pick up the bills of lading on his own without bothering him. He purports to promise to send the two original bills of lading to Shoman for their bank negotiation, which is consistent only with the plaintiff's present case. he then goes on to purport to include copies of the two receipts for the cash; (those two paragraphs are totally in conflict with one another) and what is more significant, copies of the bank documents which only the defendant could have access to. That document is exceeding damaging, if true. The explanation for it advanced by Mr. Tang is that it was drafted by Mr. Hsieh in Tokyo, given to him at Tokyo Airport on the day he was leaving, put straight into an envelope and sealed, with instructions to post it in Hong Kong. That is simply totally incredible. There is no way in which Mr. Hsieh could possibly have known of the documents referred to the 3rd paragraph, let alone being able to produce them.

24. The other document which goes with it is the document at page 55, which was sent by Mr. Tang, unsigned, to Mr. Matsui. It is purported to be dated 25th August and purported to enclose two copies of the original bills of lading which it certainly did not. That explains that Mr. Tang went to the shipping company with his girl friend to pick up the bills of lading on 19th of August. There again I am quite unable to accept Mr. Tang's explanation that this was another document drafted by Mr. Hsieh in Tokyo, and handed to him in a sealed envelope unread and untranslated. All those documents are very damaging to the defendant's case.

25. I then turn to the actual payment of the money itself. Again in my judgment, the story is simply not credible. The receipts produced are clearly not typed at the same time on either occasion. Mr. Derek Davies has convincingly demonstrated that they are reconstructed in the sense that one went through the typewritter twice and the other three times. They are very curious in their form in any event, and I am quite satisfied, are neither in the language nor in the form which Mr. Matsui would remotely have used himself.

26. Thirdly, the whole exercise is unbelievably unconvincing. There undoubtedly were two large sums of money in the Bank of Tokyo in Yen. But it would have been the simplest thing in the world to have had that money transferred from that Bank to Mr. Matsui's account at Sanwa Bank in a number of different ways, without going to the hazards and risks of drawing this very large sum of money in Yen and leaving it in a wardrobe in the Hilton Hotel in Tokyo. The thing is quite beyond belief in its stupidity. Likewise it is quite beyond belief that the sums of money would be handed over in this way against receipts and not against bills of lading which were to be available shortly.

27. What is even more bizarre is that the receipts are in English, and they were handed to two gentlemen who could not start to understand anything in those documents apart from the figures because neither could read English. Both documents remarkably give an exact figure to 8 figures in Yen. These are said to have been produced pre-signed by Mr. Matsui from his brief case. There was nothing to start to give a sufficient explanation in my judgment as to how Mr. Matsui happened to get the figure right or nearly right on both occasions. It was not exactly right on the first occasion, there is said to be I think a Yen 40 difference between the figure in the receipt, and the figure that was shown to be drawn from the Bank on these two days, 13th and 14th August. But what is even more incredible in relation to the second receipt is that this is not the figure that was drawn from the bark, it was a lesser figure than that; and that this receipt was apparently signed and dated on the 17th, two days before the money was drawn from the bank.

28. In my judgment, both those documents are simply forged. They are reconstructed to try and make it appear that Mr. Matsui received a sum of money. I am quite satisfied he did not receive a single Yen. Mr. Matsui was criticised for rot having appreciated what happened, earlier. One can sympathise with this. He was shown these documents; he knew them to be false; and condemned them both as forgeries. It was only at a much later stage when actually faced with the originals and the signatures upon them, which he began to realise could well be his own, that he started to think again how a document in this form could have been put together in this way, and realised what, in my judgment is the true explanation.

29. Finally, there is the collection of the bills of lading. I have no reason to disbelieve the account given by Mr. Tang in the letter of 25th August at page 55, that he went to collect these bills of lading alone with the assistance of a girl friend. Indeed that was supported by what Mr. Matsui told me in cross-examination was told by the shipping company.

30. Comment was made as to how the defendants thought they could get away with this. I think it may well be that they knew nothing about the right of stoppage in transitu. I think they may well have thought that if Mr. Matsui could be persuaded to remain in Tokyo upon the promise that the original copies of the bills of lading will be sent back to him, then they might have been able to pick up the cargo in Hong Kong; and if they picked up the cargo in Hong Kong, it would have gone to Mainland; they would get the money from Mainland, then Mr. Matsui would have been left suing the empty shell that is Lee Tung Industrial Co.

31. It is not necessary for me to probe the motivation behind this Defence. All I can say is that, I find it totally unconvincing and indeed supported by documents which in my judgment were forgeries. There must, therefore be judgments for the plaintiff in the issue for the outstanding balance of the purchase price which is Yen 93,921 million and an order for the payment out to the plaintiff of the HK$2.333 million plus any accrued interest which was the proceeds of sale of the cargo. I will deal, in a moment or two, with the other sums of money in Court.

32. As to the matter of costs, Mr. Bunting for the plaintiff invites me to make an order for indemnity costs, as defined by Sir Robert Megarry, V.C. in EMI Records v. Ian Morris⁽¹⁾ as an order for taxation under O.62, r.29(1) to which the presumptions in sub-rules (2) and (3) do not apply, with the intent that his client should recover all costs "except insofar as they are unreasonable in amount or have been unreasonably incurred". In opposition Mr. Tang says first I should make an ordinary party-and-party order and secondly I should not go any further then a common fund taxation basis under O.62, r.28(4), which would allow "a reasonable amount in respect of all costs reasonably incurred". It may appear a matter of emphasis, but in practice it probably goes a good deal further than semantics.

33. The ordinary basis of taxation of costs which is operated in our courts is party-and-party costs. The original thinking behind this was that successful parties should recover some costs taxed upon such basis so that the consequences of losing litigation should not be totally horrendous. At least, I think that was the thinking behind the initial process, I am not at all sure that that thinking has wholly escaped criticism in the years that have gone by. But that has to be the practice where I have to start and there is considerable force in what Mr. Tang says that in many cases where fraud has been in issue one way or the other, that the successful party had ended up with a party-and-party taxation. Likewise there is some support for the view that that form of indemnity costs should be reserved for cases with a penal element, particularly cases like contempt. I am aware that I have expressed that view in the past in the belief that it had the support of others. That is a way of pointing the difference.

34. This has been an unusual case. There are a number of puzzling aspects to it and I am grateful to counsel for their help. I think in the light of their submissions I should be ignoring, and will attempt to do so, what I have heard from Mr. Tang about his financial position which gives grave doubts as to whether this discussion or costs is even realistic; and secondly what I have heard about the financing of the litigation with the defendants' point of view. I think that is probably right, I should not look beyond the proper order to be made having regard to the conduct of this case and the issues which had been raised and which I have determined. What they reveal in my judgment is that this is a case which should never have reached court, because it reached court only by use of documents which I have already condemned as fabrications. It is certainly a very unusual case to reach the commercial court in this jurisdiction and I certainly hope there will not be any others.

35. That is a factor which I think I have to recognise, but I do not think it would be right to recognise it to the extent that Mr. Bunting has invited me to. I do not think it would be right for this court to start making orders for indemnity costs, whenever it takes the view that I have taken about a litigant's conduct in this sort of case. I say that not from any moral standpoint but by reason of the deep ingrown stance that the court has adopted in respect to costs orders in the past. We cannot, I think, so readily shake off our past like that. But I do believe that this is a proper case for the making of an order for common fund taxation, so that the plaintiff will recover all the costs reasonably incurred. I would specifically include in that (whether by way of advice or direction to the taxing master) that anything arising out of translation, and particularly the use of an interpreter in court should be allowed. It was elementary in a case like this that persons directly concerned with the evidence that were being given, could understand it as it was being given, and were therefore in a position to give instruction to their respective advisers. The defendant had the benefit of the free services of the court interpreter. Mr. Matsui had to pay for one particularly. That should surely be reflected in any costs allowed.

36. My order is that the defendant is to pay the plaintiff's costs on a common fund basis.

(1) [1983] Ch. 59 at 74