COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A. t/a Rabobank, Hong Kong Branch v. BANK OF CHINA

HCCL56/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 56 OF 2001

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REASONS FOR JUDGMENT

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1. On 7 February 2002 this court heard the plaintiff's application for summary judgment, pursuant to its summons dated 27 September 2001.

2. The order made immediately at the conclusion of that hearing was that there should be unconditional leave to defend, and consequential procedural directions were made. I now provide brief reasons for the decision then given.

3. The primary facts are not subject to any real dispute. The plaintiff, Rabobank, claims payment upon a letter of credit numbered LC9101152/99, issued by the Bank of China's Zhejiang Branch on 26 October 1999 and amended on 9 November 1999. The amount payable thereunder was US$1,400,000, the applicant therefore was one China Tushu Zhejiang Tea I/E Corporation and the beneficiary one Jialing Xin Tuo International Limited. The defendant has declined to pay under this letter of credit.

4. It is the defendant's case that it has two defences to this claim : first, that there was non-compliance with the documentary requirements of the L/C in that the Certificate of Origin of the timber the subject of the underlying sale was non-compliant and, second, that in any event the defendant was, and indeed remains, restrained by order of a Chinese court for making payment under the credit.

5. For the plaintiff Mr Coleman briskly explored and criticized each of these arguments, maintaining that the court can and should decide the discrepancy issue at this summary stage, whilst further submitting that the 'Chinese restraint' defence, centering upon the property preservation order of the People's Intermediate Court of Wuhu City, possessed no analytical merit : not only had the negotiation of the credit preceded the order of the Chinese court, but, he said, the order of the PRC court should not be recognized in Hong Kong, here citing Court of Appeal dicta in Power Curber v. Bank of Kuwait, [1981] 2 Lloyds 394.

6. For his part Mr Tong SC, leading Mr Stock, vigorously argued to the contrary. He asked for the dismissal of the plaintiff's application which, he said, had been brought in the face of the defendant's stated defences. So far as the discrepancy point was concerned, the issue was clear and must be resolved in favour of the defendant, he said. In addition, it was submitted that the proper law of the L/C must be PRC law, and it was and is well established, said Mr Tong, that a Hong Kong court will not order performance of a contract where performance is illegal under the proper law or, irrespective of the identity of such proper law, performance will be illegal by the lex loci solutionis.

7. Descriptive compression inevitably serves to diminish argument on both sides, which in this instance took somewhat in excess of the time allotted. At the end of the day, however, I was unpersuaded in the circumstances that the matter was sufficiently straightforward for it to be appropriate to grant summary judgment, notwithstanding the skill of Mr Coleman's presentation, and his assertion that the case was not 'fact-sensitive'.

8. The discrepancy point - whether the Certificate of Origin could be regarded as having been issued by the Malaysian Chamber of Commerce - perhaps is not as straightforward as at first blush it may appear. Certainly, there cannot be many instances of the ICC Banking Commission, to whom this matter was referred, arriving at diametrically opposite decisions on the point within seven months of each other (the latter being in the plaintiff's favour), as occurred here, and in these unusual circumstances I should not be inclined to exclude the expert evidence which Mr Tong SC anticipated calling on behalf of his client on the issue of whether a banker acting reasonably would accept the Certificate on its face as being in compliance with the requirements of the Credit.

9. Turning to what, for reference purposes, might be termed the 'illegality issue', I was not satisfied that this issue likewise should be summarily adjudged, and in this context I factor in Mr Tong's assertion that it should not safely be assumed that the plaintiff is claiming as negotiating bank, and accordingly that discovery was required upon the issue of whether the plaintiff was merely acting qua collecting bank. This point concerned his client the more, said Mr Tong, because as yet his client had not had sight of any internal documentation of the plaintiff in relation to this transaction.

10. Looked at in the round, therefore, I took the view that the appropriate course was to grant unconditional leave to defend, and that this case should proceed to trial in normal course, at which juncture this court will adjudicate upon the issues thus raised between the parties. Absent consideration upon the evidence then to be presented, naturally I am disinclined to make comment upon the broad merits, albeit considerable dissension has arisen upon the issue of the costs of this application, in which context I have been asked to make an order nisi.

11. Mr Tong asked the court to grant his client the costs on the basis of Order 14, rule 7 considerations, whilst Mr Coleman submitted that in these circumstances there was no reason to depart from the usual order, that is, costs in the cause. Pre-application allusion to potential defence arguments which in the event surmount the triability hurdle should not necessarily result in dismissal of this application, nor the consequent imposition of a costs sanction, he argued. The order ultimately made at the conclusion of this application was that of unconditional leave to defend, and, said Mr Coleman, the normal course as to costs should follow.

12. I have reflected at some length upon the costs position, and in particular whether my initial view should be revisited. It is not often that a case arises in which, ostensibly with equal facility, a plaintiff is able confidently to request summary judgment only for the defendant to assert - as Mr Tong did in this instance - that the primary discrepancy point is demurrable on its face and in fact was susceptible to (and should have been) subject to a strike out.

13. In all the circumstances I have been tempted simply to reserve costs to trial, but have concluded this would be to fudge the issue. The hard fact remains that I have declined the defendant's invitation to dismiss this application, with its attendant costs implications, and I am not minded to vary the normal order in circumstances of the grant of unconditional leave. At bottom, I am disinclined to take the view that this application was so far out of kilter that the plaintiff should be visited with some form of costs sanction for making it, although, of course, the application for summary judgment has in the event proved unsuccessful. Accordingly, the costs of and occasioned by the application are to be costs in the cause, and I make an order nisi to this effect.

14. All that remains is Mr Stock's additional application that there be the grant of a certificate for two counsel. Persuasively though this was couched, the application is refused.