SHAGANG SHIPPING CO LTD v. GUOFENG ENTERPRISE GROUP LTD

HCMP 536 /2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 536 OF 2012

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J U D G M E N T

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1. The applicant, Shagang Shipping Company Ltd ("Shagang"), seeks an injunction to restrain the respondent, Guofeng Enterprise Group Ltd ("Guofeng"), from presenting any petition to wind up Shagang based on the sum of US$19,611,435.26 claimed in a statutory demand dated 7 March 2012. The debt was said to be due to Guofeng under a contract of affreightment dated 25 March 2008 ("COA 3") made between Guofeng as owner and Shagang as charterer.

2. The issue which arises is whether Shagang has established that it has genuine and serious cross-claims against Guofeng greater than or equal to the amount claimed in Guofeng's statutory demand.

Background facts

3. Shagang and Guofeng are companies incorporated in Hong Kong in 2004 and 2007 respectively. Not only did they share the same registered office until 15 December 2011, they had business dealings with each other. Suffice it to say that, irrespective of any other business venture, Shagang entered into a number of charter parties with Guofeng over the years, sometimes as owner and sometimes as charterer.

4. The companies also had a common director: Mr Shum Manfu (or Shen Wenfu in Mandarin) ("Mr Shum"), a director of Shagang from the date of its incorporation until February 2012, was also a director of Guofeng from the date of its incorporation until 22 November 2010.

5. Mr Lu Xing is a director of Guofeng and has held that office since the date of Guofeng's incorporation.

6. Shagang’s cross-claims arise under three other contracts of affreightment, (in each case, with Shagang as owner and Guofeng as charterer,) namely, COA 1 dated 20 May 2008; COA 2 dated 25 March 2008 and COA 4 dated 26 March 2008. It should be mentioned that COAs 1 and 4 provide for arbitration in London whereas COAs 2 and 3 provide for dispute resolution in the English High Court. Such arbitrations and court proceedings are on foot although there is an application by Guofeng to stay the COA 1 arbitration which is pending.

7. Shagang's cross-claims for unpaid freight and demurrage which are in excess of US$40 million may be summarised as follows:

COA 1	US$27,481,164.59
COA 2	US$7,469,167.83
COA 4	US$6,002,913.28
TOTAL	US$40,953,245.70

8. Guofeng admits that of the total amount of Shagang's cross-claims of over US$40 million, US$13,385,704.5 is either due or arguably due. In practical terms, the amount of additional cross-claims Shagang has to demonstrate is US$6,225,730.74.

9. Apart from a sum of $750,000 referable to the 6th shipment under COA 1, the amount of US$13.386 million is made up of the cross-claims under COAs 2 and 4 (which are admitted except for a minor difference of US$8344.59 under COA 2 and a sum of $828,042 under COA 4).  Accordingly, it is the COA 1 cross-claim of approximately US$27.5 million that requires attention.

10. In a nutshell, except for the sum of $750,000 admitted to be due for the 6th shipment, Guofeng contends that Shagang's cross-claims under COA 1 are neither genuine nor serious because Guofeng has no liability to Shagang for the balance in that "the Relet Agreement" had the effect of discharging Guofeng from liability under COA 1. Further, in respect of the sum of US$6,661,946.50 ("the loan") which forms part of the amount claimed for the 7th shipment, Guofeng’s case is that it has paid that amount to Shagang by way of a loan made under "the Loan Agreement".  

The applicable law

11. There is no dispute between the parties as to the applicable law. The relevant legal principles are to be found in the judgment of Kwan J (as she then was) in Re Sinom (Hong Kong) Ltd [2009] 5 HKLRD 487 at §§9 to 16 which I gratefully adopt.

12. As the present case involves the application of the relevant principles to the facts, it is necessary to go into the facts in some detail.

COA 1

13. This contract, made between Shagang as owner and Guofeng as charterer, relates to 12 shipments of iron ore from Brazil for discharge in China over a period of three years commencing 1 January 2009.

14. Under COA 1, the charterer (i.e. Guofeng) had to make 4 shipments per year, one each quarter. The freight rate depended on the identity of the loading and discharging ports. For the ports identified in the contract, it ranged between USD 27 and 32 per metric ton. Freight rates for other loading and discharging ports were to be by mutual agreement. For this reason, even for identified ports, it is difficult to state a single freight rate for COA 1 and the rate of US$29.85 per metric ton to be found in some of the documents is not strictly correct.

15. Shagang's claims pertain to the 6th to 12th shipments.  The amounts claimed may be summarised as follows:

(a)	6th shipment:	US$750,000.00
(b)	7th shipment:	US$9,086,632.36
(c)	8th shipment:	US$801,810.23
(d)	9th to 12th shipments:	US$16,842,722.00
	TOTAL	US$27,481,164.59

16. It is common ground that the first 8 shipments did take place. The sums claimed in respect of the 6^th to 8^th shipments (made during the second, third and fourth quarters of 2010) represent unpaid freight and demurrage for those shipments. In respect of the 9^th to 12^th shipments, Shagang's case is that Guofeng had breached its contractual obligation by failing to nominate cargoes to be carried during 2011 thereby causing Shagang to suffer losses to the tune of US$16.8 million which amount it seeks as damages.

17. Guofeng submitted that COA 1 should not be taken at face value.  Notwithstanding its date of 20 May 2008, it was created some time on or after 29 April 2009, reflecting a pre-existing agreement dated the 20 May 2008 as part of the Relet Agreement. In that connection, I have been shown e-mail correspondence dated 29 April 2009 between Guofeng and Shagang in which a working draft of COA 1 was attached to Shagang's email.  That certainly gives some credence to the view that COA 1 did not come into existence until on or after 29 April 2009. For present purposes, I am prepared to proceed on that basis.

18. As I understand it, Guofeng's stance is not that COA 1 is a sham but rather that the Relet Agreement had the effect of releasing Guofeng from liability in respect of the 12 shipments under COA 1 and that Shagang must look to North China rather than Guofeng for damages. 

The Relet Agreement and related events

19. To understand the Relet Agreement, it is necessary to refer to a number of other documents and related events.

The Glory Wealth COA

20. This charterparty is the first in time of a series.  On 21 September 2007, Guofeng as charterer and Glory Wealth Shipping Pte Ltd as owner entered into a contract of affreightment ("Glory Wealth COA") for 12 shipments of iron ore to be made from Brazil to China over a period of three years commencing 1 January 2009. Other than the identity of the owners, there is no difference between its terms and those in COA 1.  As earlier noted for COA 1, the freight rate ranged between USD 27 and 32 per metric ton for the ports identified in the contract.

The North China COA

21. Eight months later, on 20 May 2008, North China Shipping Ltd (Singapore) Pte Ltd as charterer and Guofeng as owner entered into a contract of affreightment for 20 shipments of iron ore to be made from Brazil to China commencing 1 January 2009. As in the Glory Wealth COA and COA 1, the charterer in each case undertook to make quarterly shipments.

22. Under the North China COA, the freight rates for the specified ports in Brazil and China were between USD 35.90 to 36 per metric ton and for ports not specified, they were to be mutually agreed.

23. Pausing there, if those two contracts are looked at in isolation, it will be seen that for ports that have been identified, the freight differential between the Glory Wealth COA and the North China COA ranged between USD 4 and 9 per metric ton.  This difference represented the profit Guofeng stood to gain from the two contracts, namely, the difference between what Guofeng had to pay Glory Wealth and what it would receive from North China for the 12 shipments to be made during the three years commencing 1 January 2009.

The Head Agreement

24. Several months later, in the midst of the worldwide economic turmoil, on 17 October 2008 (1) Glory Wealth; (2) Guofeng; (3) Shagang; and (4) Jiangsu Shagang International Trade Co., Ltd ("Shagang International") entered into an agreement which recited that the parties understood that

"the purpose of all the efforts is for [Shagang] to assume and take the contractual positions of [Guofeng] and [Shagang International] and subsequently to establish direct contractual rights and obligations between the two principals [Glory Wealth] and [Shagang], and at the meantime to terminate, and to release the contractual rights and obligations of [Guofeng] and [Shagang International], which eventually will result in this comprehensive settlement"

25. For present purposes, it is only necessary to mention the following substantive provisions:

"The "Parties" agree hereunder:

Assignment of Contracts:

1. The Contract of Affreightment Dated on September 21st, 2007 including addendum dated on November 29^th, 2007 between "Glory Wealth" (Owners) and Guofeng (Charterers)

Terms:   Twelve (12) cargoes

Brazil/China

Rate: $29.85/Mt

"Glory Wealth" agrees that "Guofeng" will assign and delegate all its rights and obligations to "Shagang Shipping"; "Shagang Shipping" agrees to assume and take the position of "Guofeng" under the captioned contact. This assigned contract is hereinafter referred to as "Assignment Guofeng A"

…

Novation of Contracts

"Glory Wealth" and "Shagang Shipping" mutually agrees:

1. The "Assignment Guofeng A" will be cancelled and terminated."

26. In passing, I would observe that the freight rate stated for the Glory Wealth COA would not appear to be strictly accurate. (See §§14 and 20 above).  Be that as it may, the Assignment Guofeng A was an intended assignment, yet to come into existence.  This reading is reinforced by the provision under the heading "Preparation of documents" in the Head Agreement which provides that the Parties "will make endeavor to complete and duly sign all relevant documents under this agreement intended before January 15th, 2009".  In any event, as I have not been shown Assignment Guofeng A, it can only be a matter for speculation whether such an assignment ever came into existence.

27. But a puzzling aspect of the Head Agreement should be mentioned and that is Glory Wealth and Shagang mutually agreeing to cancel and terminate the "Assignment Guofeng A". It would appear to make little sense to provide for best endeavours for an assignment to take place before 15 January 2009, only in the same breath to provide that it would be cancelled and terminated.  This is so even if the contemplated termination were to be at some indeterminate time after 15 January 2009.

The agreement dated 1 April 2009 ("the 2009 Assignment")

28. This is important.  By this tripartite agreement made by (1) North China; (2) Guofeng; and (3) Shagang dated 1 April 2009, Guofeng assigned all its "rights, title, interest, benefit and obligations" for the first four shipments under COA 1 to Shagang.  It had the effect of Shagang replacing Guofeng for those shipments and creating direct contractual obligations between Shagang and North China.  Critically, the 2009 Assignment was expressly limited to the first four shipments, namely, those to be made by North China in 2009.

Circumstances prevailing in or about April 2009

29. It appears to be uncontroversial that the freight market suffered badly during the financial crisis in the fall of 2008. According to Mr Lu (who filed evidence on behalf of Guofeng), Glory Wealth became heavily indebted to various creditors including Shagang. Mr Lu's evidence is that Glory Wealth was insolvent at that time and Shagang asked Guofeng "to relet" the Glory Wealth COA and the North China Sea COA to Shagang so that Shagang could step into the shoes of Glory Wealth and earn freight directly from North China thereby reducing Glory Wealth’s debt due to Shagang".

30. Mr Lu explained that as Shagang was Guofeng's "most important business partner", Guofeng was willing to oblige but apparently on the basis that it would be entitled to the profit it stood to reap from the freight differential between the North China COA and the Glory Wealth COA earlier mentioned.  Guofeng and Shagang agreed the freight differential at USD 6 per metric ton.  According to Guofeng, it prepared a draft of the Relet Agreement in April 2009 but that was revised and backdated to 20 May 2008 by Shagang.

31. I now turn to consider the Relet Agreement itself.

The Relet Agreement

32. The Relet Agreement is a home-made document written in English.  Its provisions are not always entirely clear or easy to understand:

"Agreement between Guofeng Enterprise Group Ltd. and Shagang Shipping Co., Ltd.

Dated 20^th May, 2008

Guofeng Enterprise Group Ltd. as owner has contract with North China Shipping Ltd (Singapore) Pte Ltd with charter party dated 20^th May 2008.

(Freight rate Tubarao-Qingdao usd35.90, baf0.022 Singapore 120, brokerage 1.25%).

Guofeng Enterprise Group Ltd. as charter has contract with Glory Wealth Shipping Pte Ltd. with charter party dated 21^st September 2007 and addendum for the contract between Guofeng Enterprise Group Ltd. and Glory Wealth Shipping Pte Ltd. dated November 29^th 2007.

(Freight rate Tubarao-Qingdao usd29.85, baf 0.021 Singapore 120, addcom 1.25%).

Guofeng Enterprise Group Ltd. relet the whole contract between Guofeng Enterprise Group Ltd. and Glory Wealth Shipping Pte Ltd. charter party dated 21^st September 2007 and addendum for the contract between Guofeng Enterprise Group Ltd. and Glory Wealth Shipping Pte Ltd. dated November 29^th 2007 back to back to Shagang Shipping Co., Ltd. CPDD 21^st Jan, 2008.

Guofeng Enterprise Group Ltd. relet the first three years of the contract between Guofeng Enterprise Group Ltd. and North China Shipping Ltd (Singapore) Pte Ltd with charter party dated 20^th May 2008 back to back to Shagang Shipping Co., Ltd. CPDD 20^th May, 2008.

Shagang Shipping Co., Ltd. shall pay Guofeng Enterprise Group Ltd. the freight differential for each shipment for three consecutive years commencing from Calendar 2009 i.e. 2009/2010/2011. Shagang Shipping Co., Ltd. shall pay the above mentioned remittance by two installments each year. The installment shall be arranged as following:

1^st installment: due date 30^th June, 2009

2^nd installment: due date 31^st December, 2009

3^rd installment: due date 30^th June, 2010

4^th installment: due date 31^st December, 2010

5^th installment: due date 30^th June, 2011

6^th installment: due date 31^st December, 2011

In case Glory Wealth Shipping Pte Ltd. and/or North China Shipping Ltd (Singapore) Pte Ltd fail to perform part or full of the above mentioned contracts, or is bankrupt, Guofeng Enterprise Group Ltd. agree Shagang Shipping Co., Ltd.'s take legal action against North China Shipping Ltd (Singapore) Pte Ltd and/or Glory Wealth Shipping Pte Ltd. on behalf of Guofeng Enterprise Group Ltd. All the risk, benefit and expenses shall be undertaken by Shagang Shipping Co., Ltd and Guofeng Enterprise Group Ltd.

Any part or full installment mentioned above will be payable on any performed shipment/realized profits or received cash-settled amounts of any shipment.

The freight differential shall be calculated as following:

…"

33. I make the following observations.

34. The first four main paragraphs (disregarding the passages in parenthesis) appear to be recitals. The third recital refers to the Glory Wealth COA being "relet …back to back to Shagang" followed by a reference to "CPDD 21st Jan, 2008".

35. The meaning of the term "relet" is less than clear. Mr Carolan, counsel for Guofeng, submitted that it should be understood as "taken over". But questions remain as to how the 'taking over' was achieved and its legal effect. Was it by way of assignment?  But the only assignment in evidence is the 2009 Assignment which was expressly limited to the first 4 shipments and did not affect the 6^th to 12^th shipments under consideration. 

36. Given the reference to "CPDD 21st Jan, 2008", that document was likely to shed some light on the matter. In response to the court's question, Mr Carolyn explained that “CPDD” simply meant a charter party of that date. Upon reviewing the papers after the hearing, it became clear that the CPDD in question is that referred to as "COA 6" in § 30 of Mr Lu’s principal affirmation. By COA 6, Guofeng effectively 'sub-chartered' the Glory Wealth COA to Shagang.  Importantly, unlike the 2009 Assignment, COA 6 did not create direct contractual relations between Glory Wealth and Shagang.

37. The term 'relet' is also used in the fourth recital in relation to the first three years of the North China COA. The document specifically referred to was COA 1. When read in conjunction with COA 6, it is clear that COA 1 was the next link in the chain of charter parties, with Shagang 'sub-chartering' the Glory Wealth COA to Guofeng.  However, it did not create direct contractual relations between Shagang and North China.

38. As regards the operative provisions, the first imposed an obligation on Shagang to pay the freight differential by 2 installments each year, at the end of June and December. It replicates the terms of an email from Guofeng to Shagang of 17 April 2009. That would suggest (as indeed is Guofeng's case) that the Relet Agreement could not have been made on the date appearing on its face; rather, it could only have come into existence after the date of that e-mail. 

39. As regards the second operative provision, it is not entirely clear whether it merely authorized Shagang to sue North China on behalf of Guofeng or whether it imposed an obligation on Shagang to do so for any breach on North China's part.

The Agreement to Terminate and to Amend ("the Termination Agreement")

40. This is the last of the documents to consider in the series.  It is an agreement dated 27 October 2009 which was made between (1) Glory Wealth; (2) Guofeng; and (3) Shagang ("the October 2009 Agreement"). After reciting other charter parties between Glory Wealth and/or Guofeng and/or Shagang not presently relevant, the parties agreed, inter alia, that the Glory Wealth COA "be terminated and cancelled as from the date of this Agreement". 

41. I find the Termination Agreement rather baffling.  I would remark that had the Termination Agreement been carried into effect, the 6^th to 8^th shipments could not have occurred. 

42. Finally, it should be mentioned that as regards Mr Lu's observation in §43 of his principal affirmation that the dates shown on the Head Agreement and the Termination Agreement had been backdated, all I can say at this stage is that I have not been shown anything that would give credence to that assertion.

The ‘Relet’ Issue

43. The rival contentions turn on the question whether the effect of the Relet Agreement and the arrangements associated with it operated to release Guofeng from any liability under COA 1 such that Shagang’s only recourse in the event of a breach by China North would be against China North alone.  Mr Carolan submitted that the commercial reality to the Relet Agreement is that Shagang replaced Guofeng both as charterer from Glory Wealth and as owner under the North China COA.

44. Given the numerous charter parties that have been referred to, it would be useful at this stage to recap the charter party chain ending with the North China COA:

Charter Party	Date	Owner	Charterer
Glory Wealth COA	21.09.07	Glory Wealth	Guofeng
COA 6	21.01.08	Guofeng	Shagang
COA 1	20.05.08	Shagang	Guofeng
North China COA	20.05.08	Guofeng	North China

45. Several matters merit attention. First, all the COAs in question contain a provision prohibiting a party from assigning the COA without the prior written consent of the other party. Second, the provisions of the Glory Wealth COA, COAs 6 and 1 are mirror images of each other except as to the date of the instrument and the identity of the parties to it. Third, although performance under the COAs was not due until the first quarter of 2009, by 1 April 2009, North China was already in default under the North China COA. That appears from the face of the 2009 Assignment itself.  Fourth, no issue was taken as to COA 6 or the date it was made. Fifth, even proceeding on the basis that, for present purposes, COA 1 was a backdated document and was created at or after the end of April 2009, it is not obvious how the backdating had the effect of discharging Guofeng from its obligations under COA 1. As a result of COA 6, Guofeng needed to enter into COA 1 if it were to be in a position to perform its obligations under the North China COA commencing the first quarter of 2009. (There is no evidence of when the 5th shipment took place except that it seems that it did not happen during the first quarter because of North China's default.)

46. Had Shagang’s cross-claims against Guofeng arisen in respect of the first 4 shipments under COA, I would have had no hesitation in concluding that those cross-claims were neither genuine nor serious because the 2009 Assignment had the effect of creating direct contractual relations between Shagang and North China and discharging Guofeng from liability under COA 1 for those shipments. But the absence of evidence of an assignment by Guofeng of the remaining 8 shipments under the North China COA and, crucially, of North China's written consent (which was indispensable), must necessarily undermine Guofeng’s contention.  

47. Mr Carolan emphasised that the provisions in the Relet Agreement for payment of the freight differential and its actual payment by Shagang must not be overlooked, and that they strongly support the existence of an assignment.  The gist of his submission is that the payment arrangement for the freight differential did not make sense unless Guofeng had also assigned its rights and obligations in respect of the remaining 8 shipments to Shagang. But, in my view, the payment arrangement and actual payments of differential by Shagang are insufficient because absent any evidence of North China's consent to an 'assignment' of the remaining 8 shipments, there can be no direct contractual relations between Shagang and North China to render North China directly liable to Shagang.

48. Another relevant consideration is the identity of the party making payment to Shagang for the 5th to 8th shipments. Initially, in §73 of his principal affirmation, Mr Lu had admitted as due to Shagang the sum of $750,000 in respect of the 6th shipment. An amount corresponding to the amount of the loan was said to have been paid in respect of the 7th shipment by virtue of the Loan Agreement.  Thus it was implicitly accepted that Shagang was entitled to be paid $6.661 million for the 7th shipment. 

49. The absence of any logical basis for differentiating between liability for those two amounts and liability for the balance of the cross-claims under COA 1 was a matter that had not escaped Shagang's notice.

50. Belatedly, in his 2nd affirmation filed shortly before the hearing and only after Shagang had filed its written submissions, Mr Lu 'corrected’ what he had said earlier by explaining (in §§ 38-39 of his 2nd affirmation) that Guofeng’s admission of liability for the two sums was attributable to the fact that North China had "settled" those sums by making payment to Guofeng.

51. But the very fact that North China made those payments to Guofeng rather than Shagang must contradict and undermine Guofeng’s contentions regarding the existence of an assignment of the 5^th to 12^th shipments that is binding on North China.

Conclusion

52. Accordingly, I am of the view that Shagang has demonstrated that it has genuine, serious and substantial cross-claims under COA 1 against Guofeng that exceed the amount claimed by Guofeng in its statutory demand.

53. In view of that conclusion, it would follow that Shagang is entitled to the injunction it seeks. 

54. I now turn to address the Loan issue.

The Loan Issue

55. Simply put, the issue is whether the payment made by Guofeng under the Loan Agreement can be treated as a payment of the initial freight due for the 7^th shipment to Shagang. The starting point is the Loan Agreement, the English translation was in the following terms:

"Loan Agreement

Party A    Shagang Shipping Limited

Party B    Guofeng Enterprise Development Limited

After friendly negotiation, Party A and Party B reach the following agreement:

1  Party A agrees Party B temporarily not to pay the freight under the bill dated 8 October 2010 regarding MV Nian Feng Hai in the sum of US$6,661,946.57 to Party A.

2  Party A gets a loan of U$6,661,946.57 from Party B with a period of one month. Party B agrees to give a loan of U$6,661,946.57 to Party A with a period of one month and remits the money into party A's designed account (Beneficiary: SHUM MANFU) according to Party A's instruction.

3  After one month the period of loan is expired, Party A shall return Party B U$6,661,946.57. After receiving all the repayments from Party A, Party B shall pay the freight in the sum of U$6,661,946.57 to Party A as per the bill dated 8 October 2010 regarding MV Nian Feng Hai.

4  If Party A fails to repay the U$6,661,946.57 to Party B after one month the period of loan is expired, it should be deemed that Party B has paid the freight in the sum ofU$6,661,946.57 to Party A as per the bill dated 8 October 2010 regarding MV Nian Feng Hai.

Party A: Shagang Shipping Limited	Party B: Guofeng Enterprise Development Limited
(Signature)	(Signature)
18 October 2010	18 October 2010"

56. About four weeks later, on 15 November 2010, the parties executed a "Supplementary Agreement to Loan Agreement". This extended the loan period from one month to 30 June 2011 and added a provision to the effect that the loan from Party B to Party A and the freight to be paid by Party B to Party A "shall not incur interests".

57. For ease of reference, references hereafter to the Loan Agreement shall be read as references to that agreement as varied.

58. The names of the officers of Shagang and Guofeng who had put their signatures to the document are not apparent from the English translation. The Chinese originals reveal the signatures to be those of Mr Shum and Mr Lu respectively.

59. It will have become apparent from the background facts set out in §§3 to 5 above that at the time the Loan Agreement was made, Mr Shum and Mr Lu were Guofeng’s only directors while Mr Shum was also a director of Shagang, being one of eight directors.

60. The Loan Agreement is a remarkable document. Several highly unusual features stand out:

(1)  10 days prior to the date of the Loan Agreement Shagang had issued a debit note to Guofeng for the initial freight in respect of the 7th shipment which was payable immediately. Why then was it necessary for Shagang to 'borrow' that exact amount from Guofeng, initially, for only a month?

(2)  As no interest was payable for the loan or the unpaid freight, no commercial benefit accrued to either Guofeng or Shagang.

(3)  The loan was unusual in that it was for a very odd amount reflecting exactly the amount payable under the debit note.

(4)  The loan was not to be paid into Shagang’s bank account but into the personal account of one of its directors (Mr Shum).

(5)  The repayment arrangements are not only convoluted but devoid of commercial sense.

61. That the transaction is highly suspect is an understatement. Further, Mr Zhang (a director of Shagang) has produced a copy of a text message he had received from Mr Shum on 19 October 2011 to the effect that he (Mr Shum) had borrowed US $6,660,000 from Guofeng.  In that context, Mr Shum could only have meant a personal loan.

62. Shagang's stance is that the Loan Agreement was never authorised and is not binding on Shagang. Insofar as Mr Shum purported to act on Shagang's behalf, he did so without the board’s approval.

63. Shagang has commenced proceedings against Mr Shum in respect of the loan and against Guofeng for damages for dishonest assistance and/or conspiracy. This is an additional cross-claim against Guofeng.

64. In response, Guofeng relies on a debit note issued by Shagang and dated 29 December 2010 in respect of the 7th shipment.  The debit note contained an entry which read: "FRT. RECEIVED" against the initial freight amount.  That was said to constitute an express acknowledgment on the part of Shagang of receipt of the initial freight of $6.661 million.  This was said to provide a complete answer to the claim based on the Loan Agreement but it was made very late in the day.

65. Mr Zhang attempted to address this point in his 4th affirmation filed the day before the hearing. He explained Shagang's billing practice thus: Shagang would first issue an initial freight invoice specifying the total freight and seeking immediate payment of the initial freight which would normally be 90 to 95% of the freight. After completion of the voyage, the balance freight invoice would be issued and sums already invoiced in the initial freight invoice would be described as 'Freight Received' in the credit column. He explained that this did not mean that Shagang had been paid. Mr Zhang sought to illustrate this billing practice by citing several examples and he suggested the practice was common to both parties.

66. I do not propose to go into the details but Mr Carolan has criticised Mr Zhang’s examples. It may well be that they may not withstand scrutiny but it is not appropriate in these proceedings to determine whether the description "freight received" appearing in the balance invoice invariably meant that it had been received.

67. What is clear from what I have been shown is that, in respect of each shipment, it appears to be the practice for Shagang to issue an invoice which bears the legend 'INITIAL FREIGHT' after loading and to issue another invoice several months later which would bear the legend 'BAL FREIGHT' for the balance freight after the arrival of the shipment. Accordingly, the invoice on which Guofeng relies ought to be a balance freight invoice. However, I note that the legend it bears reads 'INITIAL FREIGHT' and not 'BAL FREIGHT'.

68. I am conscious that the acknowledgment point was advanced very late in the day and Shagang may not have had a fair chance to respond to it.  Although the point had been made in Guofeng’s defence to Shagang's claim for damages against Guofeng for dishonest assistance and conspiracy, if Mr Lu himself did not appreciate it until very recently, I think it would be unfair to criticize Shagang for not appreciating the point much earlier.

69. In all the circumstances, I am satisfied that Shagang’s cross-claim for payment of the amount of the loan is genuine, serious and substantial.

Order

70. I will grant the relief sought in the originating summons. There is to be an order nisi of costs in favour of Shagang. I direct that agreed minutes of order be submitted for approval.