SANSHIN TRADING CO LTD v. KWOK KWOK YU AND OTHERS

-----------

----------------

JUDGMENT

----------------

Sir Derek Cons, V.P. :

1. This is an appeal against Mareva injunctions granted ex parte by Barnett, J. on the 28th July last year and continued, after some earlier variation of the figures, by Barnes, J. on the 19th September, which restrain the 1st defendant, Kwok Kwok Yu, and the 2nd and 3rd defendants, Sweet Field Limited and Kwok Kar Industries Limited, two companies accepted to be under his control, from parting with assets other than in excess of varying amounts in US dollars, none of which are insubstantial.

2. The plaintiff, Sanshin Trading Company Limited, is incorporated in Japan and has acted at all material times through a director, Kiminobu Higashiyama. In December 1989 Higashiyama agreed with an old Taiwanese friend, Hwang E-Hong, representing a Taiwanese company, Long Zoa Company Limited, that the plaintiff would finance the company's business of purchasing eel try in Hong Kong for re-sale in Taiwan in return for a 3% commission calculated on whatever sums might be drawn against the letter of credit that the plaintiff would accordingly open.

3. There was, however, a difficulty. The sellers would require immediate cash payment but Long Zoa had no branch in Hong Kong and would not therefore be able to obtain payment here upon the letter of credit. To solve the problem Hwang recommended, and Higashiyama accepted, making use of Kwok's two companies. Thus it was agreed that although the practical matters such as the purchase, package and transport of the eel fry should be arranged by Hwang or his son or some others who assisted in his business here, all the documents would be in the name of one of the companies as seller and Kwok would negotiate them for Hwang against the letter of credit. Within seven days thereafter Hwang would re-pay the plaintiff.

4. To this end on Christmas day the plaintiff opened a letter of credit in favour of Sweet Field to the extent of US$1 million to be negotiated against commercial invoices and packing lists, each in triplicate, and airway bills dated not later than the 15th March 1990. Later that date was extended at the request of Hwang to the 25th June. It was a revolving letter of credit, i.e. however much was drawn down in any one week the letter of credit would automatically reinstate itself to US$1 million on the first day of the following week.

5. At the beginning of March Higashiyama and Hwang entered into a second and somewhat similar agreement, save that in this case the eel fry would not be re-sold immediately on arrival in Taiwan but would instead be kept and cultured by Hwany to be sold sometime later, at which time Hwang would re-pay whatever might have been drawn down in Hong Kong against the letter of credit together with a half share in the profits that he had made upon the later re-sale. The share of the profits would be in place of the 3% commission negotiated under the first agreement.

6. In accordance with that second agreement three letters of credit were opened on the 28th March, the 13th and the 17th April. Each was fixed in the sum of US$1 million, i.e. they were not revolving letters of credit like the earlier one. Each was in favour of Kwok's other company, Kwok Kar Industries Limited.

7. The foundation of the plaintiff's claim in these proceedings is an allegation that Kwok   abused the scheme by falsely exaggerating in the invoices and the racking lists both the amount of eel fry consigned to Taiwan and the price thereof, thereby enabling a greater sun to be drawn against the letters of credit than each transaction warranted. Thus it is suggested that not only would Kwok earn more commission than he was properly entitled to, but those responsible for the fraud would be able, by repeated lodging of the negotiated documents as security, to obtain the use of a substantial amount of money, albeit that the money would eventually have to be re-paid to the plaintiff.

8. Hwang admits that he was initially party to the fraud, but suggests that he withdrew some time after it was discovered. Thereafter, according to him, Kwok took advantage of the irrevocable nature of the letters of credit to continue the fraud, as it were on a frolic of his own.

9. By his affirmations Kwok firmly denies any such conduct as suggested. He alleges that at all times, save for the last two shipments of the 30th May, in respect of which incidentally ho claim is made, and to which I shall have to return in more detail later, the details that he entered on the invoices and packing lists were given to him either by Hwang himself or by one of those working for him.

10. The plaintiff's action is framed in fraud and conspiracy. Mr. Litton, Q.C., who how appears for Kwok, queries in passing whether either can be made good in law, but has confined his attack in this appeal to the quality of the evidence proffered in support of the injunctions, particularly to that of Hwang on which Mr. Chan, Q.C. for the plaintiff, concedes that "unfortunately" he has to rely. We have therefore been taken in detail and at lengtn through the various affirmations field and through many of the exhibits.  They have all been minutely dissected, compared and comprehensively analysed for our benefit. However the affirmations are highly contentious and flatly contradictory of each other. Without examination and cross-examination of the deponents, and of others whose evidence has been included by way of hearsay, for my part I find it impossible to come even to a tentative conclusion as to where the truth may lie. However without going into details I think one thing is abundantly clear, as I reel it was to the judge below, following what must have been a similar exercise, that no judge would grant a Mareva injunction upon the strength of Hwang's evidence standing alone. But the judge found support, at least to the extent of giving the plaintiff a good arguable case, in three factors.

11. To understand the first two it is necessary to set out what is alleged in relation to the last two shipments, both of which were despatched oh the 30th May. The first factor turns upon what Hwang's son is recorded as having said to Higashiyama. I quote from the latter's first affirmation:

As to this the judge said in his reserved judgment:

With respect to the judge I feel he overlooked the fact that affirmations of interlocutory proceedings are usually prepared in a hurry and often without the care and concern that experienced counsel would give, for example, to a formal pleading. If, as he implies, the failure to deny accompanying the eels to Kai Tak was a deliberate decision, because that was in fact the truth, it is a decision that sits very curiously alongside the many and more substantial denials made in other parts of his affirmations which, if Kwok did have knowledge of what was going on earlier, must be blatantly untrue.

12. The second factor turns on two telexes sent by Sweet Field to Long Zoa Company Limited. The first was on the 7th June and opens with the words:

"On May, 30 we sent you"

and then follow references to the two shipments. The second telex was two days later and concludes with the words:

The judge commented:

However the telexes were at the time when the bank was declining to accept the proffered documents, upon which incidentally it never did pay, and in which, of course, Sweet Field appeared as the actual seller; and the telexes were in answer to allegations of short shipment just made by Long Zoa. For my part I am not persuaded that either of these two factors can properly be taken as giving significant support to Hwang's allegations.

13. The judge concluded his consideration of this aspect with the sentence:

He does not say what particular evidence he then had in mind. He may, of course, have been referring merely to the two matters that I have just dealt with, in which case there is no need to go further.  But he may perhaps have been thinking of meetings which Higashiyama had had in June with Kwok, and in particular of one on the 17th at which Higashiyama said Kwok offered to withdraw the documents in relation to the 30th May shipments which he was then still seeking to negotiate and, in addition, re-pay US$1 million to the plaintiff. This is denied by Kwok, whose affirmations clothe the various meetings with Higashiyama in a completely different light. However if there is truth in Higashiyama's allegation then that evidence must be some confirmation of Hwany's version of events. However although there is nothing inherent in Higashiyama's evidence which would necessarily lead one to doubt its veracity, there has peen demonstrated a very close and long standing relationship between him and Hwang which cannot but detract from the weight to be given to what he says at this moment.

14. Mr. Chan has sought to extract support for the plaintiff's case from Kwok's own affirmations. I do not propose to go into details but will simply list the headings that I have given myself to his various submissions:

Item (4), i.e. the US$3 million payment and other calculations, clearly requires some explanation. Items (1) and (2), with regard to cancellation of the letters of credit or negotiations, show that Kwok at times is prepared to act without a sound legal basis for his conduct. But that is all. The remaining items are, in my view, of no assistance.

15. The judge was impressed with item (6), the suggested attempts to mislead him. He said at the very conclusion of his judgment:

16. We have been taken very carefully by Mr. Chan through the whole of the affidavit in question and the further particulars which Kwok's solicitors subsequently supplied at the plaintiff's request. For my part I see no reason to doubt the genuineness of the explanations given or to cavil, as the judge apparently did, at Kwok's refusal to disclose details of a transaction which by then was no longer of concern to the plaintiff. On the other hand the further particulars do disclose that Kwok, through his companies, was carrying on a genuine and perhaps not insubstantial business. That is a matter of importance, as is apparent from this passage in the judgment of the English Court of Appeal, given by Kerr, L.J., in Ninemia Maritime Corporation v. Trave Schiffahrtsgesellschaft m.b.H. and Co. K.G. [1983] 1 WLR 1412 at p. 1426:

So weighing the balance in the present instance could lead in my view, to only one conclusion, and a conclusion the opposite of that at which the judge arrived. With respect of him I think he lost sight of the draconian nature of the remedy, described once by Donaldson, J., as he then was, as "one of the law's two 'nuclear' weapons" in Bank Mellat v. Nikpour [1985] 2 FSR 87 at p.92. The damage that such a weapon can do when released may be tremendous. That consideration is even more important when the evidence is only such as, to use Barnes, J.'s own words, "might" or "could lead" to the eventual success of the plaintiff's claim.

17. By the same token, as is well accepted, such injunction should not be applied for without the fullest and frankest disclosure. It was suggested to the judge below that when the application was made ex carte to Barnett, J. the plaintiff was guilty of material non-disclosure by making no reference to the shipments or payments which had taken place before Higashiyama's suspicions were aroused and as to which no claim is made. The judge agreed:

18. He went on to find, however, that the omission had not been deliberate.

19. It may be that the judge's reason for his conclusion was dictated by the way in which the arguments had been put before him, for it is difficult to understand when taken by itself. However it is a matter of ho moment, for Mr. Litton has not sought to rely upon that approach. To understand his submission now it is necessary to observe that Higashiyama came to suspect the genuineness of the documents when looking at the packing list for the shipment of the 27th March from which he realised, by a comparison of the cartons with the number of eel fry said to have been shipped, that more than 2 kilogrammes of fry appeared to have been shipped in each carton. That, according to him, could not have been, for any concentration of eel fry in excess of 2 kilograms per carton would have been fatal to the fry. Higashiyama did not discover this fact until the 16th April, that is some considerable time after the shipments had commenced. All the earlier documents however likewise show a similar over-concentration of eel try. Mr. Litton therefore suggests that these documents were deliberately concealed to hide the fact that by reason of them Higashiyama must have known of the situation long before he pretended that he did. The disclosure would have shown, as Mr. Litton put it:

20. There is, however, one underlying difficulty to the submission, which became apparent during the course of Mr. Chan's argument. when goods are consigned by air, the consignee on their arrival does not have to produce a document of title in order to obtain possession.  It is not necessary, as would be the case in carriage by sea, that he produce a copy of the bill of lading, or in this case the airway bill, which at that time is possibly still being negotiated with the bank. It does not then necessarily follow, in the present instance, that the documents negotiated by Sweet Field had come into the possession or to the knowledge of Higashiyama earlier on; and there is no evidence to show that in fact they did. The question was not canvassed in the affirmations. For my part I am not satisfied, therefore, that any material non-disclosure has been made out.

21. For these reasons I would allow the appeal and set aside the injunctions continued below.

Clough, J.A.:

22. I agree with all that my Lord has said.

Macdougall, J.A.:

23. I agree with my Lord, the Vice President, for the reasons which he has given so succinctly and lucidly. I too would allow this appeal.