SHENZHEN UNIVERSAL ENTERPRISES INDUSTRY AND OTHERS v. WEI BUN TRADING CO LTD AND OTHERS

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J U D G M E N T

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Kempster, J.A. :

1. This is an appeal by defendants, Wei Bun Trading Co Ltd (Wei Bun) and others, against the refusal of Nazareth J, on 26 May 1988, to discharge two Mareva injunctions made by Wong J and Garcia J ex parte on 29 February and 16 March respectively at the instance of Shenzhen Universal Enterprises Industry and Trade Company Supplies and Sales Trade Department (Universal), the plaintiffs. It falls for consideration before appeal No 69 of 1988, concurrently listed and relating to orders permitting the withdrawal of certain sums from the funds enjoined, since the outcome of the one might well determine that of the other.

2. The injunctions in question restrain the defendants from parting with assets to which the plaintiffs look for satisfaction in whole or in part of any judgment which they may obtain in the action which they commenced by writ issued on 29 February 1988. In the context of section 21L of the Supreme Court Ordinance, (Cap 4) three questions accordingly arise for determination by us, as they arose before Nazareth J, on the footing that the exparte injunction will continue if the application to discharge fails. Alternatively these matters fell and fall for consideration having regard to the intimation given to the judge and to us by Mr Eddis on behalf of the plaintiffs that in a certain eventuality he would seek to apply for fresh interlocutory relief. Those three questions are :

(1) Have the plaintiffs demonstrated that there is a serious question to be trief in the sense that, as formulated in Ninemia Corporation v Trave [1983] 1 WLR 1412 and in Anglo-Eastern (1985) Ltd v Karl Knutz [1988] 1 HKLR 322, they have a good arguable case?

(2) Have the plaintiffs demonstrated that in the absence of restraint restraint the defendants are likely to dissipate the assets presently enjoined?

(3) Even if (1) and (2) are answered in the affirmative should the discretion of the court so be exercised as to allow the appeal and discharge the injunctions granted ex parte by reason of the plaintiffs failure to disclose either to Wong J or to Garcia J material facts and documents?

3. Although the documentation in these proceedings runs to some 1092 pages the terms of the judgment suggest that question (1) had received scant attention. Nazareth J said " .... the existence of a good arguable case has not been raised at this hearing .... Mr Chang has confined the defendants' case to non-disclosure". But he also said that Mr Chang, who appeared for the defendants before him as he does before us, " .... submitted that the issue of whether the 30 per cent deposit was payable before delivery is the nub of Wei Bun's case, because, if It was, that, in his submission is the end of Universal's case". In the event it is agreed that Mr Chang strongly emphasised the importance of a good arguable case being demonstrated by the plaintiffs. It is a question which has, actively been canvassed before us and led to the re-certification, after an adjournment, of a number of the clauses in the translation of a contract in the Chinese language dated 30 September 1987.

4. In these proceedings the plaintiffs claim against Wei Bun damages for non-delivery and for deceit and against the personal defendants monies held by them in trust. The defendants counterclaim declarations embracing a right to forfeit monies received by them from the plaintiffs and an order for the delivery up of certain cheques.

5. By the contract of 30 September 1987 the plaintiffs agreed t to buy from the defendants 10,000 cubic metres of plywood as described for US$3,770,000 or RMB23,374,000 subject to somewhat complex terms as to delivery and payment. It is, I think, Necessary to set out clauses 8 to 13 in full :

"(8) Shipment Date: Seller shall deliver goods within 40 days upon receipt of Rood faith deposit Renminbi 1,000,000.00, but the Buyer must be in compliance with the mode of payment (clause 12 of the contract).

(9) Destination: 5000m³ CIF Whampoa Port Guangzhou 5000m³ CIF Dalian (Payment for the goods delivered to Dalian Port might be effected by Letter of Credit.)

(10) Insurance : The Seller is responsible to insure.

(11) Terms of payment : The Buyer shall pay a deposit of 30% of the total purchase value (including a good faith deposit of RMB 1 million) and 70% by a Banker's Letter of Guarantee.

(12) Mode of Payment:-

(i) After the execution of the contract, the Buyer should immediately issue a post-dated cheque (dated the 6th October) in the sum of 1,000,000.00 being the good faith deposit for the purchase of the goods. (Delivery shall be made within 40 days from that date.) Apart from the One Million good faith money, the balance of the 30% deposit payable by the Buyer may be paid by instalments at periods requested by the Seller. (If this amount is not fully paid after delivery, (the balance) is still valid.) When the Seller receives the deposit, the Seller shall spontaneously draw a post-dated cheque upon the Chase Manhattan Bank N.A. in the sum of HK$8,821,800.00. Regarding the payment of deposit, the Seller shall issue a post-dated cheque in accordance with the same method plus 10% of the total purchase price being penalty which is to be considered as compensation in the event of delayed delivery. (This cheque is to be drawn immediately upon receipt of a valid Banker's Letter of Guarantee.)

(ii) The post-dated cheque shall be dated the 40th day from the date of the Buyer paying the good faith deposit. Post-dated cheque and contract are to be notarised by an officially recognised lawyer in China. (The purpose of notarisation is to make sure the cheque can be cashed.)

(iii) The Buyer is responsible to deliver to the Seller a valid Letter of Guarantee from a Bank in China within 15 days of the Buyer paying the good faith deposit money. (Any bank in China's territory would do. The terms and conditions need to be acceptable to both parties.)

(iv) After the Buyer receives from the Seller the required invoices and documents the Bank shall guarantee payment within 5 days.

(v) The Seller shall produce the following documents:-

(A) Full set of (blank transferee) documents (Bill of Lading with shipping schedule, name of vessel, port of loading, packing list, invoices) each in quadruplicate.

(B) Invoices showing contract number, banker's Letter of Guarantee number and markings in quadruplicate.

(C) Certificate issued by manufacturer certifying packing or weight list in quadruplicate.

(D) S.G.S. Certificate certifying the quality and quantity issued by a surveyor in quadruplicate.

(E) Certificate of Origin in quadruplicate.

(13) Breach of Contract and Compensation :-

(a) If the Buyer fails to provide a valid Letter of Guarantee issued by a Bank in China within 15 days after execution of the contract and the payment of good faith deposit, it shall be regarded as a breach of contract on the part of the Buyer, (in which event) all the deposit and guarantee money shall be forfeited to the Seller.

(b) If the Seller fails to deliver the goods (to the Buyer) within 40 days upon receipt of the good faith deposit and or within 25 days upon receipt of the Banker's Letter of Guarantee, it shall be regarded as a breach of contract on the part of Seller. The Buyer can inform the lawyer and request the release of post-dated cheque (including the post-dated cheque as to penalty) to the Buyer. The amount of penalty is to he 10% of the total purchase price".

6. To give clauses 11, 12 and 13 business efficacy in circumstances where a Chinese state enterprise was a party to the agreement the term "Letter of Guarantee" must, in my view, so be construed as to refer to a document having similar effect to a letter of credit, as specifically mentioned in clause 9, and the term "cheque" to a payment voucher. It is trite to observe that the contract must be read and construed as a whole. This and my following conclusions are reached on the hypothesis that the proper law of the contract is that of Hong Kong. It is a hypothesis that has not been challenged by either party.

7. The plaintiffs duly paid the good-faith deposit of RMB1,000,000 defendants, by the Shenzhen City China Bank, by payment voucher dated 6 October 1097. By 21 October therefore, being 15 days later, the plaintiffs were obliged to deliver to the defendants a valid "letter of guarantee" from a bank in China for 70 per cent of the price, being RMB16,361,800, in terms acceptible to the parties pursuant to clauses 12(iii) and 13(a). For their part the defendants had until 16 November, being 40 days later, to effect delivery pursuant to clauses 8 12(i) and 13(b); always assuming that by then the plaintiffs had complied with the mode of payment predicated. The question thus arises as to whether, before 16 November, the plaintiffs were under any obligation to pay the balance of the 30 per cent deposit; being RMB6,012,200 after credit is given for the good-faith deposit. On one view they were since the sum in question was payable expressly by instalments at the defendants' request and, delivery and payment being concurrent obligations under section 30 of the Sale of Goods Ordinance (Cap 26), they were impliedly entitled to request payment in one sum. However, the wording of this agreement is so obscure that I feel bound to conclude that the plaintiffs have a good arguable case to the contrary.

8. On 12 October, orally, the defendants asked for payment in one sum by the 15th of that month. Their letter of the 14th confirms.

9. On 22 October, the fact that this was a day late not being relied upon by the defendants, the plaintiffs delivered to them, by their representative in Shenzhen, a "Banker's Letter of Guarantee" for RMB16,361,800 in relation to which the "form of payment out" was expressed to be "By assignment" and "the validity of the document to be subject to banking verification". No attempt had been made to discover whether such terms were acceptible to the defendants and in due course it transpired that they were not. There was no way, Mr Chang on their behalf contends, in which this "Banker's Letter of Guarantee" could be used to obtain payment of the sum appearing on its face or any part of it by process analogous to that apt for a letter of credit or at all. Again, however, I consider that the plaintiffs must have an arguable case since the negotiability of this document must be determined by expert evidence.

10. By 21 October 1937, on the defendants' submissions, the plaintiffs were doubly in breach of their obligations as to payment in that they had failed either to issue a valid "letter of guarantee" or to pay the balance of the 30 per cent deposit as requested. But the defendants not immediately treat the contract as at an end. On the contrary they continued to press for payment of the RMB6,012,200 and complied with their actual or potential obligation to furnish the cheque for HK$8,821,800 under clause 12(i). On l December the plaintiffs made a further payment of HK$4,387,694.50, being 15 per cent of the outstanding balance of the 30 per cent deposit, though they never paid the remaining 15 per cent as required under clause 11 In the premises the defendants say that they never became liable to effect delivery in whole or in part since clause 13(b) falls to be construed together with clauses 8 and 12.

11. By letter dated 21 January 1988 the defendants accepted what they argued were the plaintiffs breaches as a repudiation; terminating the contract as at 28th of that month. Even if they were right, however, the plaintiffs have a good arguable case that they are entitled to recover the HK$4,387,694.50 paid on 1 December 1987 and claimed in paragraph 32 of the Amended Statement of Claim against the 2nd and 3rd defendants.

12. It follows from this summary that the first question posed at the outset of this judgment is to be answered in the affirmative.

13. That a like answer should be given to the second of the three questions is not contested. There remains a substantial issue between the parties on questions germane to non-disclosure.

14. The significant and unexplained omissions by the plaintiffs in seeking interlocutory relief derived from their failure to exhibit or to refer to the defendants' two facsimile letters of 14 October 1987, respectively referring to their oral request for payment of the balance of the 30 percent deposit on the 12th and for a sight of the banker's letter of guarantee, or to their letter of 29 October asking for mercy in relation to "our next payment". All these documents were material to the existence of a good arguable case and it is persuasively contended that the omissions can only be regarded as deliberate. I do not find it necessary to make a finding one way or the other.

15. Such omissions, on the authorities, entitle a court, in the exercise of its discretion, to discharge ex parte orders. Nazareth J declined to take this course on his own assessment of the relevance and materiality of the documents and after taking into account the likelihood of dissipation of assets. He also relied upon the judgment of Browne-Wilkinson VC in Dormeuil Freres SA & Anr v Nicolian International (Textiles) Ltd "Times" 5 May 1988. I agree with the Vice Chancellor that the relevant question at an inter partes stage when the continuation or renewal of injunctions is in issue is, indeed, "not what had happened in the past but what should happen in the future". But an application to discharge based on non-disclosure should, I think, properly be considered without reference to other factors save for those relating to the cause of action which hear on the materiality of the documents withheld. The case of Dormeuil Frères was one in which two motions were before the court; one for discharge and the other for the grant of injunctions and it was common ground that an injunction should, in one form or another, continue. As regards non-disclosure I cannot agree with Nazareth J's assessment of the materiality of the documents which the plaintiffs failed to disclose. Those failures related to documents which were material in the sense described by this court in Citibank NA v Express Ship Management Services Ltd [1987] HKLR 1184 and were so serious in the circumstances outlined as to warrant the exercise of this court's own discretion in substitution for that of the judge. I would discharge the ex parte injunctions and allow the appeal accordingly.

16. That does not end the matter. As forecast before the judge Mr Eddis has expressly made a fresh application for injunctive relief in the Mareva form in the event of an adverse finding on non-disclosure. By reason of my conclusions as to the first two questions and on the plaintiffs' solicitors' undertaking to file a Notice of Motion seeking fresh injunctive relief and, on behalf of their clients, to give a cross-undertaking as to damages I would accede to Mr Eddis' application for a fresh Mareva injunction in the form granted by Garcia J having immediate effect.

Cons, V-P :

17. With every respect to the judge below I agree with my Lord that he went astray with regard to the assessment of the materiality of the documents as my Lord has suggested. Particularly important I find is his misapprehension of the plaintiffs failure to disclose the second demand in October for payment of the balance of the 30 per cent deposit. In my view that is a matter of great importance which should have been disclosed and in exercising the discretion of this court I too say that the injunctions originally granted should be discharged.

18. I also agree, looking at the situation overall, on formal application being made is my Lord has suggested coupled with an undertaking, that it is appropriate for a Mareva in junction to be granted at this stage

Clough, JA:

19. I agree with both the judgments which have just delivered and have nothing further to add.