GLENCORE INTERNATIONAL A.G. v. KEEN LLOYD (HOLDINGS) LTD.

HCCL166/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL LIST NO.166 OF 1997

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J U D G M E N T

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THE TWO ACTIONS

1. These two actions represent the litigation fall-out from the demise of two contracts for the sale and purchase of aluminium ingots.

2. The first action, Commercial List No.166 of 1997, was instituted on 18th September 1997, and involves a contract concluded between the Plaintiff, Glencore International A.G. ("Glencore"), and the 1st Defendant, Bright China International Limited ("Bright China") on 18th April 1997. This was Contract No.162-97-15400S, which has been generally referred to in argument during this trial as 'the Bright China contract'. I will adopt that description.

3. In this action, Glencore obtained judgment in default of notice of intention to defend against Bright China, for damages to be assessed. Although I am told that Bright China was represented by solicitors for the purpose of discovery, it has not otherwise participated in this case and it has not been represented at this trial.

4. The second action, Commercial List No.177 of 1998, also instituted by Glencore, commenced on 22nd July 1998, and has as its focus a contract dated 4th July 1997 entered into between Glencore and the Defendant therein, Keen Lloyd (Holdings) Limited ("Keen Lloyd"). This contract was separately identified during the hearing as 'the July contract', and for present purposes I also adopt this term.

5. As will shortly appear, these two actions, involving a common Plaintiff and a common Defendant (to all intents and purposes Keen Lloyd Investments Limited, which was joined as 3rd Defendant in the first action, can be ignored) were necessarily interlinked by the involvement of Keen Lloyd in the Bright China contract, and in the circumstances an order was made providing for the two actions to be tried together.

6. This judgment, therefore, is dispositive of the issues arising in both actions. Before turning to these issues, however, it may assist to set out some of the broad factual background which gives rise to this litigation.

THE BACKGROUND FACTS

(i) The Parties

7. The Plaintiff, Glencore, is a Swiss company based in Baar, Switzerland. It is one of the world's largest traders in primary aluminium, which product is sourced, in large part at least, from the Krasnoyarsk smelter in Siberia. For shipments to Asia, the aluminium is railed to Vladivostók, and thereafter transported by bulk carrier to its destination; this was the situation with the contract aluminium the subject of these two actions, which was carried from Vladivostók to Hong Kong for on-shipment to China.

8. Glencore's trading operations are broadly structured thus : its head office is, as I have said, in Baar, Switzerland, and it has a representative office in Beijing together with a similar office in Hong Kong. However, it is the Swiss head office that is the 'nerve centre' of the worldwide operation, and it is from this head office that all contractual arrangements are finalised. Two members of the staff of Glencore gave viva voce evidence at the trial, namely, Mr Marcel Dimenstein, a senior trader, together with his subordinate, Mr Marcus Delwing.

9. Bright China is a Hong Kong company about which the Court has learned little; it was, as I have indicated, unrepresented at this trial. However, it is run by a Mr Chin (or Quin) Chen Yu, it appears to trade in aluminium, and began doing business with Glencore in December 1996 when it entered into a contract for the supply of aluminium, a contract negotiated between Marcus Delwing of Glencore and a Madam Cheng Lai Lee for Bright China. This particular relationship apparently passed off smoothly.

10. Keen Lloyd is also a Hong Kong company. It is an extensive trader in aluminium for import into China, and also, I am told, has substantial property interests in Hong Kong and elsewhere. It is owned and managed by a Mr Chun Kam Chiu, who is assisted in Keen Lloyd's China trade operations by Miss Aquarius Lam Ngar Yan, both of whom attended at this trial and gave evidence.

(ii) The Two Contracts

11. Under the Bright China contract of 18th April 1997, Glencore agreed to sell and Bright China agreed to buy 6,000 metric tons plus or minus 2% primary aluminium ingots on CIFFO terms, to be delivered in three equal shipments of 2,000 metric tons in June, July and August 1997. The price was LME 3 month quotation subject to adjustments, with a premium of US$82 per metric ton. This contract was subject to English law, and payment was stipulated to be made by letter of credit opened by Keen Lloyd.

12. As to the exact price which was to be paid for each shipment, in broad terms the letter of credit for each shipment would be opened on the basis of a 'provisional' price, a 'final' price thereafter being agreed by the parties upon the basis of the price fixed for aluminium on any given date on the London Metal Exchange. It followed from this mechanism, therefore, that a net sum would thus accrue due to Glencore from Bright China or from Bright China to Glencore based upon the difference between the original letter of credit provisional price and the final price as so fixed.

13. So far as the performance of the Bright China contract was concerned, each of the June and July 1997 instalments of 2,000 metric tons were shipped by Glencore, provisional payment for which was effected by two letters of credit opened by the Sin Hua Bank, which was one of the banks whose trade credit facilities were used alternatively by Keen Lloyd. The credit opened for the June shipment, dated 10th June 1997, was in the sum of US$3,353,720, whilst that for the July shipment, dated 21st July 1997, was for US$3,390,400.

14. Final prices for the June, July and August instalments were agreed between the parties on 17th June, 8th August and 19th August 1997 respectively, so that after setting off the relevant credits and debits, there resulted due to Glencore from Bright China the sum of US$336,251.84. This is the subject-matter of Glencore's claim against Bright China in this action, which also assumes significance in the context of the lien purportedly exercised by Glencore over a shipment of ingots.

15. But this is to get ahead of the story. Although final prices had been agreed for all three of the June, July and August shipments, by mid-August 1997 no letter of credit had been opened for the August instalment of the Bright China contract. In fact, it was not until 28th August 1997 that Bright China advised Glencore that not one but three letters of credit had been put in place, with each such credit being opened, on the application of Keen Lloyd by different banks, namely Sin Hua Bank, by credit dated 27th August 1997, for 300 metric tons in the amount of US$542,346, Belgian Bank, by credit dated 29th August 1997 for 700 metric tons in the amount of US$1,265,474, and by Dao Heng Bank, by credit dated 29th August 1997 for US$1,807,820.

16. On 1st September 1997, Glencore discounted these three letters of credit to ANZ Bank. As will become apparent, these three letters of credit become of significance in the interplay between the Bright China contract and the July contract, to the terms of which I now turn.

17. The July contract, dated 4th July 1997, between Keen Lloyd and Glencore, was for the sale of 18,000 metric tons plus or minus 2% of aluminium ingots, which was to be shipped at the rate of 3,000 metric tons per month for the six months from July to December 1997, with payment to be made by letter of credit.

18. No difficulties occurred at the outset. The July instalment of 3,000 metric tons and half the August instalment, namely 1,500 metric tons, had been shipped by Glencore with provisional payment being effected by letters of credit opened by the Sin Hua Bank on the application of Keen Lloyd, which credits were dated 8th July 1997 and 20th August 1997 in the respective amounts of US$5,061,000 and US$2,748,000.

19. By mid-August 1997 Glencore was ready to ship the second 1,500 metric tons comprising the August instalment, and was pressing Keen Lloyd to open the required letter of credit. In this connection, on 29th August 1997, Keen Lloyd had confirmed its agreement as to the price for the second half of the August shipment at US$1,811.98 per metric ton. Regrettably, however, this was probably the last occasion on which relations between these two parties proceeded smoothly.

(iii) Shipment on board the M.V. "G. Kovalchuk"

20. The next stage in the story concerns the carrier M.V. "G. Kovalchuk" plying the route between Vladivostók and Hong Kong.

21. On 31st August 1997, Glencore shipped on board this vessel at Vladivostók some 3,500 metric tons of aluminium ingots. Of this tonnage, 2,000 tons were in performance of the August instalment of the Bright China contract, which instalment, it will be recalled, constituted the final shipment under that contract. This tonnage was represented by five bills of lading : Nos.372 and 373 covering 1,000 metric tons, Nos.384 and 385 covering 700 metric tons, and No.386 covering 300 metric tons.

22. Also on board the M.V. "G. Kovalchuk" was the 1,500 metric tons which represented the second tranche of the August shipment under the July contract with Keen Lloyd. Somewhat unusually, this tonnage had been shipped by Glencore without a letter of credit in hand, albeit in anticipation of Keen Lloyd opening the required credit. This cargo was shipped under Bills of Lading Nos.371 and 371/1. So far as payment therefor was concerned, Keen Lloyd had initially applied to the Bank of East Asia for a letter of credit to cover the shipment, but on 4th September 1997 Keen Lloyd sent to Glencore a copy of an application form demonstrating that it had instead applied to the Sin Hua Bank for the issuance of such credit, and on 5th September 1997, the Sin Hua Bank issued Letter of Credit No.G-4-P-06902 for 1,500 metric tons of ingots in the sum of US$2,717,970 (1,500 x US$1,811.98 pmt), which figures matched the tonnage and the price per metric ton of the August shipment. However, the specified shipment date was for shipment "between 08 Sept and 30 Sept 1997", and thus this credit could not be used for the August shipment.

23. At or about this time two further events occurred, both of which were to have a signal bearing upon this case.

(iv) The 18th April 1997 'forged contract'

24. In addition to the genuine Bright China contract and the July contract, in or about late August or early September 1997 there was discovered to be in existence a further 'contract', which is now accepted by both Glencore and Keen Lloyd to be a forgery. It was purportedly a written contract bearing the same number, No.162-97-15400S, as for the genuine Bright China contract, but the premium was set at US$92 per metric ton for ingots and US$87 per metric ton for T-bars, this being in each case US$10 higher than the premium under the equivalent Bright China contract.

25. Initially Keen Lloyd, in the person of Mr Chun, believed that this forged contract had been negotiated with Glencore through a Miss Michelle Tsui, an agent who had procured a significant amount of aluminium business for Keen Lloyd and who received a commission from Keen Lloyd referable to the contract amounts. Miss Tsui played no part in this trial, although her name has figured frequently, both on the papers and in the evidence. In the circumstances, this court is disinclined to make any specific finding as to the provenance of and responsibility for this forged contract; suffice to say, however, that it has been Glencore's case throughout that it had concluded no such agreement with Keen Lloyd, nor had it ever dealt with Miss Tsui herself, whilst for its part Keen Lloyd appears to have taken the view that Miss Tsui is responsible for what transpired.

26. In any event, the status of this contract is not now in dispute, although the fortuitous discovery of this forgery, the subject to an interchange between Mr Chun of Keen Lloyd and Mr Winston Liang of Glencore's Beijing office, triggered events the facts of which, and the legal consequences thereof, have raised the disputes considered later in this judgment.

(v) Withholding of 250 bundles of ingots on board the M.V. "G. Kovalchuk"

27. Subsequent to the discovery of this forged contract, relations between Glencore and Keen Lloyd began to deteriorate. These matters are dealt with subsequently in greater detail. For present purposes, it is necessary to note only that Mr Chun of Keen Lloyd wished to reallocate to the July contract with Keen Lloyd the three letters of credit which had been opened for payment of the August shipment under the Bright China contract. When this did not occur, Keen Lloyd sent a fax to Glencore purporting to terminate the July contract, to which Glencore replied, on 10th September 1997, reaffirming the July contract and calling for the establishment thereunder of the letter of credit for the September instalment.

28. On the same day, 10th September 1997, Glencore instructed Wallem Shipping ("Wallem") in Hong Kong, its shipping agents, to withhold delivery of 250 bundles of aluminium ingots which were then still on board the M.V. "G. Kovalchuk". These 250 bundles of ingots were shipped under Bill of Lading No.386 which, it will be recalled, represented tonnage (in fact some 300 metric tons) shipped under the August instalment of the Bright China contract. This quantity of ingots were discharged by Wallem into separately assigned barges, and were not delivered in normal course.

(vi) Subsequent events and the onset of litigation

29. On 15th and 16th September 1997, Mareva injunctions were obtained by Glencore in the jurisdictions of both England and Hong Kong over the 250 bundles of ingots which had been so offloaded from the M.V. "G. Kovalchuk", and on 18th September Glencore issued its writ in the first action herein, HCCL No.166 of 1997.

30. On the same day, also, not having received any letter of credit for the September instalment of 3,000 metric tons under the July contract, Glencore wrote to Keen Lloyd treating the Sin Hua Bank letter of credit (which, save for the September shipment date, precisely matched the August shipment details under the July contract) as being issued for the first half of the September instalment, which in fact Glencore had shipped on board the M.V. "Libaio J.".

31. On 20th September 1997, Rogers J. (as he then was) discharged the Hong Kong Mareva injunction, and ordered that the 250 bundles of ingots be sold and that the proceeds be paid into Court to abide the event in Action No.CL166/97. Accordingly, on 31st October 1997, the sum of US$376,268.34 was so paid into Court representing the net proceeds of the sale of these ingots.

32. Thereafter Keen Lloyd treated the July contract as at an end, and opened no further letters of credit for the October, November and December instalments of the July contract. Glencore, however, declined to treat the July contract as terminated, continuing to offer shipment and to press for letters of credit for the October and November instalments. It was not until 22nd July 1998 that proceedings were issued in HCCL 177 of 1998 on the basis of the alleged breach by Keen Lloyd of the July contract.

THE ISSUES

33. The foregoing factual summary essentially is undisputed. The primary facts speak for themselves and, for the most part, emerge clearly from the documents. I turn now to the specific issues which Senior Counsel on each side are agreed present themselves for decision in these two actions.

34. In the 1997 action, HCCL No.166 of 1997, Glencore having obtained default judgment against Bright China, the outstanding issues are :-

(1) the damages payable by Bright China;

(2) the entitlement to the sale proceeds of the 250 bundles of ingots presently standing in Court.

35. In the 1998 action,HCCL No. 177 of 1998, the matters for decision are :-

(3) the issue of liability for breach of the July contract, together with the relevant quantum assessment;

(4) the issue of Keen Lloyd's 'overpayment' and consequent restitutionary claim.

36. I take these issues in this order.

(1) Damages payable by Bright China

37. Glencore claims against Bright China in the sum of US$336,251.84, this representing the net balance to Glencore of the credits and debits arising from the performance of the Bright China contract, after taking into account the differentials between the letter of credit amounts representing provisional payments and the fixed final prices for the June, July and August instalments.

38. I accept the submission that Glencore has proved its claim in this regard, and accordingly, in HCCL166 of 1997, I give judgment to the Plaintiff against the 1st Defendant in the sum claimed, namely US$336,251.84.

39. I further make an order nisi that there will be interest thereon at the rate of 8% per annum from the date of the issue of the writ, namely, 18th September 1997, to the date of judgment, and thereafter at judgment rate from time to time prevailing until payment.

(2) Entitlement to the sale proceeds of the 250 bundles of ingots

40. Glencore asserts that on 10th September 1997, the date on which the 250 bundles of ingots shipped under Bill of Lading No.386 were withheld by Wallem and offloaded from the M.V. "G. Kovalchuk" into separate barges, Glencore was entitled, as unpaid seller, to exercise a lien over these 250 bundles by virtue of the operation of sections 40-45 of the Sale of Goods Ordinance, Cap.26. And that having exercised this lien, or at least a right equivalent thereto, Glencore is entitled to the proceeds of sale now standing in Court, the ingots having been held without prejudice to the parties' rights.

41. For its part, Keen Lloyd disputes the characterisation of Glencore as an unpaid seller in terms of these ingots, maintaining that the monies due from Bright China to Glencore did not relate to the price of the ingots so withheld, but constituted no more than a general debt arising from a running account. Keen Lloyd further contends that Bill of Lading No.386 covering the 250 bundles was made out to the order of the Sin Hua Bank Limited, with Keen Lloyd as Notify Party, and that having so paid for these goods by letter of credit, Keen Lloyd is entitled to the proceeds of sale of these 250 bundles.

42. Although the line of demarcation between the respective arguments is easily stated, regrettably the answer does not present itself as readily. There is no doubt, on the facts, that the price as fixed for the June, July and August shipments did not coincide with the amounts paid under the three letters of credit, and that there was clearly a running account maintained, the balance of which would be separately settled. In this connection, Mr Thomas, S.C., for Glencore, maintained that whilst part of the purchase price under the August instalment of the Bright China contract had been paid for by letter of credit, nevertheless, 'looking at the Bright China contract as a whole, Glencore remained an unpaid seller', and that on 10th September 1997, title to the goods comprised in the August shipment remained vested in Glencore. The fact that, on that day, ANZ Bank became assignees of Glencore's right to receive payment under the relevant Sin Hua Bank letter of credit was a matter relating only to the right to receive payment under that letter of credit, he said, and there was no agreement by Glencore to pass title to ANZ Bank, the shipping documents being passed to ANZ Bank solely to enable collection of the proceeds from the Sin Hua Bank.

43. It followed, submitted Mr Thomas, that ANZ Bank did not become holders of the bill of lading within the terms of section 2(2) of the Bills of Lading and Analogous Shipping Documents Ordinance, Cap.440, nor was there even an intention to pledge the cargo to ANZ Bank. Accordingly, since Glencore retained ownership of the ingots, it retained its rights as bailee and its right to demand possession from the carrier, which it duly did on 10th September 1997 when it took possession of the 250 bundles of ingots held by Wallem to Glencore's order. As a consequence, therefore, on 10th September 1997, Glencore was fully entitled to possessory title over the 250 bundles. Nor did the indemnity arrangement between the Sin Hua Bank and Keen Lloyd, of 6th September 1997, enabling Keen Lloyd to obtain possession of the goods without production of the bill of lading (which then was still in ANZ Bank's possession) suffice to make Keen Lloyd the owners of the goods, nor had Keen Lloyd paid the price to the sellers so as to have a right as against Glencore to the goods. The short point, concluded Mr Thomas, is that a seller of goods CIF is entitled to take possession of the goods at any time before the bill of lading is transferred to the buyer or the buyer's bank, and that such lien is not defeated by the provisions as to termination of the unpaid seller's lien within section 45 of the Sale of Goods Ordinance, Cap.26.

44. The primary submission of Mr Tong, S.C., for Keen Lloyd, was that in order to enjoy a right to exercise a lien qua unpaid seller, a part of the price of these goods must be outstanding. However in the present instance, he said, each payment under the Bright China contract was fixed with a different price, so that the alleged debt was not related to the August shipment out of which the 250 bundles were retained. And that even if the outstanding debt could be considered part of the price of the goods the subject of the August shipment (which was not accepted), Glencore would only have a right of retention if property had not passed and Glencore had not been paid (section 42 of the Sale of Goods Ordinance, Cap.26) or, alternatively, if property had passed but possession had been retained (section 43, Cap.26), and in this case Glencore fell within neither category.

45. I do not find this a straightforward matter. The facts are unusual and the arguments nicely poised, so that it is highly unlikely that there is any authority directly on point, and at the end of the day the Court is inevitably thrown back upon considerations of basic principle. After some reflection, however, I have concluded that, on these particular facts, Glencore was not entitled to lien these 250 bundles of ingots. I say this for the following reasons.

46. First, I find it difficult in the circumstances to visit upon Glencore the status of unpaid seller with regard to these 250 bundles of ingots. To the contrary. So far as the August shipment of the Bright China contract was concerned, which was the shipment from which these 250 bundles were intercepted and offloaded, there had in fact been an overpayment by Bright China to Glencore of some US$19,000 odd. I am further disinclined for these purposes to accept Mr Thomas' invitation to view the situation globally. The lien asserted is a lien for the price of the goods so liened, and it is not easy to see why the fact that the differential between the provisional letter of credit price and the final fixing in terms of the July shipment (which, of course, provided the large debit balance against Bright China, far offsetting the relatively small credit balances to Bright China accruing from the June and August shipments), should suffice to justify a lien or right of retention of goods the subject of the August instalment. This, I should have thought, represents a case of severable shipments priced and paid for separately, albeit the pricing intricacies arising by means of a final fixed price referable to the LME 'fix' on any particular day within the relevant 30 day period means that there must be an accommodation in terms of the provisional payment initially arranged by the relevant letter of credit. So that, at bottom, I do not think in the circumstances that Glencore can properly assert the lien afforded by statute to an unpaid vendor. What Glencore purported to do in terms of these ingots may have made hard-nosed commercial sense at a time when its relationship with Mr Chun of Keen Lloyd was clearly disintegrating, but I do not consider that the action taken was, as a matter of law, justified in terms of the purported exercise of a statutory lien.

47. Second, it seems to me, on the facts, that Mr Tong is probably correct when he suggested that this was a case where property in fact had passed, given the involvement of ANZ Bank qua negotiating bank. As I understand the position, drafts were negotiated by and endorsed in favour of ANZ Bank on 31st August 1997, and documents of title were delivered to ANZ Bank on 10th September 1997 at about the same time as the Plaintiff was taking possession of the 250 bundles. In fact, the Plaintiff appears to have been put in funds about a week earlier, on or about 3rd September 1997. So that I think that Mr Tong is right when he says that once the drafts were negotiated by ANZ Bank without recourse, Glencore had exhausted its right to payment, and ANZ Bank was holding the documents as security in its own right until being put in funds by the Sin Hua Bank, the issuing bank. And at the very least, it seems to me, by this sequence of events ANZ Bank were constituted pledgees of the bills of lading, notwithstanding Mr Thomas' disavowal of this position.

48. In turn, Keen Lloyd appeared to have paid for the 250 bundles on or about 6th September 1997, and were given the right to take delivery as of that date, as the evidence of Miss Wong of the Sin Hua Bank, which I accept, so indicated. So that in the particular circumstances of this case I do not accept that as at 10th September 1997 Glencore retained property in the 250 bundles or, for that matter, that Glencore had retained possession of these goods, the cargo having been shipped on 31st August 1997 and the documents negotiated, on a without recourse basis absent any reservation of right, before 10th September 1997.

49. On this analysis, therefore, Glencore does not fall within any of the provisions of the Sale of Goods Ordinance on which it relies. Accordingly it must follow, as Mr Tong submitted, that Keen Lloyd, as holder of the original Bill of Lading and Delivery Order, and having fully paid for the 250 bundles, now must be entitled to possession thereof and, again it must follow, to the proceeds of sale presently standing in Court. I agree.

50. The matter does not end there, however, because Mr Tong not only asks that his client be permitted to recover the proceeds of sale presently in Court, namely, US$376,268.34. He further submits that he is entitled to the additional sums of US$13,726.62, which represents the expenses of sale (gross sale proceeds of US$389,994.96 less the sum actually paid into Court) plus the differential between the gross sale proceeds of the ingots as against the contract price paid under the letter of credit, namely US$38,601.20 (237,079 MT x US$162.82).

51. In my view Mr Tong is correct in this further submission. Under this head I hold, therefore, that Keen Lloyd is entitled to the proceeds of sale presently in Court, and further that Glencore is to pay Keen Lloyd the further sum of US$52,327.82.

(3) Liability for breach of the July contract

52. In reality this was the fulcrum of this case, and involves consideration of the cross-allegations by Glencore and Keen Lloyd respectively as to the alleged breaches of the July contract. The task here, therefore, is to decide upon the issue of primary liability for such breach before considering the relevant quantum assessment. In this context much of the argument which has taken place devolves upon the existence, or otherwise, of two alleged oral agreements, but lately pleaded, which are prayed in aid by Keen Lloyd. The broad state of play of claim and counterclaim, however, is thus :

53. Glencore claims damages for Keen Lloyd's breach of the July contract in terms of the failure to open a letter of credit for half of the August shipment (1,500 MT), half of the September shipment (1,500 MT), and the remainder of the shipments, namely 3,000 MT in each of October, November and December 1997.

54. To the contrary, Keen Lloyd claims that after its discovery of the existence of the forged 18th April contract purportedly made with Glencore (which, it will be recalled, mirrored the Bright China contract save for the enhanced $10 premium), pursuant to an oral agreement made on 4th September 1997, as subsequently modified on 11th November 1997, it was agreed with Glencore that the three letters of credit should be utilized for payment of the ingots under the July contract with Keen Lloyd. And that upon Glencore reneging upon these oral agreements, Keen Lloyd accepted this repudiatory breach, thereby terminating the contract and paving the way for its own damages claim.

55. Central, therefore, to the resolution of the fundamental issue as to which entity is liable for breach of contract must be resolution of the dispute between Glencore and Keen Lloyd with regard to the existence of such oral agreements.

56. Let me state at the outset that I attach considerable significance to the delay in pleading these oral agreements, which are now set out in the Re-amended Defence and Counterclaim (at paragraphs 5C and 6C respectively). These amendments were asked for, and put in, but two weeks prior to the start of this trial, in the face of strong opposition from Glencore, and against the background of pleaded Further and Better Particulars, dated 28th December 1998, as to the issue of the allocation of the three letters of credit, wherein the existence of a specific contractual right so to reallocate was specifically disavowed.

57. In summary, as now pleaded the primary agreement alleged to have been entered into between Mr Chun of Keen Lloyd and Mr Winston Liang of Glencore's Beijing office, is that, upon learning that the so-called 'April contract' was a forgery, and that Keen Lloyd had opened the three letters of credit for the benefit of Bright China, Mr Chun threatened to cancel the three letters of credit and to report the matter to the police, but in fact accepted Mr Liang's proposal that the three letters of credit should be used for shipments under the July contract with Keen Lloyd. That is described as the '1st Oral Agreement'.

58. Thereafter, the '2nd Oral Agreement' is said to have been made between the same two persons, namely, Messrs Chun and Liang, on 11th September 1999, wherein it was agreed that Letter of Credit No.G-46-P-06902 dated 5th September 1997 for 1,500 MT in the sum of US$2,717,970 should be used to pay for part of the September shipment under the July contract, and that the rest of the shipments under the July contract "should not continue until the resolution of the dispute between the parties". The pleading then goes on to assert that Glencore "evinced an intention not to be bound by either the 1st or 2nd Oral Agreements, the July contract or the July contract as varied by the 1st or 2nd Oral Agreements", Keen Lloyd thereafter accepting this wrongful repudiation "orally by Chun on or about 22nd October 1997 and/or by delivery of its Defence and Counterclaim in High Court Commercial List Action No.166 of 1997".

59. The battle-lines, therefore, are clear. Glencore relies upon the non-performance by Keen Lloyd to establish its claim for breach of the July contract, and Keen Lloyd prays in aid these lately pleaded oral agreements as altering the contractual landscape.

60. Mr Winston Liang did not give viva voce evidence at the trial, although in relation to his participation in events certain documentary material was put in under cover of the hearsay provisions. However, Mr Chun, the head of Keen Lloyd, did give evidence. He clearly has been highly successful in terms of China trade, and he struck me as a powerful man who was well aware of his place in this scheme of things, in particular within his trading circles in Southern China. In this connection he produced a card demonstrating his standing in Guangdong Province, and I have no doubt that in the commercial areas in which he moves he is perceived as a financial heavy-hitter and a man of considerable commercial influence. He gave his evidence pleasantly if, on occasion, somewhat erratically, and whilst I did not form the view that in his evidence there was any intention to mislead the Court, I did get the impression of a strong personality who was in the habit of having his wishes and instructions obeyed. In short, notwithstanding the belated characterisation of his dealings with Mr Liang, a new and junior trader within Glencore, as constituting binding agreements, I harbour very considerable doubts as to whether the interaction between these two gentlemen produced anything in the nature of a true agreement between Glencore and Keen Lloyd such as is now but recently alleged.

61. I have little difficulty in accepting that when Mr Chun discovered the forged contract - which appears to have been a deception practised on Keen Lloyd by a third party, with the result that the three letters of credit in the Bright China contract were opened by Keen Lloyd apparently in ignorance and for inflated amounts - that he was upset and annoyed, and equally it is clear that he raised the matter with Mr Winston Liang, who had inadvertently drawn the forgery to Mr Chun's attention by following up Mr Chun's earlier reference to his belief that Keen Lloyd had previously dealt with Glencore, which was a matter of which Mr Liang (who in contacting Mr Chun had been actively seeking new business) hitherto had been unaware. Nor do I doubt that in his discussions with Mr Liang, subsequent to his discovery of the forgery, that Mr Chun expressed his views in a forthright manner, and that Mr Liang may well have been anxious to placate. But what I am disinclined to do is to characterise the conversations that took place, and more particularly the instructions which Mr Chun almost certainly issued to Mr Liang detailing his requirements, as constituting binding agreements, in the terms pleaded, as between Glencore and Keen Lloyd.

62. In addition to the eleventh hour amendment and the patent inconsistency with the earlier Further and Better Particulars, I also attach importance to the fact that the '1st Oral Agreement' finds no place in the documents passing between Glencore and Keen Lloyd, when in the circumstances it may reasonably have been expected to have assumed some prominence. I bear in mind, also, that this oral agreement finds no place in Mr Chun's diary entries, extracts from which are in evidence before the Court.

63. A similar problem in terms of the absence of contemporary documentary reference occurs with regard to the '2nd Oral Agreement' which, as earlier indicated, was also the subject of late amendment. Curiously, also, some two weeks after this second alleged agreement, Keen Lloyd was still apparently indicating its intention to perform the July contract, as is suggested by the fax of 25th September 1997 from Mr Chun of Keen Lloyd to Marie Schiavone at Glencore's Head Office in Switzerland (copied to Mr Winston Liang), which strikes me as an odd state of affairs given the alleged earlier agreement to suspend the July contract. In addition, I am inclined to agree with the submission of Mr Thomas that in all the circumstances Mr Chun's explanation in cross-examination to the effect that this fax of 25th September 1997 was conditional upon the return by Glencore of the 250 bundles of ingots failed to ring true, given the complete absence of any such mention in the pleadings, witness statements or diary entries. In this connection my attention has also been drawn to the fact that at the hearing for the discharge of the Mareva injunction on 26th September 1997, no objection was raised by Keen Lloyd to the sale of the ingots and to the payment of the proceeds into Court.

64. In the context of the '2nd Oral Agreement' I was initially troubled by the fact that it is common ground that the letter of credit opened on 5th September (the so-called '4th L/C') was in fact used to pay for the first tranche of the September shipment under the July contract, but on reflection I do not think that this fact is probative one way or the other with regard to the existence of the '2nd Oral Agreement'. In this connection, I think that there is merit in the submission that it was not unreasonable for Glencore, which had in hand a relevant letter of credit unworkable for August (by reason only of the shipment date) but workable for September to utilise that credit; Keen Lloyd was contractually obliged to provide it, and the alternative, which was to leave it unused, obviously held no attraction for Glencore, particularly at a time when Glencore was contractually obliged to ship large amounts of aluminium but when there was every indication of the emergence of a significant dispute, and the possible non-cooperation of, the other contracting party. Nor have I attached any particular significance to internal Glencore e-mail which appears to canvass accepting Mr Chun's reorganisation of the contractual position. Whatever may have been thought at one stage by Mr Dimenstein or anyone else about attempting to accommodate the proposed rearrangements, Mr Thomas is surely correct in his assertion that internal discussions of this nature are of no consequence in terms of Glencore's insistence upon its strict contractual rights.

65. At the end of the day, therefore, I have concluded, and I so hold, that on the balance of probabilities Keen Lloyd has failed to establish the existence of these two oral agreements but lately prayed in aid. Given my views on the existence of the agreements alleged, I do not think that it greatly matters precisely when the forgery was discovered, albeit Counsel obviously attached significance to the point, presumably because it provided yet another indication as to the existence or otherwise of the agreements so alleged. In any event, in this regard I am minded to accept the evidence of Mr Chun and Miss Lam, his assistant. They were both sure that the matter had come to light prior to 5th December 1997, which was of course the date of the evening meeting with Mr Delwing at the Island Shangri-La Hotel, although if this be correct, the fact that the forgery was not raised at this meeting (asserted by Mr Chun in cross-examination also to have been agreed with Mr Liang) strikes me as peculiar in the circumstances, and as yet another twist in a story the full truth of which almost certainly has yet to be established.

66. In light of the conclusion I have reached as to the oral agreements, there is strictly no need to consider in detail the other arguments raised in this context. But lest the matter be considered further, and should I be held to be wrong on this primary issue, I should perhaps indicate my findings on these other matters also. In this connection there are, I think, three significant points, which for shorthand I can characterise as authority, workability and insufficiency.

67. First, it is said that Mr Liang had no authority, actual or apparent, to make the two agreements for which Keen Lloyd now contends. Looked at from Mr Chun's perspective, Mr Liang's actual authority is nothing to the point, although I accept Mr Dimenstein's evidence that Mr Liang in fact did not have such authority. The issue of apparent authority is rather more difficult. Given the late amendment it is not even raised on the pleadings, although it has been canvassed at some length at this hearing. It is said by Mr Thomas that it was clear on the evidence that Mr Liang's only role was to discuss pricing, and that when Mr Chun sought to assert important contractual changes Keen Lloyd invariably faxed to Glencore's Head Office in Switzerland.

68. At bottom this question raises the issue of whether, in all the circumstances, Glencore had held out Mr Liang as having the authority to do what he is alleged to have done, and in light of the way the matter has emerged, I am far from sure that the Court is in the position properly to decide this issue. However, doing the best that I can on the evidence, it is not easy to see when or how Mr Liang had been held out by Glencore as possessing authority to vary contracts or to 'switch' letters of credit, in which context I accept it is unlikely that such would follow merely from Mr Liang's ability to discuss pricing. Perhaps more significant, however, is the fact that Mr Chun sought to involve Glencore's head office in Baar in order to inform Glencore of the asserted changes of position. In this connection, Mr Chun's faxes of 5th September 1997 to Miss Schiavone/Marcus Delwing (faxes characterised by Mr Thomas, possibly with good reason, as Mr Chun "rewriting history") are particularly relevant, and together with other faxes of the same date to Glencore, in my view clearly indicate Mr Chun's desire to inform and work via Glencore's head office in significant correspondence in which, I note, there is no reference to or linkage between Keen Lloyd's purported 'switching' of the three letters of credit and any oral agreement(s) between Mr Chun and Mr Liang.

69. Accordingly, although the authority issue has emerged in a somewhat ad hoc manner, I am inclined to hold, and so do, that on the evidence Mr Liang had no authority, actual or apparent, to do what he is now alleged to have done. This conclusion apart, however, I think it fair comment that, whatever be the true position as to Mr Liang's apparent authority, the question is sterile because Mr Liang could have had no authority, apparent or actual, to switch the three letters of credit from the Glencore contract with Bright China to the July contract absent the agreement of Bright China, and that there is no suggestion in the evidence that this occurred.

70. This latter point as to the involvement and consent of Bright China in turn raises the issue of unworkability. In this connection Mr Thomas argues that the '1st Oral Agreement', even if such existed, would not and could not work because the three letters of credits were tonnage specific and could not be split into two lots of 1,500 MT (as to August) and 500 MT (as to September), they were non-conforming as to price in terms of the August or September price under the July contract, and in any event, the goods under these three letters of credits were already shipped at the date of the alleged '1st Oral Agreement', so that it would have been impossible unilaterally to 'unscramble' the letter of credit arrangements absent amendment by the issuing bank, which in no case was a party to the alleged agreements, nor was it alleged that the agreement was to procure the amendment or to apply for the amendment of the letters of credit. In response, Mr Tong argued that there was nothing inherently difficult in both parties deeming one set of letters of credit to apply to another transaction, but in this regard, and in so far as it has any bearing on the decision in this case, I think that Mr Thomas is right.

71. At the end of the day, however, probably the better point available to the Plaintiff is the insufficiency argument. This is that, even assuming Glencore had reneged upon the alleged 1st and 2nd Oral Agreements by wrongfully asserting that Keen Lloyd had failed to open the letter of credit for the August shipment under the July contract, such did not necessarily amount to a repudiatory breach of the July contract. At worst, said Mr Shieh (who conducted the latter part of the Plaintiff's submissions) there was a relatively minor dispute between Glencore and Keen Lloyd as to whether a letter of credit had been opened for the August shipment, and that, even if Glencore had been wrong to make that assertion, this could not have had the effect of repudiating a 18,000 MT contract deliverable in six instalments. In the greater scheme of things, he said, it was, to put it colloquially, 'a relatively minor punch-up'. Moreover, Glencore had consistently indicated its readiness to supply the subsequent instalments under the contract, and even as at 25th September, Keen Lloyd was apparently affirming the July contract. I agree with and accept this argument. So that even had Keen Lloyd's factual premise been accepted (which it has not, for the reasons given), I would not have held that such action by Glencore necessarily amounted to a repudiatory breach.

72. Having considered all the circumstances as they have emerged on the evidence, in my judgment Keen Lloyd was wrongfully in breach of the July contract, and accordingly is liable to Glencore in damages. Accordingly, in light of this primary conclusion that the breach is that of Keen Lloyd, and not that of Glencore, Keen Lloyd's counterclaim for compensation paid to its sub-buyer must be dismissed, and I so order.

73. Whilst it may not matter from a purely legal perspective, it is not entirely clear why Keen Lloyd took the position that it did. It is suggested that Mr Chun's conduct was consistent with cash-flow difficulties, but I do not think that this was clearly established on the evidence, and Mr Chun stoutly refuted this suggestion. I accept that Mr Chun was concerned at the discovery of the 'forged' contract, whilst his anger at the seizure of the 250 bundles of ingots was evident; 'barbarious conduct' was the descriptive epithet he adopted in his evidence, and clearly he reacted very badly to the alleged lien exercised by Glencore. That, however, in my view fails to justify what I have held to be Keen Lloyd's breach of the July contract.

QUANTUM

74. Having accepted Glencore's contractual claim against Keen Lloyd, I now deal with the issue of quantum. For these purposes, I adopt the pleaded characterisations.

(i) Debt owed in respect of tonnage shipped and accepted

75. As I understand the position, there is no dispute under this head, this claim representing the netted down sum due to Glencore calculated after the final price adjustment under the July contract regarding the July 1997 shipment and half of the August and September shipments respectively. The pleaded balance is US$158,638.52, but this has now been helpfully adjusted and agreed by Counsel to be US$147,638.52 in favour of Glencore. I so order.

(ii) Damages arising from non-acceptance of the balance of the August shipment

76. This was a balance of the August shipment shipped on board the M.V. 'G. Kovalchuk' and for which no letter of credit was opened by Keen Lloyd (albeit Keen Lloyd did subsequently opened a matching letter of credit, but with a September shipment date).

77. I accept the evidence of Mr Delwing relevant to this head. In this regard Glencore mitigated its losses by finding an alternative buyer for the balance of the August shipment. This buyer was Shantou Huayang at a price of US$1,656/MT as against July contract price of US$1,778/MT. The amount of the shipment was 1,492.78 MT, which therefore produces a loss of US$182,119.16 (1,492.78 MT x US$22/MT).

78. In this connection I do not accept the criticism levelled by Keen Lloyd that Glencore ought to have sold in the open market. There is no evidence before the Court that at the time there was a market in Hong Kong for this amount of goods nor as to the open market price. In my view the resale to Shantou Huayang was reasonable in the circumstances.

79. In addition, Glencore claimed certain collateral losses caused by Keen Lloyd's failure to take delivery of the second half of the August shipment. The sums put forward are not in themselves contentious, and cover barging, stevedoring and storage costs, together with SGS inspection charges and freight charges from Hong Kong to the PRC. However in this regard Mr Tong puts forward an argument of principle. He says that the sale to Shantou Huayang was within the confines of an existing contract, and that the terms of this contract were that the goods were sold CIF at Shantou, China. So, said Mr Tong, if Glencore had not appropriated the 1,500 MT from the 'G. Kovalchuk' to China, in any event they would have had to ship from Vladivostók to Shantou, so that by taking the goods in Hong Kong and shipping to Shantou, Glencore have in fact saved the freight from Vladivostók to Shantou. In other words, the freight between Hong Kong and Shantou is not a loss; to the contrary in all probability it represents a gain.

80. This particular argument cropped up at the end of the case, and it has not been examined in great detail. In principle, however, this analysis has merit, although in terms of specific detail the Court is in difficulty in equating the expenses which had been incurred under the Shantou contract with what is now claimed. However, doing the best that I can, I disallow the freight charges from Hong Kong to Shantou, as claimed, but allow the barging costs, stevedoring costs and storage costs, amounting to HK$372,000, which at the exchange rate of 7.74, amounts to US$48,062.01. I also allow the SGS inspection charges of US$1,910.48, making a total of US$49,972.49.

81. The final element under this head of claim is that pleaded at paragraph 8B of the Re-Amended Statement of Claim. In essence, the claim is that since the 1,500 MT were put into an existing contract, the Plaintiff had a surplus of 1,500 MT in November 1997. So that the Plaintiff claims the difference in premium between what it could have received if the 1,500 MT had been delivered to Shantou Huayang, and the far lower available market premium for such metal if it was delivered into the European market. The argument here, therefore, is that whilst the damages on the sale to Shantou Huayang serves to compensate Glencore for its loss in respect of the price differential of the aluminium, this separate head of claim deals solely with Glencore's loss of premium. And the evidence shows that at the material time there was a sharp drop in shipments to Asia, and that in all probability the extra 1,500 MT could have been sold at the agreed lower premium of US$26/MT.

82. Mr Tong attacked this head as amounting to double recovery. He argued that in this instance Glencore should be entitled to the difference between the contract price and the sale price to the Plaintiff's buyer (treating the latter as the reasonable market price) or to take a reasonable market price in Europe where there was admittedly a market for these goods, but not both. Moreover, since the sale to Shantou was known in September, Glencore was thus able to plan its shipments in November and December accordingly, and since the Asia market had clearly picked up before December 1997, there was no reason why these or indeed any other goods needed to be resold in Europe, nor in fact was there any evidence indicating that a surplus shipment was redirected in November from Asia to Europe for sale at a far lower premium. Furthermore, he submitted, this particular claim did not fall within the principles of Hadley v. Baxendale (1854) 9 Exch 341, since at the time of the July contract the parties must have contemplated that if the sale did not go ahead, the Plaintiff would have resold the shipment on the open market immediately.

83. On this aspect I agree with Mr Tong. In my view this claim is a claim too far, and I reject it.

(iii) Loss of profit by reason of failure to open letters of credit and take delivery of the contract goods

84. Glencore claims loss of profit under this head in terms of 10,500 MT, comprising half the September 1997 shipment (1,500 MT) and 3,000 MT for each of October, November and December 1997, the loss being that between the agreed premium (US$75) and the relevant market premium at the material time. In this connection, Counsel have once again assisted and saved considerable time by agreeing the market premium at US$26, so that the claim as now put up is 10,500 MT x US$49 (US$75 - 26), which equals US$514,500.

85. On the hypothesis that liability went against him under this head, Mr Tong made no quarrel with the October and November shipments, but maintained that the claim in relation to the December shipment could not stand, because the evidence of Mr Dimenstein was to the effect that aluminium was starting to be shipped back to Vladivostók in December at very much closer to the pre-August 1997 levels before the drop in the Asian market. So, submitted Mr Tong, whilst it might be fair to suggest that there was little or no market in Asia in relation to October and November, in December these goods could have been shipped back to Asia, thus precluding the loss of premium claimed in relation to that month. In other words, it was not accepted that there was no Asian market in December, Mr Tong pointing out that the data supplied with Mr Dimenstein's evidence was that in December the shipment levels were back to 8,400 MT, and that shipments began to come back to Vladivostók in early December, so that Glencore could have planned the December shipment to be routed to Asia and not Europe where, of course, they would suffer significant premium loss.

86. This is a difficult matter to resolve, but on balance I am minded again to agree with Mr Tong. On the evidence I do not accept that the claim for the December shipment is made out, although it is (as Mr Tong accepts) so made out for the October and November shipment.

87. In the event, therefore, the award under this head is a multiple of 7,500 MT x US$49 = US$367,500.00.

Overall

88. The foregoing quantum assessment, therefore, is that Keen Lloyd is liable to Glencore in the sum of -

	US$
(i)	147,638.52
(ii)	182,119.16
	49,972.49
(iii)	367,500.00
	747,230.17

89. I so order.

KEEN LLOYD'S RESITUTIONARY CLAIM

90. I can take this head relatively shortly. This is a free standing head of claim whereby Keen Lloyd seeks to recover from Glencore sums which are said to represent over-payments made under various letters of credit opened by Keen Lloyd in favour of Glencore pursuant to the 'forged' contract dated 18th April purportedly entered into between Keen Lloyd and Glencore, together with a further forged contract (which does not figure in the broad factual matrix but for which a claim is now made), No.162-96-23835-S dated 15th December 1996, wherein a similar modus operandi appears to have been adopted by a fraudulent third party at Keen Lloyd's expense. There are, in fact, a total of three over-payments for which, consequent upon re-amendment, recovery is now sought :

December 1996 contract :	US$12,214.62
April 1997 contract :	US$32,497.10 [June shipment]
	US$19,777.66 [August shipment]

91. To this Mr Tong formally seeks to include payment for the 250 bundles of ingots which were diverted from the M.V. 'G. Kovalchuk' and which were subject to the purported lien by Glencore in respect of the August shipment of the Bright China contract. However, since I have held that the proceeds of sale of these ingots, together with certain collateral sums, are to be paid to Keen Lloyd, this particular subhead would appear now to fall away.

92. But to revert to the so-called 'excess' payments, to which this claim is specifically confined. Mr Tong asserts that all payments made under the forged contracts are recoverable as monies paid under a mistake of fact, namely that such payments were being made pursuant to a valid, legally binding contract, when the truth, he submitted, was that it was Keen Lloyd's agent Miss Tsui (who, together with Mr Liang, cast a long if unseen shadow over the events in this case) who was responsible for arranging for the Bright China contracts to utilise letters of credit issued by Keen Lloyd, and thereafter, by means of the forged contracts, to cause those letters of credit to be issued by Keen Lloyd at the inflated amounts.

93. In pursuing this claim, Mr Tong relied, inter alia, on the judgment of the House of Lords in Kleinwort Benson Ltd. v. Lincoln City Council [1998] 3 WLR 1095, wherein their Lordships considered the restitutionary basis of money paid under a mistake, whether of fact or law, subject to the defences available in the law of restitution.

94. For Glencore, Mr Shieh submitted that this 'overpayment' claim must fail for three distinct reasons. First, he said that there was no payment by Keen Lloyd to Glencore, since payment was made under irrevocable letters of credit, which are autonomous obligations undertaken by banks qua principal and not as the customer's agent; second, that there was no requisite operative mistake, since, although Keen Lloyd's case was that it had paid under the misapprehension that it had a contract with Glencore, this claim as put forward was for recovery of the overpaid amount only; and third, that Glencore had in any event changed its position in good faith by crediting Bright China with the amount of the overpayment in the running account between them, which amounted to an admission of debt from which Glencore cannot and could not resile.

95. This is not a straightforward area of the law, even when the facts are crystal clear, which certainly is not the position in the present case. At the end of the day, the Court is placed in the unenviable position of deciding which of two innocent parties should suffer for the apparent fraud of a third. This dilemma, which frequently arises in the law of restitution, may in some wise be responsible for the somewhat piecemeal development of the applicable principles in this area of the law.

96. One of these key principles is encompassed in Mr Shieh's third main point, which is that of change of position, which the Courts in many common law jurisdictions now recognise as a defence : see for example Lipkin Gorman (a firm) v. Karpnale Ltd. [1991] 2 AC 548, in which the House of Lords accepted change of position as a defence to all restitutionary claims, always assuming, of course, good faith; as Lord Goff noted in Lipkin Gorman(op.cit) at 579-580 :

"...It is, of course, plain that the defence is not open to one who has changed his position in bad faith, as where the defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution; and it is commonly accepted that the defence should not given to a wrongdoer..."

97. Reverting to the present case, Glencore submits that it has changed its position by crediting Bright China in the running account, albeit it has not actually been paid because of the set-off claim in terms of Bright China's greater indebtedness. However, argued Mr Shieh, this was an admission of debt from which Glencore could not resile; indeed, in the circumstances he submitted that Glencore could even be sued by Bright China on an account stated. And as to the December contract, at the direction of Mr Chin of Bright China, the 'overpayment' was paid to a company called Univest.

98. It is the issue of good faith which forms the battle ground here. Mr Tong has argued that the Plaintiff's witnesses were unreliable in so far as they attempted to play down the significance of the fraud, and further suggested that it was remarkable in the circumstances that the Plaintiff had never confronted Bright China as to the existence of this fraud.

99. This element of the case has caused me some concern. From my vantage point, I did not consider either Mr Delwing or Mr Dimenstein to be other than witnesses of truth, although I did think that Mr Delwing's evidence with regard to the discovery of the forged contract and to the crediting of Bright China (as opposed to Keen Lloyd) revealed a degree of embarrassment and sensitivity to this particular subject. However, such reservations apart, I am disinclined on this basis alone to find that Glencore acted in bad faith in this regard. In the circumstances as they existed I do not consider that there was a necessity for Glencore to probe into the precise relationship between Keen Lloyd and Bright China, and I further accept that so far as Glencore was concerned, overpayments under letters of credit opened by Keen Lloyd was no cause for surprise given that the provisional pricing mechanism always required final adjustment.

100. More important, perhaps, I accept that this was not a case of unjust enrichment; Glencore never retained any surplus monies, given that 'overpayments' received under the Bright China contract either were allocated to the credit of Bright China or were paid out at Bright China's direction. Nor after discovery of the 'forged' contract was there any question of Glencore necessarily having any appreciation that Keen Lloyd was being deceived, since Glencore could have had no idea of the relationship between Keen Lloyd and Bright China (as to which, for that matter, this Court is none the wiser, albeit Mr Chun expressly disavowed any knowledge of Bright China and Mr Chin), and in any event it appears to be accepted that Glencore got the goods it wanted at the price Mr Chun was prepared to pay. In this context, I further accept the contention that the defence of change of position does not depend upon reliance upon the validity of the payment; the editors of Goff & Jones, Law of Restitution, 5th Edn (1998), noting, at page 822 :

"... As has been seen Lord Goff [in Lipkin Gorman] did not permit himself to the principle adopted by other jurisdictions that the recipient could rely on the defence only if he has altered his position in reliance on the validity of the payment. For example, his formulation of the defence is sufficiently generous to enable the innocent recipient of a payment, which was later stolen from him, successfully to plead it..."

101. It follows from the foregoing, therefore, that in my judgment Glencore is able to rely successfully on its change of position defence, and that Keen Lloyd's restitutionary claim must fail. If this be correct then there is, strictly speaking, no need further to consider the other two lines of argument. However, out of an abundance of caution I should, perhaps, indicate my view on these other issues also.

102. The first of these is the argument that there was no payment by Keen Lloyd to Glencore given the interposition of the irrevocable letter of credit mechanism, in this case payment by the Sin Hua Bank under a letter of credit on 1st December 1997 with scheduled repayment by Keen Lloyd on 5th December 1997. In light of the emphasis upon the autonomous obligation principle, whereby the credit mechanism is rigorously separated from the underlying transaction, the temptation is to accede to the argument, Mr Shieh persuasively submitting that where the Sin Hua Bank paid under the credit, it did so as principal and not as agent for Keen Lloyd, nor was it using its customer's money so to do.

103. I do not think the latter argument as to the characterisation of the funds used is particularly germane : no issue of tracing arises here, nor is there any question in this case of the imposition of a constructive trust. Whilst this broad point, perhaps, was not argued with the detail it otherwise merited, on reflection I would be hesitant to disentitle Keen Lloyd from invoking a restitutionary remedy by reason solely of the existence of the letter of credit mechanism selected for payment. Upon the basis that the applicant for the credit is indebted to the issuing bank for monies paid out under a mistake of fact, it is not clear in principle why there should not be a restitutionary claim available on the footing that it had been compelled to discharge its debt to the issuing bank. So whilst I accept that in a letter of credit situation the payment obligation is discharged by the bank qua principal, and that this is not a case (as for example in Agip (Africa) Ltd. v. Jackson [1991] Ch 547) where in paying third parties the bank is acting as agent for its customer, I do not accept the proposition that use of the independent credit mechanism necessarily should debar the availability of a restitutionary remedy, nor that this should be the result in this case.

104. Turning, finally, to the 'operative mistake' point, it is argued that the flaw in Keen Lloyd's case in relation to payment made under the misapprehension that it had a valid contract with Glencore is that, to permit recovery of the 'overpaid' amount (which is all that is claimed), there must have been an operative mistake in relation to the overpayment itself so that, absent the mistake, Keen Lloyd would not have made the overpayment. This point has little appeal. Mr Chun's evidence, which I accept on this issue, was that had he known the contract was a forgery he would not have opened the letter of credit, and I do not consider that this stance serves in itself to debar the claim for the overpayment. Mr Tong has made it clear that whilst technically he could mount a claim for the whole amount so paid, he was confining his claim solely to the 'overpayment', and in my view the circumstances do not preclude him from framing his claim in this way. Accordingly, had the decision otherwise been in favour of Keen Lloyd in terms of its restitutionary claim, in my judgment, this point would not have prevented recovery.

SUMMARY

105. For ease of reference, it may assist, finally, to summarise the principal conclusions which have been reached in this judgment.

Glencore vs Bright China

106. There is to be judgment in favour of Glencore against Bright China in the sum of US$336,251.84, with interest to accrue thereon at 8% per annum from 18th September 1997 to the date of judgment, and thereafter at judgment rate from time to time prevailing until payment.

Glencore vs Keen Lloyd

(i) There is to be judgment in favour of Glencore against Keen Lloyd in damages for breach of the July contract in the sum of US$747,230.17.

(ii) The counterclaim of Keen Lloyd is dismissed.

(iii) Keen Lloyd is entitled to the proceeds of sale of the 250 bundles of ingots presently in Court, and is at liberty to make application for payment out of such sum, together with such interest as has accrued thereon.

(iv) Co-terminus with (ii) above, Keen Lloyd is further entitled to judgment against Glencore in the sum of US$52,327.82.

(v) The restitutionary claim of Keen Lloyd is dismissed.

107. I am grateful to all counsel for the very considerable assistance which has been rendered to the Court during this trial. Absent agreement thereon, I will hear junior counsel in due course upon the issues of interest, costs and the precise form of the Order in each of these actions, together with any consequential applications as may be necessary.