XCHRX UNION BANK OF HONG KONG LTD. v. BRIGHT RESOURCES DEVELOPMENT LTD.

HCCL222/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL LIST NO.222 OF 1998

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J U D G M E N T

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1. The Court this afternoon is seized with two matters :-

2. First, the Plaintiff'sinter partes Summons dated 20th July 1999 pursuant to Order 14A, HCR. In that Summons, the Plaintiff wishes certain matters to be ruled upon by the Court and, if the answer be in the affirmative, it seeks judgment in the sum so stated on the face of the Summons. But more about that in a moment.

3. The other matter, which the Court chose to deal with at the outset of the hearing this afternoon, was an application taken out by the Defendant's solicitors, Messrs Alan Ho & Co., pursuant to Summons dated 24th August 1999, whereby an order was sought declaring that the said Messrs Alan Ho & Co. ceased to act as solicitors for the Defendant in the action, and that the costs of the application be taxed and paid by the Defendant, if not agreed. This latter summons had originally been scheduled for 9:30 this morning but upon the Court's instruction, it was deferred until the hearing this afternoon. Mr Ho now has appeared and has applied for his summons to be heard first. He has made it quite clear to the Court that he has been discharged by his client from further acting on his client's behalf, and he says that even were he to remain in Court, he would have nothing to say in response to any submission that Mr Whitehead for the Plaintiff bank may be minded to make. Mr Ho does not, of course, formally come off the record as solicitor for the Defendant until he complies with the various provisions of Order 67, rule 6, but for the purposes of this afternoon's hearing, I granted his application in terms of his summons and gave him leave not further to attend the argument. Mr Ho duly departed, and he has not been present during Mr Whitehead's submissions.

4. Which brings me conveniently back to the substantive matter for consideration today. The Plaintiff is a well known bank in Hong Kong, and the Defendant is one of its clients. Indeed I understand that the Defendant holds funds with the Plaintiff bank which have been the subject of a Mareva injunction, which was granted originally by Nguyen J, thereafter varied by Seagroatt J, and which was upheld by the Court of Appeal in a judgment that Mr Whitehead has ensured has been included in the papers.

5. The brief facts of the case are clear. The Plaintiff bank entered into an agreement with its client, the Defendant, to provide a discounting facility pursuant to a Letter of Credit issued by the Bank of China, and to acquire the Defendant's documents in its own right. As a consequence of this discounting agreement, the Defendant received the sum of US$470,681.37 from the Plaintiff bank.

6. The Plaintiff bank appears to have two options. First, it can proceed against the Bank of China, which has declined to pay out under the Letter of Credit, there having been, I understand, an internal injunction in China against payment; alternatively, the Plaintiff seeks to exercise a right of recourse against his own client. And it is this latter eventuality that is the subject of the hearing this afternoon.

7. The present application under, as I have said, the provisions of Order 14A, concerns the construction of two documents, and the legal result thereof. These are documents which were entered into between the Defendant and the Plaintiff at the time at which the discounting facility was agreed. They are :-

i) A Letter of Hypothecation dated 6th October 1997; and

ii) An agreement dated 4th December 1997 in relation to a discounting facility granted by the Plaintiff bank to the Defendant.

8. The case has been put on a purely contractual basis pursuant to extensive amendments to the original Statement of Claim, such amendments having been made and served in July this year. These amendments plead the Plaintiff's contractual rights of recourse against the Defendant, which recourse is reflected in the documents I have itemized above. Mr Whitehead is concerned to stress, unless the spectre of fraud be raised, that the Plaintiff in this application restricts itself to the contractual claims made in the Amended Statement of Claim at paragraphs 3 to 12 thereof. Mr Whitehead also makes the point, which is consistent with the events surrounding the withdrawal from these proceedings of the Defendant's solicitors, that although the Defendant has admitted it received the monies claimed by the Plaintiff pursuant to the discounting facility, the Defendant has made no defence whatever to the contractual matters pleaded in the Amended Statement of Claim. And, as now seems clear, the Defendant no longer has any interest in this action, given that it has discharged its solicitor from further acting.

9. The specific question of construction posed to the Court is whether, properly construed, the documents itemized above amount to enforceable obligations between the Defendant and the Plaintiff by which the Plaintiff has a contractual right of recourse against the Defendant if (as is the case) the Plaintiff is not paid by the issuing bank (in this case the Bank of China) in relation to the Letter of Credit No.L/C8133900197. The application is backed by a full affidavit of Mr Tang Yiu Tsung, who is the Marketing Manager of the China Banking Department of the Plaintiff.

10. The thrust of Mr Whitehead's case this afternoon is that on their proper construction these two contractual documents provide the Plaintiff independently with an absolute right of contractual recourse against the Defendant. And, as Mr Whitehead has pointed out, not only has the Defendant not paid the sum advanced (which represents the face value of the draft drawn under the Letter of Credit less the sum discounted) but the Defendant has not sought to offer any defence to these contractual claims. Mr Whitehead further submits that Order 14A(2) provides that upon the Court's determination of the question posed, the Court may "make such order or judgment as it thinks just". In these circumstances, perhaps not unnaturally, he says that the just order would be to enter judgment in the terms sought in paragraph 2 of the Summons.

11. I agree. I have looked at the documents in question and I am in receipt of Mr Whitehead's precise submission. I have, of course, not had the advantage of hearing argument for and on behalf of the Defendant, but that, essentially, is the Defendant's own choice, and I do not think it is necessary in the circumstances for Mr Whitehead to lean over backwards to present possible arguments which could have been made had the Defendant been here. This is not an ex parte application, it is an inter partes application which the Defendant has chosen not to attend, although I record here that Mr Whitehead, with characteristic fairness, was minded to point out possible areas of debate. I am obliged to him, but I do not think in the circumstances it was incumbent on him to do so. I have looked at these documents and at the evidence, and in the circumstances I am minded to make an order essentially in terms of the Plaintiff's Summons.

12. Accordingly, my Order is as follows :-

That, having construed the Letter of Hypothecation dated 6th October 1997 and the application form dated 4th December 1997 signed by the Defendant in favour of the Plaintiff as amounting to contracts between the Defendant and the Plaintiff, pursuant to which the Plaintiff has a contractual right of recourse against the Defendant if and in so far as the Plaintiff is not reimbursed by the issuing bank pursuant to Letter of Credit No. LC8133900197, judgment is to be entered for the Plaintiff against the Defendant in the sum claimed, namely US$470,681.37 together with interest and costs, such costs to be taxed if not agreed.

So far as the interest element is concerned, the Plaintiff is to have interest on the principal sum at a rate of 8% from the date of the Writ to the date of Judgment, i.e. today, and thereafter such principal sum is to attract interest at the judgment rate from time to time prevailing until payment.

13. One further practical matter arises. The Mareva injunction which was obtained by the Plaintiff against the Defendant, and which I am informed has attracted the security of monies presently standing in the Bank of China in Hong Kong, was granted initially by Nguyen J on 25th July 1998, and under the terms of that injunction, which had been unvaried in this regard, such injunction is to cease upon judgment. Mr Whitehead seeks to avoid the situation where having obtained judgment, the security which in effect has been obtained pursuant to the Mareva injunction should suddenly slip through his client's fingers. Accordingly he asks that the Mareva injunction which is in place be extended for a further period of three months from today, with liberty to apply to extend further if thought necessary. I can understand the reason for such extension, and I have no hesitation in acceding to the further Order that he now seeks.

14. That being all for this afternoon, I thank Counsel for his considerable assistance.