CHUNG KHIAW BANK LIMITED v. WONG OI MING AND ANOTHER

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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JUDGMENT

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1. The 1st defendant in this case is the owner of a flat on the 1st floor at 93 Waterloo Road. The 2nd defendant is the proprietor of a trading company called Superb Corporation. In July 1981 they both became customers of the plaintiff bank. They apparently transferred from another bank because the plaintiff bank was offering better terms. There were three features to the facilities which the plaintiff bank was offering in return for a mortgage of the 1st defendant's flat. The first was an overdraft limit of HK$200,000. Secondly there was a fixed loan of $1 M. repayable over a period of three years. Thirdly there was a limit of $500,000 for establishing documentary Letters of Credit, but a lesser limit of $200,000 for what were called "trust receipts within the L/C line". As a result of that, overdraft facilities were in fact extended. The fixed loan of $1 M. was in fact made, and various facilities, which I will be coming to in a moment, were offered by way of Letters of Credits and trust receipts. Affairs did not go well, and by the middle of 1983, no further monies were being advanced by the plaintiff bank to these defendants. Letters of Demand were addressed to them both in September 1983 and these proceedings followed.

2. On the figures proved to my satisfaction in the course of this hearing, over $2 M. is now owing on these various facilities. The sums outstanding by way of principal and interest up to the first day of the hearing are as follows:

This is substantially over $2 M. Those figures the defendants have not been able seriously to dispute.

3. The issue before me which has taken up most time at the trial is the defendants counterclaim. Here the defendants are making a single specific allegation. It is that the bank failed to amend the address on a Letter of Credit the bank had issued, notwithstanding the defendant's repeated requests for them to do so. As soon as the defendants started to give evidence in this case, they started to advance a much wider and more general allegation. This was of a failure by the bank to live up to the facilities set out in the letter of 9th July 1981. There was no suggestion of this in the defence. It was never advanced at all before the opening day of this hearing when the defendants were both represented by solicitors and counsel. It would demand precise formulation to see exactly what it was the defendants say they were asking the bank to do, and in what terms and in what circumstances. There had been no such formulation of any sort. In my judgment it is much too late to raise allegations as broad and general as that in the context of this case.

4. So I come back to the specific complaint pleaded. On the 24th May 1982, the 2nd defendant signed an application form for Letter of Credit in which the plaintiff bank was asked to open in favour of a company called Good Sight Trading Co. Ltd. Their address was given as c/o Hua Nan Commercial Bank Limited, Ho Ping East Road Branch, Taipei, Taiwan. The Bank was asked to advise the beneficiary through the Bank of Taiwan. The Letter of Credit requested was in the sum of HK$100,000, with a special condition, described as a red clause, entitling the beneficiary to draw $70,000 in advance. The Letter of Credit sets out the required documentation and was stated to expire on 24th November 1982.

5. Pursuant to this request, on 11th June the plaintiff bank opened a Letter of Credit in those precise terms, and despatched it to the Bank of Taiwan Foreign Department, Service Division, at a Post Office Box number in Taipei. The chop on the original Letter, which eventually came back to Hong Kong, shows that the Bank of Taiwan, Foreign Department received the letter on 19th June 1982. The original Letter is also chopped with the name of Hua Nan Bank Foreign Department, Service Division. That description appears there over two dates, 23rd June and 4th August. That to my mind strongly suggests first that the Bank of Taiwan submitted this document to their opposite numbers of Foreign Department of the Hua Nan Commercial Bank. One would therefore have expected that bank to have brought the letter to the notice of Good Sight Limited if Good Sight Limited had an account at any of its branches. Secondly, this chop shows that the document went to that bank on two separate occasions.

6. The next thing that happened on the documents is that on 11th August 1982 the Bank of Taiwan addressed a letter to the Hong Kong branch of the plaintiff bank. They head the letter with their reference to this particular Letter of Credit, and say that they had "no beneficiary address". The receipt chops on that document show that it was received at the Hong Kong branch on August 19th, and at the relevant Kowloon branch where the defendant's account was held on 20th August. One of the bank's servants, a Mr Wong, says that he spoke to the 2nd defendant on the phone about this and told him of the nature of the advice that they had received from Taiwan. On the next day, Mr Leung, who is the person in charge of these matters at this particular branch, wrote to the Manager of the Bank of Taiwan and asked them to return the Letter of Credit to them in Hong Kong. Both gentlemen claimed that that was done on the instructions of the 2nd defendant given orally on the telephone to Mr Wong.

7. On 31st August 1982 the Bank of Taiwan wrote again to Hong Kong branch of the plaintiff bank. The probabilities are that the letter was sent by messenger because it was stamped as being received by that branch on 2nd September. The original Letter of Credit was returned to the bank with that letter. Mr Wong said he had a further telephone conversation with the defendant about that. I am satisfied that on 2nd September Mr Leung wrote the letter at page 24 of the unagreed bundle which letter informed the defendant that the Letter of Credit had been returned. This letter was in fact posted on the following day, the 3rd.

8. All these events are disputed by the defendants. But there is no dispute that some time shortly after that, they both attended the Kowloon branch of this bank. Then, they say, they learned for the first time from the Manager that the Letter of Credit had been returned, because it could not be served upon the beneficiary named in it. The 1st defendant in the course of what she told me in the witness box, said that part of her reaction when she heard this, was to check the reason why it could not be served. She was apparently quite unaware that there was any difficulty about the address of this beneficiary. She then went on to speak not of giving any instructions to amend the address on that Letter of Credit, but to talk about requests for further Letters of Credit. The 2nd defendant on the other hand was suggesting at various stages in the course of his evidence that he then gave instructions to Mr Lee to amend the address upon that Letter of Credit.

9. Central to this case therefore is the question whose evidence I prefer, namely that of the three bank officials who gave evidence or that of the two defendants. I have had no difficulty at all in reaching the conclusion, that I accept the evidence which has been given on behalf of the bank.

10. The first reason for that is that on the facts pleaded, the defendant's case is in ruins. The allegation about altering the date on this Letter of Credit was first most clearly formulated on affirmation. Two relevant affirmations were made by the 2nd defendant. The first was on 29th September 1984 and the second on 21st November of the same year. In the affirmation of 21st November, paragraph 5, he gives a detailed account of the circumstances in which he discovered the problem about the Good Sight's address and the circumstances in which he gave the instructions to Mr Lee, the Bank Manager. He discovered the problem about the address he says, on a visit to Taiwan at about the end of June 1982. Mr Chan Mo Tung, the Manager of the Hua Nan Commercial Bank, he says, told him to change the correspondence address to c/o that bank's head office. He goes on to say he told the Manager this and to alter the address accordingly. That was on the occasion when the Manager Mr Lee visited Taipei at the end of June 1982. Mr Lee, he says, promised to do that on his return to Hong Kong.

11. This factual allegation is repeated in paragraph 10 of the defence. This says that by the end of June of 1982, (I emphasise that date for what I say in a moment), the 2nd defendant did not receive shipment of the said tangerines and water melons from Good Sight. The 2nd defendant therefore took a trip to Taiwan by the end of June of 1982, when it was reviewed (that must mean revealed to him) that Good Sight's address had in fact been changed as its then office building had been demolished. It now transpires that Good Sight had no office building, and what is said to have been demolished is the branch of the Hua Nan Bank. Upon return to Hong Kong in early July 1982 (not be it noted in Taiwan) the 2nd defendant instructed the plaintiff to amend the address of the beneficiary to an address given which is the Head Office of Hua Nan Commercial Bank.

12. It is now common ground that neither the 2nd defendant nor Mr Lee went to Taiwan in 1982. What happened apparently was that they were both there in June 1983. The 2nd defendant now insists that exactly the same thing happened in 1983. It was then he had got this advice from Mr Chan. It was then that he was advised to change the address from the original branch address to Head Office. From which it follows, if that the true, that he did not know the correct address until then. By then, be it noted, the original Letter of Credit had not simply been cancelled, it had been cancelled, as I find, to his knowledge. It would in any event long since have expired.

13. It follows from this that the case pleaded simply disappears. What is sought to be substituted, namely that all this happened the following year, makes absolute nonsense. The substituted case reveals that the events described could not have happened in 1982, because the defendants did not then have the right address. That short ground would be sufficient to dismiss this counterclaim. But the matter does not in fact end there.

14. There has been produced in evidence a contract of purchase said to have been entered into between the 2nd defendant and Good Sight on 1st July 1982. I am not satisfied that any such contract was ever made. I regret to say having listened to the 2nd defendant in the witness box over some period of time, that I would not be prepared to act upon his evidence alone on any material particular when it was not corroborated. The alleged contract with Good Sight was originally put, in the affirmation of September 1984, as having been made at the end of April 1982. This was consistent with the 2nd defendant's concern when he had not received shipment by the end of June. That concern is inconsistent with a contract dated the 1st July. This document is said to have been posted to Taiwan by registered post to the home address of a gentleman by the name of Ko. In the summer of 1982, Mr Ko being said to be the responsible officer of Good Sight. There was no acknowledgement, nothing in writing at all to suggest that the document had been received, acknowledged, signed or accepted. That all happened, it was said, in the course of a long distance phone call. The document was not retrieved by the 2nd defendant until he visited Taiwan in January 1983. This is a fairly remarkable circumstance because the contract by that time had nearly expired. It was expressed to operate from the 1st July to 31st March. It covered water melons for the summer season of 1982 which was long since over. It covered tangerines for the winter season, which by the time the 2nd defendant returned to Hong Kong at the end of January had about two months to run.

15. I find it unbelievable in those circumstances, that Good Sight had not been in touch with this defendant, if this is a genuine transaction, long before. Then in September 1984 the contract is put, as I said, in April. When that was challenged in evidence, this document was produced and exhibited for the first time to the November affirmation. The explanation in the affirmation is that it had not been available in September. In the witness box Mr Chang was quite firm, that he always knew exactly where it was, and he had only to empty out his bag to produce it. He was very reluctant to answer questions about the document. He himself surprisingly volunteered the remark: why should I forge a document. It is not necessary for me to make any specific finding, beyond saying I am not satisfied that any contract was made between this defendant and Good Sight.

16. Next, in order to export any fruit from Taiwan, the exporter required quota. I am not going to go through all the evidence. It is sufficient to say that the 2nd defendant contradicted himself innumerable times with respect to quota. Most significantly the $70,000 in the Letter of Credit was apparently intended for the purchase of quota, and in the circumstances was never available for that purpose. I, therefore, am not satisfied that the defendant or Good Sight ever had quota available to enable this export to take place from Taiwan.

17. Finally, it has been at the heart of the 2nd defendant's case that this Letter of Credit would have had a revolving effect. I quote from paragraph 10 of the September affirmation: "Despite its face value of HK$100,000, it would in fact cover the whole contract price of the tangerines and water melons as my business had ordered from Good Sight". That whole contract price was $5.9M. Ultimately the 2nd defendant sought to maintain this by asserting that only in respect of the last shipment of fruit would any drawing be made on this Letter of Credit. It seems to me this contention is quite impossible, indeed pure fantasy.

18. In my judgment therefore there is no substance at all in this counterclaim which must be dismissed. It follows that there must be judgment for the plaintiff in the sum of $2,098,753.95. It is indisputable in the events that have happened that the plaintiff is entitled to an order for possession of the mortgaged property, in the terms of paragraph c of the prayer to the statement of claim.