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

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

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REASONS FOR JUDGMENT

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Nazareth V-P:

Introduction

1. This is an appeal against the order made on 11 September 1998 by Seagroatt J whereby he continued subject to minor variation the Mareva order made by Nguyen J on 25 July 1998. Having heard counsel's submissions we dismissed the appeal and now give our reasons.

2. The defendant is a Hong Kong company. The nature of the plaintiff bank's claim against it are disclosed in paragraphs 3 and 4 of the plaintiff's Statement of Claim:

The particulars averred inter alia that the cargo to which the letter of credit related and the associated bill of lading did not exist or was never shipped and that the bill of lading was forged.

3. It is fair to say that before Seagroatt J in the context of the issue of a good arguable case, the competing submissions were concerned almost entirely with whether the actions of one Xu Guan, who seems to have controlled or run the defendant company, were fraudulent. He did not appear and is apparently now in China without an address. It is said on the defendant's behalf that he is prevented from returning to Hong Kong by the mainland police in relation to the alleged fraud. Seagroatt J rejected the submission. It is not necessary to be now concerned with whether the defendant's actions were fraudulent because Sir John Swaine SC, who did not appear below, has very properly not pursued that aspect of the defendant's case.

The defendant's case

4. Sir John focused upon one ground, that the plaintiff was guilty of material nondisclosure when it applied ex parte. His submission was that the plaintiff's case put to Seagroatt J was for the "return of ... money advanced by the Plaintiff to the Defendant on or about 17 December 1997 pursuant to a discounting facility granted by the Plaintiff to the Defendant" quoting from paragraph 3 of the plaintiff's Statement of Claim. It was therefore a claim for a loan, and the plaintiff's affidavit before the judge spoke of money "advanced" under "a discounting facility". That formulation of the claim and other matters show, he submits, that the claim was for a loan by the plaintiff as a collecting bank acting on behalf of the defendant, as opposed to a negotiating bank which had purchased the negotiable instrument. The legal significance of that is, the submission runs, that such a negotiating bank has an incontestable case against the issuing bank, whereas if the plaintiff were the collecting bank, it would have no independent right against the issuing bank being merely an agent. The plaintiff bank as the negotiating bank would have an independent right of action whereas as a collecting bank it would not have such an independent right of action. This, he submitted, would be a very material matter in the considerations going to the granting of a Mareva order in that such an order might not be so readily granted where there was an independent right of action against the issuing bank particularly if it was a branch of the bank in Hong Kong holding funds of the defendant to which the order would be particularly directed.

5. Mr Whitehead's response on behalf of the plaintiff was to confirm that the plaintiff's case had never been an action for the return of a loan. The plaintiff entered into an agreement with the defendant to provide it with a discounting facility and to acquire the defendant's documents in its own right by advancing the sum of USD470,681.37 to the defendant. I pause to mention here that it was this confirmation in Mr Whitehead's written skeleton argument that prompted Sir John to submit a revised skeleton argument on behalf of the defendant. Reverting to Mr Whitehead's argument, he submitted that the plaintiff's above position had been maintained at every stage, pointing to the very paragraph of the Statement of Claim cited by Sir John in support of his contention to the contrary. Mr Whitehead relies also upon other matters in support of his contention including the legal aspects of discounting and collection of bills of exchange. Furthermore, he submits that in any case the matter that it is complained was not disclosed was in fact brought to the attention of the judge.

6. It can be seen, therefore, that the matters in issue are first, the materiality of the subject matter of the non-disclosure which turns partly upon the nature of the plaintiff's claim; and second, whether the matters that it is suggested should have been disclosed, were not disclosed. The latter in the plaintiff's submission consists both of the fact that their claim was for repayment of a loan in the context of their being a collection bank, and also that the evidence revealing that fact was suppressed primarily by being tucked away in the documentation and referred to as a deposit slip. I turn then to consider those matters.

Nature of plaintiff's claim

7. Paragraphs 3 and 4 of the Statement of Claim have already been set out. The words "being money advanced by the Plaintiff to the Defendant" do at first sight suggest an advance or loan. However, the following words "pursuant to a discounting facility granted by the Plaintiff to the Defendant at the request of the Defendant and on the basis of forged bill of lading which purported to evidence the existence and/or shipment and/or delivery of goods in compliance of the requirements of the letter of credit" also have to be taken into consideration. Their meaning has to be determined in the context of discounting and collection procedures and the related legal position to which I shall return.

8. In addition to paragraph 3 of the Statement of Claim, Sir John also points to the plaintiff's affidavit evidence given by the marketing manager Mr Ip Kam Fat, who dealt with the particular transaction in which the sum of USD470,681.37 was advanced to the defendant. However, Mr Ip also deposed in paragraph 5 of his affidavit that he was approached by Mr Xu Guan of the defendant and "invited to grant a discounting facility for a letter of credit". He continued:

Sir John also points to the word "for" in paragraph 6 and "deposit" in paragraph 8 as evidencing an advance or loan. For his part, Mr Whitehead stresses the reference to the request for a discounting facility for a letter of credit in paragraph 5 and to the letter of credit being discounted and the sum of USD470,681.37 being advanced in paragraph 7. He submits that "advanced" in context meant no more than paid or provided.

Collecting banks, negotiation banks, discounting and collection

9. Mr Whitehead took us to several passages in the 2nd Edition of Raymond Jack on Documentary Credits, Chapter 7 and in the 5th Edition of Benjamin's Sale of Goods upon parts of which Sir John also relied. The more pertinent of these were the following:

10. [Raymond Jacks on Documentary Credits, 2nd Edition, Chapter 7.]

11. [Benjamin's Sale of Goods, 5th Edition]

The foregoing statements of the law were not disputed.

12. On the basis of the foregoing it is at the very least far from clear that the plaintiff's claim, as Sir John contends, was for an advance or loan by a collecting bank as opposed to a discounting bank. Assuming, however, that these are material matters, it does not seem to me that either of the competing categorisations of the transactions can on the foregoing be said not to have been disclosed. But it is not the foregoing that Sir John relies upon as evidencing and establishing non-disclosure; I turn to what he relies upon.

Whether evidence of loan suppressed

13. Almost the entire thrust of this submission of the defendant rested upon what was described in the plaintiff's affidavit evidence as a "deposit slip" which in the proceedings before the judge appeared at p.13 of exhibit "IKF-1" of the affidavit of their marketing manager, Mr Ip. It was in the following terms:

In essence Sir John submission is that had this document been drawn to the attention of the judge, it would have revealed to him that the amount advanced was a loan in particular because of the words "proceeds of negotiation of a bill with recourse to you". But instead of that being done, he says, the document was suppressed as a deposit slip. However, the document having been before the judge, Mr Whitehead disputes the suggestion that it was suppressed. He points moreover to the plaintiff's solicitor's opening statement to the judge below:

I have no difficulty in concluding that the complaint of non-disclosure has not been made out.

14. There was other material and evidence, also submissions of a peripheral nature in addition to the foregoing, which I do not find it necessary to detail or canvass. Suffice it to say that I am not satisfied for the limited purposes of the appeal that the appellant has shown there was non-disclosure. For those reasons, I concluded that the appeal had to be dismissed.

Liu JA:

15. I agree.

Burrell J:

16. I also agree.