STANDARD HOLDINGS LTD v. FUJI (CHINA) DECORATION & ENGINEERING CO LTD

HCA 2350/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2350 OF 2007

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D E C I S I O N

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1.  The Defendant is appealing against the decision of Master Kwan dated 28 July 2008 in:

(1)  dismissing the Defendant’s summons to strike out the Statement of Claim and the action on the grounds of frivolous, vexatious, abuse of process and/or under the inherent jurisdiction of the court; and

(2)  granting leave to file an Amended Statement of Claim.

2.  The Master has granted leave for the amendment without submission of the draft.  The Plaintiff has prepared the draft amendment but it has not been filed pending the determination of this appeal.

Background

3.  The Plaintiff has been supplying goods to Standard Kitchen in Dongguan in the Mainland since 1998.

4.  In about July 2007, Standard Kitchen failed to settle the price of goods sold and the Plaintiff refused to make further deliveries.

5.  On 23 August 2008, Standard Kitchen delivered to the Plaintiff a letter of credit (“L/C”) No. ICBCO2M707698 issued by the ICBC on the application by the Defendant for the sum of HK$1,233,681.  The L/C contained, inter alia, the following terms:

(1)  Local delivery to the Applicant latest: 10 October 2007;

(2)  All documents must reach ICBC’s counter within 21 days after date of receipt of goods but within the validity of the L/C;

(3)  Documents included a Cargo Receipt signed by the authorized signatories of the Applicant.

6.  The Plaintiff delivered the remaining goods to Standard Kitchen in Dongguan.

7.  On 30 August 2007, the Defendant faxed to the Plaintiff a copy of the Cargo Receipt in ICBC form stating receipt on 30 August 2007 from the Plaintiff of 11,700 sheets of chip board in good order and condition in trust for ICBC and the goods related to the L/C in question in the value of HK$1,223,681.

8.  However, the Defendant refused to deliver the original Cargo Receipt to the Plaintiff for presentment to the bank.

9.  In the original Statement of Claim, the Plaintiff pleaded goods sold and delivered to Standard Kitchen, the delivery of the L/C in favour of the Plaintiff for goods to be sold and delivered by the Plaintiff to Standard Kitchen in the sum of HK$1,223,681, and failure by the Defendant to issue the Cargo Receipt to negotiate the L/C, and the Plaintiff claim the sum of HK$1,223,681 as loss and damage.

10.  The draft Amended Statement of Claim added the details of the course of dealings outlined above.  It pleaded false and negligent misrepresentation against the Defendant.

Plaintiff’s case

11.  Mr Yeung, for the Plaintiff, submitted that the Plaintiff was induced to make the further delivery to Standard Kitchen upon the opening of the L/C in its favour by the Defendant. 

12.  Hence, the Defendant is liable for damages for misrepresentation for its failure to deliver the original Cargo Receipt to enable the Plaintiff to obtain payment under the L/C.

Defendant’s case

13.  Mr Hylas Chung, for the Defendant, submitted there was no strict compliance with the L/C:

(1)  the Statement of Claim stated the L/C related to “goods to be sold and delivered” to Standard Kitchen;

(2)  the majority of the deliveries were already made 3 to 9 months back long before the issuance of the L/C;

(3)  the delivery was not made locally but in Dongguan;

(4)  The various invoices, Cargo Receipts and Delivery Notes could not have reached the bank’s counter within 21 days of the delivery;

(5)  The Plaintiff’s Delivery Notes dated 28 August 2007 to Standard Kitchen stating the delivery of 11,700 sheets is obviously a forgery to comply with the L/C.

Discussion

14.  Mr Chung submitted that it is settled law that the conditions of the credit must be strictly fulfilled, otherwise the seller would not be entitled to draw on it (Pravia & Co SPA v Thurmann – Nielsen [1952] 2 QB 84, 88 per Dennning LJ (as he then was)).

15.  However, it is also trite that documentary credit is about documents and not the underlying transactions.  The complaints now raised by Mr Chung were pre-existing and the factual matrix under which the L/C came to be opened in favour of the Plaintiff.  Had the Defendant delivered to the Plaintiff the original of the Cargo Receipt it had signed instead of a faxed copy, I do not see there would be any discrepancies on the documents.  Prima facie, the terms of Delivery Note is not inconsistent with the Cargo Receipt save as to the deliveree, but an argument of deemed waiver and acceptance on the part of the Defendant is not unarguable upon the faxing of the Cargo Receipt.

16.  Be that as it may, the credit has lapsed.  The cause of action lies elsewhere.

17.  Mr Yeung pleaded false representation.  He clarified it to mean fraudulent misrepresentation.  As such, the particulars for fraud are lacking.  He also pleaded negligent misrepresentation.  Again, particulars are also lacking and it is difficult to envisage at this stage what exactly is the negligence complained of.

18.  Mr Yeung’s claim can also be based on an implied contract to pay by the third party drawer of a credit in analogous situations considered in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd [2004] 2 HKLRD 548 (CFA) and Brandt v Liverpool Brazil and River Plate Steam Navigation Co Ltd [1924] 1 KB 575.

19.  On the now alleged facts, I do not see anything vexatious, frivolous or abusive on the part of the Plaintiff.  However, the original pleadings are embarrassing in lacking the material facts and cause of action, and even the draft amended pleadings are lacking the particulars supporting the causes of action pleaded or intimated.

20.  In the premises, I shall strike out the original Statement of Claim, but not the action at this stage.  I shall allow the Plaintiff 6 weeks to instruct counsel to settle the Amended Statement of Claim, whereby the summons could be restored for consideration as to whether the action should be dismissed.

Costs

21.  I shall reserve costs until the next occasion.