TRISHUL (U.K.) LTD. v. WINNIE FUNG TONG t/a WINDA PRODUCT

----------------------

HEADNOTE

----------------------

HELD

1983 No. 14450

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

____________

__________

JUDGMENT

__________

1. The Plaintiff company claims to be a confirming house. The Defendant is an exporter of textile garments. In April 1983 the Dependant entered into a contract with a German Company Kulmer G.M.B.H. (Kulmer) for the supply of a quantity of ladies garments. It was agreed that the goods would be paid for by the opening of a Letter of Credit.

2. It would appear that Kulmer's financial position was such that they would have difficulty in making the necessary arrangements themselves with bankers. They accordingly approached the Plaintiff who had an appropriate line of credit with the National Westminster Bank in London. In consideration of a commission of 4%, the Plaintiff made an application to the National Westminster Bank to open a Letter of Credit. The Letter of Credit applied for was an irrevocable Letter of Credit. The advising bank in Hong Kong in relation to the transaction was the Shanghai Commercial Bank. A number of conditions were imposed before the Shanghai Commercial Bank would be entitled to effect payment under the Letter of Credit.

3. For the purpose of this litigation, the most important condition was the requirement of the production of an air waybill evidencing the flight number and flight date and showing the goods had been consigned to Kulmer. There was also a requirement in the application for Letter of Credit for "shipment from Hong Kong/Macau to Frankfurt latest shipment 30 June 1983”. The amount payable under the Letter of Credit was originally $300,000 which was then by agreement of all parties increased to $500,000.

4. The Defendant despatched the goods by air to Kulmer. They submitted the necessary documentation to the Shanghai Commercial Bank and received payment in accordance with the terms of the sale agreement. It is the Plaintiff's case that the Defendant failed to comply with the conditions laid down in the Letter of Credit.

5. The Plaintiffs claim that the goods had not been despatched by air from Hong Kong by the 30th of June as was required. I would add at this stage that it is common ground between the parties that the goods were despatched by two consignments. There were 278 cartons in one consignment and 4 cartons in the other. However this is not an important issue as the air waybills were both prepared in a similar form. The Plaintiffs further claim that the Defendants fraudulently misrepresented the position on the documents as they knew perfectly well that the goods were despatched in early July and not by the 30th of June as was required.

6. Unfortunately at about this time, Kulmer went into liquidation and accordingly were not in a position to honour their commitments. The result of all this was that the Shanghai Commercial Bank claimed the monies under the Letter of Credit from the National Westminster Bank who accordingly debited the Plaintiff's account with them for approximately $498,000 and have been debited their account with interest payments since then. Put very simply the Plaintiff's claim that the Defendant obtained payment under the Letter of Credit by presentation of fraudulent documents namely that the date given in the air waybills was wrong.

7. Mr. Clifford Smith who was representing the Plaintiffs submitted that in such a situation, the Defendant should not be allowed to obtain an advantage as a result of her fraud. The Defendant should be required to recompense the Plaintiffs for the loss they had suffered. The Defendant denied that she had been guilty of any fraud and put the Plaintiffs to formal proof. Mr. Christopher Smith for the Defendant argued that even if fraud could be proven, the Plaintiffs had no valid claim against the Defendant. Amongst other arguments, he submitted that the Plaintiffs could not put themselves in a more favourable position than Kulmer and inevitably the claim was doomed to failure. It was common ground between the parties that Kulmer had at no time sought to reject the goods.

8. The Plaintiff called two witnesses. They called Mr. LIM Hong-tai who is the Cargo Manager of Singapore Airways and Mr. Attam who is a director of the Plaintiffs. Mr. Lim gave evidence concerning the procedures which are adopted when goods are air freighted. The airline has appointed agents who transact business with customers. He produced the relevant air waybills and the manifest for the cargo. He was able to give evidence that all of the goods had been air freighted from Hong Kong to Frankfurt Germany on the 5th of July. It was not however possible for him to give evidence as to when the goods had been delivered to either the appointed agent or when the goods had been delivered to the air cargo terminal at Kai Tak Airport. There was a further complication in that the agent who had issued the air waybill Skytruck International Airfreight Limited was not an appointed agent. Mr. Lim said that it was possible for an agent who was not an appointed agent to pass the goods to an appointed agent who could then proceed with the matter.

9. Mr. Attam gave evidence concerning the Plaintiff's involvement in the matter. The Plaintiff had had a number of business transactions with Kulmer. The function performed by the Plaintiff was to lend its name in the application form for Letters of Credit issued by the National Westminster Bank. The Plaintiff received a fixed percentage commission for this service.

10. In early July he had come to learn of Kulmer's insolvency. He had been very concerned to hear this and had proceeded to Germany to ascertain whether he could do anything to protect the Plaintiff's interests. When he had been in Germany, he had sighted the relevant documents pertaining to this transaction. He caused a photostat copy to be made of the documents which he brought back to England with him. On or about the 18th of July, he had received advice from the National Westminster Bank. He had attended at the bank and obtained from them the documents which had been transmitted to them by the Shanghai Commercial Bank. The photostat copy documents he had obtained from Germany were marked in these proceedings as Exhibit D and the documents he received from the National Westminster Bank were marked as Exhibit C. Mr. Attam had carefully perused both sets of documents. He noticed that they did not correspond with each other. It was evident from the photostat copy of the air waybill in Exhibit D that it was dated the 2nd of July 1983. It could be seen from the copy air waybill in Exhibit C that it was dated the 30th of June 1983. He had then come to the conclusion that the Defendant must have made a misrepresentation and have caused the 30th of June date to be inserted in the air waybill which had been lodged with the Shanghai Commercial Bank. He had assumed from this that the Defendants had misrepresented the date of the air waybill so as to comply with the conditions contained in the Letters of Credit and thus enable them to receive payment.

11. Mr. Christopher Smith cross-examined Mr. Attam on the nature of the services his company performed. He took him through the text of para. 2286 of the 2nd edition of Benjamin on 'Sale of Goods' which describes the legal nature and classification of confirming houses. He agreed with Mr. Christopher Smith that none of the four types of situation envisaged in this paragraph would be applicable to the services rendered by the Plaintiff company. I do not think that this is a matter of any great importance. I am satisfied that the description "confirming house" is not a term of art and that it is necessary to have regard to the particular functions which are performed in any case by a party rendering services which could loosely be described as those of a confirming house. I do not accept that any special rights or privileges are accorded to "confirming houses" and it is accordingly not necessary to establish whether the functions performed by the Plaintiff company come within the classic definitions referred to in Benjamin. The only other relevant evidence given by Mr. Attam related to his dealings with Kulmer. He said that he had not submitted any proof of claim or other similar document to the liquidator of Kulmer. The reason he gave for this was that he had not rendered an invoice to them in respect of the transaction. This is of relevance in considering whether there was any possibility of the doctrine of election having any application. I accept Mr. Attam's evidence in this connection and am satisfied that no claim has been made by the Plaintiff in the insolvency. In general terms I accepted the evidence of both Mr. Attam and Mr. Lim both of whom I found to be truthful and reliable witnesses. For the reasons I give later I am not prepared to draw the same inferences Mr. Attam did.

12. The Plaintiff did not call any witnesses from either the Shanghai Commercial Bank or the National Westminster Bank. My attention was also drawn to the fact that the Plaintiffs had not discovered correspondence and other documents in relation to the Plaintiff's dealings with either bank or with Kulmer.

13. I think that the most satisfactory approach to this case is to consider the various matters which have to be established by the Plaintiff to prove their claim under separate heads.

                (1) Have the Plaintiffs succeeded in proving either that the Defendants have acted fraudulently or that they have made any misrepresentation?

14. I accept that where an allegation of fraud is made in civil proceedings careful thought must be given to the burden of proof required to establish the fraud. The principles to be adopted are conveniently dealt with in Hornal v. Neuberger Products Limited⁽¹⁾. The correct approach to adopt is that clear and cogent evidence must be adduced to prove that a party has been guilty of fraud. There is a lamentable lack of such evidence in this case. The only evidence which exists is the discrepancy in the dates appearing on the air waybills in Exhibit C and D. The Defendant Madam Winnie TONG did not go into the witness box nor did she call any witnesses. There is accordingly no direct evidence from her concerning the issues in question. There is no evidence concerning her dealings and transactions with the Shanghai Commercial Bank and we do not know what was in her mind when either she or her representative attended at the bank to obtain payment under the Letter of Credit.

15. We do not know what if any representations were made to the bank. There are further difficulties. There is no evidence when the goods were delivered to the Air Cargo Agent. There is also no evidence that either the Shanghai Commercial Bank or the Air Cargo Agent acted upon any representations made by the Defendant or on her behalf. There is certainly no evidence that the Defendant has ultered a forged document. Bearing this in mind the only evidence which is available is the actual discrepancy in the documents I have referred to. I regret that I am not prepared to draw the inferences Mr. Clifford Smith invited me to draw from this discrepancy. The result of all this is that the Plaintiff's claim cannot succeed in the absence of their being able to establish that the Defendant has made a misrepresentation or otherwise been fraudulent. I do however think it is desirable to consider shortly the other legal issues which were canvassed before me.

                (2) What does despatch/shipment mean in relation to a airway bill?

16. Very little assistance can be derived from the definitions of "Shipment" and "Despatch" in Stroud's judicial dictionary. It can be seen from Polpen Shipping Company Limited v. Commercial Union Assurance Company Limited⁽²⁾ that a flying boat is not a ship. It also seems reasonable to assume that a normal aircraft cannot be considered as being a ship. Obviously the law relating to Bills of Lading can be of no assistance in resolving this problem. Mr. Christopher Smith conceeded that if the transaction had come within the ambit of section 3 of the Bills of Lading Act 1855 (18 & 19 Vict c. 111) he would be bound by the date appearing on the air waybill as its date of issue. I have no doubt that the section has no effect and I do not think that any useful analogies can be drawn from it.

17. The law is governed by the Warsaw Convention. Statutory Instrument 810 of 1967 contains the relevant provisions. It is also evident from the 5th Schedule that Hong Kong is a territory coming within the ambit of the convention. This is also made clear in the conditions which attach to the air waybill. There do not appear to me to be any overriding presumptions concerning what constitutes either despatch of goods or shipment of goods. It would accordingly appear to be necessary to have regard to the specific terms contained in the air waybill itself. I am by no means certain that the "despatch" of goods is necessarily the same thing as the "shipment" of goods.

In the ordinary sense of the word despatch of goods would indicate to me that they have been delivered by the consignor of the goods to the Air Cargo Agent or the airline freighting the goods. Shipment of goods would seem to be more consistent with the actual date when the goods start on their journey from Hong Kong to Europe. The Midland Bank, Ltd. v. Seymour⁽³⁾ is authority for the proposition that where there is ambiguity in a document it should be construed against the maker thereof. In the Letter of Credit, reference is made to both despatch and shipment. Adopting the principles propounded in Midland Bank, Ltd. v. Seymour I incline to the view that the operative word in this transaction is despatch. If this is correct, the Defendants complied with the condition contained in the Letter of Credit if they delivered the goods to the Air Cargo Agent on or before the 30th of June 1983. We simply have no evidence on this. It may well be the case that the goods were despatched to the Air Cargo Agent by this date. I realise that this is within the realms of speculation. What is important though is that the Plaintiffs have certainly not succeeded in proving that the goods were not despatched by the 30th of June and that there has been non compliance with one of the conditions imposed in the Letter of Credit.

18. It may also be helpful to make some observation on the submission made to me by Mr. Christopher Smith concerning condition 5 on the reverse side of the air waybill. Condition 5 reads:

19. Mr. Christopher Smith argued that the consequence of this condition being embodied in the contract was to entitle. Singapore Airways to air freight the goods at any time they pleased. This would mean that the date of the shipment or despatch contained on the face of the bill was indeterminate. I do not accept the validity of this contention. The conditions under which the goods are air freighted are simply a matter of concern between the carrier and the party responsible for consigning the goods and enable the carrier to reserve to itself sufficient flexibility to enable it to operate in a commercial manner. This therefore does not take matters any further.

                (3) Can the Plaintiff acquire rights over and above those exerciable by Kulmer?

20. Mr. Clifford Smith cited the cases of Hamzeh Malas & Sons v. British Imex Industries Ltd.⁽⁴⁾, Edward Owen Engineering Ltd. v. Barclays Bank International Ltd. and Another⁽⁵⁾ and United City Merchants Investments Ltd. v. Glass Fibres and Equipments Ltd.⁽⁶⁾ as authority for the proposition that contractual rights can be pursued under contracts relating to Letters of Credit independently of any right which may exist in accordance with the underlying contract of sale. I have no doubt that Mr. Clifford Smith is right in this submission. Mr. Christopher Smith argued that the rights under the Letter of Credit mainly related to the mechanics of payment and that after payment had been effected it was necessary to have regard to the terms of the underlying contract for the sale of the goods. His authority for this was Skandinavska Kredietenbank Boleget v. Barclays Bank⁽⁷⁾ I do not think that this is right. I consider that the Law is correctly stated by Lord Diplock at page 183 of U.C.M. v. Royal Bank of Canada

"To this general statement of principle as to the contractual obligations of the confirming bank to the seller, there is one established exception: that is, where the seller, for the purpose of drawing on the credit, fraudulently presents to the confirming bank documents that contain, expressly or by implication, material representations of fact that to his knowledge are untrue. Although there does not appear among the English authorities any case in which this exception has been applied, it is well established in the American cases of which the leading or "landmark" case is Sztejn v. J. Henry Schroder Banking Corporation (1941) 31 N.Y.S. 2d 631. This judgment of the New York Court of Appeals was referred to with approval by the English Court of Appeal in Edward Owen Engineering Ltd. v. Barclays Bank International Ltd. [1978] Q.B. 159, though this was actually a case about a performance bond under which a bank assumes obligations to a buyer analogous to those assumed by a confirming bank to the seller under a documentary credit. The exception for fraud on the part of the beneficiary seeking to avail himself of the credit is a clear application of the maxim' ex turpi causa non oritur actio' or, if plain English is to be preferred, "fraud unravels all. " The courts will not allow their process to be used by a dishonest person to carry out a fraud. "

21. The next question which needs to be considered is the nature of the fraud to bring it within the principles above propounded. Here assistance can be derived from a passage in the judgment of Devlin J. appearing at page 476 of Kwei Tak Chao and others v. British Traders and Shippers Ltd.⁽⁸⁾

"Deciding the matter in the absence of authority and on principle, I think that the true view is that one must examine the nature of the alteration and see whether it goes to the whole or to the essence of the instrument or not. If it does, and if the forgery corrupts the whole of the instrument or its heart, then the instrument is destroyed; but if it corrupts merely a limb, the instrument remains alive, though no doubt defective. For example, if a man adds two noughts to a cheque, that is the end of it. It is no longer a cheque for, let us say £10, because the original figure of £10 has been destroyed by the addition of the two noughts. It is not a cheque for £1,000 because the figure of £1,000 is a forged figure. There is, therefore, nothing left of it, and it must go. The same result would not necessarily follow, however, if a man were, for example, to forge the date on a cheque, because he thought that, it being overdue, there was a possibility that awkward questions might be asked. "

Adopting this criteria, I have no doubt that even if the Defendant had altered the date on the air waybill, or caused it to be altered, it would not be open to the Plaintiff to pursue any rights under the Letter of Credit independently of the sale contract. This effectively answers the question originally posed. The Plaintiffs do not have any rights over and above Kulmer. As already stated, Kulmer have not seen fit to reject the goods which were delivered to them and that would appear to dispose of this case.

22. Various other matters were canvassed before me by Mr. Christopher Smith. I consider however that the matters I have referred to sufficiently deal with this matter. I will not therefore make comment upon all of the submissions which he made. For the reasons I have given, the Plaintiff's claim must be dismissed. The Defendant will be entitled to her costs.

⁽¹⁾ [1957] 1 Q.B.

⁽²⁾ [1943] 1 KB

⁽³⁾ [1955] Vol. II Lloyd's list Law Reports page 147

⁽⁴⁾ [1958] 2 QB 127

⁽⁵⁾ [1978] 9 QB 159

⁽⁶⁾ [1983] AC 169

⁽⁷⁾ [1922] Lloyds List, page 523

⁽⁸⁾ [1954] 2 QB 459