TOYOTA TSUSHO (H.K.) CORPORATION LTD v. CHIMEI INNOLUX CORPORATION AND ANOTHER

HCA 1173/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1173 OF 2011

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JUDGMENT

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Introduction

1.  Toyota Tsusho (H.K.) Corporation Limited (“Toyota HK”) brought this action to claim against Chimei Innolux Corporation (“CIC”) and/or Kirin Industrial Shares Co. fLimited (“Kirin”) for a sum of US$2,499,317.00 (“the Sum”) being the purchase price it paid to CIC in respect of 170,000 units of TFT-LCD panels (“the Contracted Goods”) pursuant to a purported contract (“the Purported Contract”). Toyota HK has received none of the Contracted Goods despite its payment of the Sum by a letter of credit numbered IL/C-768-011226 (“the Subject L/C”). 

2.  The pleaded case of Toyota HK is that the Purported Contract was contained in or evidenced by a written contract dated 26 August 2010[1] (“the Controversial Contract”), an invoice[2] dated 26 December 2010 (“the Controversial Invoice”) and 2 commercial invoices[3] dated 29 December 2010 (“the Commercial Invoices”) (collectively “the Purported Contractual Documents”).

3.  Toyota HK bases its claim on the alleged repudiation of the Purported Contract on the part of CIC and in the alternative, total failure of consideration, fraud, fraudulent misrepresentation, mistake and money had and received. The gravamen of the complaint of Toyota HK is that CIC should not be entitled to the Sum by presenting the Subject L/C without its actual delivery of the Contracted Goods or even any intention to do so contrary to the contents of the cargo receipt which Toyota HK issued to CIC as one of the conforming documents (“the Cargo Receipt”). Its case is that CIC merely procured the Cargo Receipt to it by its fraudulent misrepresentation made to Toyota HK that the Contracted Goods had actually been delivered.

4.  The Defence of CIC reveals a very different story. First and foremost, CIC denies the existence of the Purported Contract or any contractual relationship with Toyota HK though CIC agrees that it has received the Sum under the Subject L/C on or about 1 February 2011. It also agrees that it delivered none of the Contracted Goods to Toyota HK and/or its designated agent.

5.  In simple terms, the case of CIC is that CIC was entitled to the Sum paid by Toyota HK for its supply to Kirin Industrial Shares Co. Limited (“Kirin”), the 2^nd defendant herein 570,000 pieces of open cells (“the Kirin Goods”) pursuant to a written sales agreement (“the 2^nd Kirin Agreement”). CIC contends that Kirin might fraudulently cause Toyota HK to pay CIC in settlement of the purchase price under the 2^nd Kirin Agreement so that it could take delivery of the Kirin Goods on or about 6 January 2011. Therefore, by delivering the Kirin Goods in good faith, it has changed its position rendering it inequitable to allow any restitionary claim of Toyoya HK against it.

6.  CIC accepts that Toyota HK was very likely victimized by a fraud but it played no part in it and had no prior knowledge of the same. It claims that Kirin defrauded Toyota HK by the use of forged documents including the Controversial Contract and the Controversial Invoices so that it made payment to CIC to pay for the Kirin Goods under the misapprehension that the Sum was paid under the Purported Contract, which was in fact not in existence.

7.  Kirin has never put in any appearance in these proceedings and does not assist this court with any of its explanation notwithstanding all the serious allegations against it.

8.  Essentially this is a fact-finding exercise involving several parties. In its own case, Toyota HK did not directly deal with CIC and all the transactions between them, real or bogus, were concluded through certain intermediaries before the payment of the Sum save the issue of the Cargo Receipt. Indeed the intricacy of this matter is compounded by the non-availability of the live evidence of several other key players. Nevertheless, this court is assisted by a number of contemporaneous documents albeit some of them are alleged to be forgeries.

9.  To assess the validity of the claim of Toyota HK, in the first place, this court has to make factual findings as to the whole circumstances leading to the issue of all the conforming documents relating to the Subject L/C and the receipt of the Sum by CIC so as to find out as a matter of law CIC is entitled to retain the same against the restitutionary claim of Toyota HK.

10.  Next, I shall go on to determine the authenticity issue relating to all the key documents which Toyota HK acted upon resulting in the issue of the Subject L/C in light of expert evidence on top of the evidence of the alleged creators of such documents. Lastly, I shall render my legal analysis of the factual findings to ascertain the respective legal positions of the parties.

A brief introduction of the relevant parties

11.  The following descriptions of the parties involved are not in dispute and their information can mostly be gleaned from uncontroversial documents.

12.  Toyota HK is a locally incorporated company and is a subsidiary of a Japanese corporation known as Toyota Tsusho Corporation (“Toyota Japan”).

13.  Toyota Japan has a worldwide business network (“Toyota Group”). It has subsidiaries or associated companies in a lot of major cities in the world including New York and London. One of these companies is Toyota Tsusho (Shanghai) Co. Ltd (“Toyota Shanghai”). Mr Chen Zhen Yu (“Chen”) is the deputy manager of Toyota Shanghai in charge of the trading activities relating to PVC products.

14.  It is the ordinary business of Toyota HK to purchase goods from suppliers with a view to a resale to its customers in both Hong Kong and overseas. Such suppliers and customers include the affiliated companies within the Toyota Group.

15.  CIC is a publicly listed company in Taiwan. It was formed by the merger of three companies and Innolux Display Corporation (“Innolux”) was one of those companies. CIC carries on its business of designing, manufacturing and selling liquid crystal displays commonly known as L/CDs for various applications worldwide. It is a substantial commercial undertaking with 120,000 employees all over the world and its sales revenue was about US$16 billion in 2011.

16.  CIC has at least two manufacture plants in the Mainland. One is known as South Site and the other one is known as North Site. Both sites were involved in the manufacture of the Kirin Goods.

17.  Mr Fred Tsai (“Fred”) was one of the sales representatives of CIC in Taiwan and he left the employment on 21 August 2012. He is heavily involved in this dispute and he is alleged to have signed certain controversial documents on behalf of CIC. He attended the trial to testify for CIC.  Albert Chou, Head of the Sales Department of CIC to whom Fred had to report, was involved in the material transactions with Kirin.

18.  I should mention four more staff members of CIC here, all of whom were involved in the making of the Letter of Credit by Toyota HK. Ms Ashiun Cheng (“Ashiun”), Carolyn Yang (“Carolyn”) and Berly Wang (“Berly”) work in the Finance Department of CIC and they, in particular, Cheng, handled the financial side of the material transaction including the finalization of the terms of the Subject L/C. Michael Chan was the superior of Fred and oversaw the material transaction. Only Ashiun testified for CIC.

19.  Kirin is a local company incorporated in 2007 and it deals in L/CDs and other related products. From the Annual Returns of Kirin, it can be seen that its founding shareholders and first directors were Chen Lin and Chu Min Hsi who is also known as “Tiger”. Ms Tina Cheung (“Tina”) was the secretary of Tiger. Another staff of Kirin was a lady called Lulu. She liaised with Fred on behalf of Kirin. It is remarkable that in her emails to Fred, it can be seen that she had two email addresses, namely, licrystal_zjb@liview.net and kirin_cw@kirin.hk. Tiger was known to be in charge of Licrystal Electron Technology (HK) Service Co. Ltd (“Licrystal”).

20.  In November 2010, Most Ocean Investments Ltd (“Most Ocean”), a BVI company, replaced Chen Lin as one of the two directors of Kirin and one Ms Chow Kei also known as Rebecca (“Rebecca”) signed the written consent to act as director of Most Ocean.

21.  In November 2011, Most Ocean resigned as a director of Kirin. In the same year, all the shareholdings were transferred to one Mr Chiang Nien Shu and he has become the sole shareholder and director of Kirin.

22.  Though not being parties to these proceedings, Shanghai Tongque Electronics Co Ltd (“Shanghai TQ”) and Hong Kong Tongque Industrial Co., Limited (“HKTQ”) play an integral part in this dispute.

23.  Shanghai TQ was incorporated in or about March 2004. Rebecca and Chen Lin (“CL”) were its founding shareholders. Each of them injected RMB500,000 as registered capital.

24.  Shanghai TQ is the parent company of HKTQ. HKTQ was incorporated in or about 2005. Rebecca, Chen Lin and one Mr Qiu were the founding shareholders. All of them transferred all their shares in HKTQ to Most Ocean in or about August 2010. As shown by the latest company records filed with the Companies Registry, Rebecca and CL remain to be the directors of HKTQ.

25.  Toyota Shanghai started its business relationship with Shanghai TQ in 2004. In 2009, Chen through the introduction of Rebecca came to know Tiger. Chen and Rebecca had an inspection of the factory of Innolux in Shenzhen through the arrangement of Tiger. Thereafter, Toyota Shanghai started purchasing L/CDs from Innolux for its subsale to Shanghai TQ or its end buyers.

 Toyota HK’s case

26.  By way of background, I should first start with the long-standing tripartite trade arrangement involving the Toyota Group, HKTQ/Shanghai TQ and their end purchasers. The Toyota Group agreed to finance the purchase of products by HKTQ/ Shanghai TQ with a view to a resale to their end purchasers. The arrangement was that the Toyota Group would enter into a sale contract with the end suppliers of HKTQ/ Shanghai TQ to purchase products for the purpose of HKTQ/ Shanghai TQ. Then the Toyota Group would enter another sale contract with HKTQ/ Shanghai TQ to sell the products so that the latter could sell the products to its end purchasers.

27.  In the process, the Toyota Group was not actually concerned about the products and the identity of the end suppliers and end purchasers. Nor did they concern the price so long as their price under their sale contracts with HKTQ/Shanghai TQ had been adequately marked up than that under their sale contracts with the end suppliers.

28.  In effect, the Toyota Group acted as the financier of HKTQ/ Shanghai TQ in their trade. They merely financed the trade of HKTQ/ Shanghai TQ and did not independently trade in the products. They did not source their own suppliers and choose their own purchasers. That said, every contracts concluded in the transactions is valid and legally binding on the parties privy to the same.

29.  Toyota HK provided an example of such a tripartite trade arrangement with documentary proof. First, Toyota Shanghai signed a contract with Innolux dated 25 February 2010 for the purchase of 15000 pieces of L/CDs at the unit price of US$ 51.50. On 2 June 2010, Innolux issued an invoice to Toyota Shanghai for 2000 pieces of L/CDs sold at the same unit price. On 14 June 2010, Toyota Shanghai subsold the 2000 pieces of L/CDs to HKTQ at the unit price of US$ 52. On 1 July 2010, Toyota Shanghai issued an invoice to HKTQ for the said subsale. On 6 July 2010, HKTQ paid Toyota Shanghai the amount in the invoice and completed the transaction. Toyota Shanghai did not really trade in the L/CDs and it merely financed the acquisition of such products by HKTQ for its subsale to its end purchasers.  

30.  Returning to the subject transaction, it is largely evidenced by a large number of emails involving several parties. At my request, the solicitors for Toyota HK have compiled two bundles of such emails in a chronological order.  Such emails speak for themselves. As mentioned, Toyota HK and CIC did not deal with each other directly until the issue of the Cargo Receipt. There are emails exchanged between other parties such as Kirin, Shanghai TQ, HKTQ and Toyota Shanghai. Toyota HK disclosed those of them to which CIC is not privy.

31.  With reference to such emails, Toyota HK says that the Purported Contract came into existence and it performed the same in the following manner.

32.  The first relevant email was sent by Chen to Lily Liu (“LL”) of Shanghai TQ on 30 November 2010 at 1032 hours. Chen asked LL to send him a copy of the contract and the proforma invoice of CIC.

33.  At 1657 hours on the same day, LL emailed to Chen a copy of a contract between CIC and Toyota HK dated 27 November 2010 (“the 1^st Contract”). The 1^st Contract was written in the Chinese language and was purportedly signed by “Fred 11/29” of CIC. No details of the goods sold thereunder was given save that it was stated to be LCD panels and the total contractual price was US$2 million.

34.  On 1 December 2010, at 1016 hours Ms Fang Fang (“FF”) of Toyota Shanghai forwarded a copy of the 1^st Contract to Lesley Yip (“Lesley”) who was a clerk of Toyota HK and asked her whether she could issue a letter of credit in accordance with the terms of the 1^st Contract.

35.  At 1320 hours, LL sent Chen and FF a copy of subsale contract between HKTQ and Toyota Shanghai in respect of the same goods sold under the 1^st Contract at the price of US$2,0300,000. LL explained that this contract related to the letter of credit to be issued to CIC.

36.  At 1400 hours, Lesley replied to FF and asked for a complete set of sales documents including a copy of the purchase order issued by Toyota Shanghai and the invoice of CIC containing all its bank information. She pointed out that CIC was a new company and thus she required more information of CIC such as its banking information and business registration documents for the purpose of opening a letter of credit pursuant to FF’s request.

37.  At 1701 hours, LL emailed to Chen a copy of a purported proforma invoice of CIC issued to Toyota HK dated 29 November 2010 (“the 1^st Disputed Proforma Invoice”). Both the quantity and the unit price of TFT-L/CDs to be supplied thereunder were specified to be not yet determined. It was signed by “Fred 12/1” with its bank information of its account in Taiwan. I note that there are two amounts stated in the 1^st Disputed Proforma Invoice. One is US$ 2million and the other is RMB 2 million.

38.  At 1711 hours, FF sent to Lesley an email enclosing some documents for the purpose of a letter of credit. They included a copy of a sales contract between Toyota HK and Toyota Shanghai and a copy of the 1^st Disputed Proforma Invoice. It provided that all the details of the specifications, quality, quantities and unit price of the LCDpanels to be covered thereunder were to be determined later.  In the email, FF asked Lesley whether Toyota HK could issue a letter of credit in the sum of US$ 2 million in accordance with the 1^st Contract.

39.  Shortly afterwards, Toyota Shanghai received from LL a draft contract between it and HKTQ modeling on the said contract in the same amount of US$ 2 million. The draft contract was described as subsale contract and was signed by Shanghai TQ (“the Subsale Contract”).

40.  Lesley on the same date sent to FF an email requesting for all the missing details of the 1^st Disputed Proforma Invoice and the Subsale Contract.

41.  On 2 December 2010, at 1635 hours, FF sent an email to Lesley stating that a letter of credit was to be issued despite the fact that only the amount was known. All other relevant details could not be confirmed at the moment save that it was known that the delivery port was Shenzhen and the currency of the amount stated in the 1^st Disputed Proforma Invoice should be US dollars rather than RMB.

42.  In fact, in the morning of the same day, Ms Lee of Kirin sent an email to Fred of CIC asking for the company information of CIC. There was no mention about any particular invoice or transaction. She merely said that the company information was required urgently for Toyota HK / Toyota Shanghai to issue a letter of credit.

43.  On 3 December 2010, at 0922 hours, Lesley emailed FF to reiterate that, as confirmed by its Finance Department, without any information about the quantity and the unit price, no letter of credit could be issued.

44.  On 6 December 2010, at 1844 hours. LL emailed to Chen a copy of the revised Subsale Contract, the revised 1^st Contract  (“the 2^nd Contract”) and the revised 1^st Disputed Proforma Invoice (“the 2^nd Disputed Proforma Invoice”). For the 2^nd Contract, it differs from the 1^st Contract in that the details of the goods sold thereunder were specified, namely, 100,000 pieces of LCD panels at a unit price of US$20. It bore the same date, i.e. 27 November 2010 but a different purported signature of Fred was appended thereon beside a handwritten date of 12/6.

45.  Likewise, in the 2^nd Disputed Proforma Invoice, the quantity and unit price of LCD panels to be sold thereunder were specified. The date remained to be 29 November 2010 and again a different purported signature of Fred was appended thereon beside a handwritten date of 12/6.

46.  On 7 December 2010, at 11:31 a.m., FF sent to Lesley an email enclosing a copy of the 2^nd Contract and a sales contract between Toyota Shanghai and Toyota HK.

47.  As regards the latter, it is a sales contract between Toyota Shanghai as buyer and Toyota HK as seller dated 1 December 20110 covering the same quantity of LCD panels at US$20.07087 each. The total amount involved is US$2,007,087.00.  The destination of the goods was stated to be Shenzhen.

48.  It follows that if both this contract and the 2^nd Contract had been performed, Toyota HK could have made a profit of US$7,087.00 by issuing a letter of credit in the amount of US$2 million in favour of CIC without actually dealing with the goods itself.

49.  On 8 December 2010, at 1449 hours, FF sent an email to LL (“the 1449 Email”) to ask her to correct the name of Toyota HK in the 2^nd Contract and change the contract sum to US$3 million and the unit price to US$30 with 100,000 pieces.

50.  On the same day, at 1749 hours (“the 1749 Email”), LL sent to FF a revised version of the 2^nd Contract between CIC and Toyota HK as per the request of FF (“the 3^rd Contract”). It purportedly bore the signature of Fred with a handwritten date of 12/8 on the side. Chen and Rebecca also received a copy of this email. By the same email, LL also sent a copy of sales contract between Toyota Shanghai and HKTQ with the purchase price marked up to US$3,045,000 and a proforma invoice purportedly issued by CIC to Toyota HK dated 29 November 2010 for 100,000 pieces of TFT-L/CDs at a unit price of US$30. The latter bore a signature of Fred purportedly beside a handwritten date of 12/8 again (“the 3^rd Disputed Proforma Invoice”).

51.  On 10 December 2010, at 1250 hours, LL emailed to Chen, FF and Rebecca a draft letter of credit and asked for confirmation. At 1745 hour FF replied to Lesley that the amount of the draft letter of credit should be amended to US$3 million and that the name of the seller had been amended. This email was enclosed with a copy of the 3^rd Contract and the 3^rd Disputed Pro-forma Invoice and LL asked Lesley to change the terms of the draft letter of credit accordingly.

52.  On 13 December 2010, FF resent the said email to Lesley for her reconfirmation.

53.  In the morning of 15 December 2010, FF emailed Lesley to follow up on the issue of the letter of credit. In the afternoon, Lesley emailed FF a copy of the Subject L/C in favour of CIC in the amount of US$3 million.

54.  At 1431 hours of 16 December 2010, FF received an email from LL asking for an amendment to Clause 46A of the Subject L/C as proposed by CIC. FF then at 1519 hours forwarded the requested amendment to Lesley for her action.

55.  On 17 December 2010, there were a few emails created. First, Lesley sent an email to FF suggesting an amendment in respect of Clause 46A of the Subject L/C. FF then forwarded the suggestion to LL. LL in turn related the suggestion to Tina. Somehow Ashiun managed to receive the suggestion and asked Fred for his confirmation. On the other hand, in another email on the same day, Ashiun advised Fred that there should be three further amendments to be made to the Subject L/C. Shortly afterwards, LL forwarded the advice of AC to FF as suggestions given by CIC. FF then forwarded the same to Lesley.

56.  On 20 December 2010, Lesley emailed an amended version of the Subject L/C to FF in accordance with the suggestions.

57.  Lastly, on 21 December 2010 at 1044 hours, Fred, as advised by Ashiun, sent an email to Ms Lee of Kirin and requested for two further amendments. One of the proposed amendments was that CIC wanted to add Ningbo on top of Taiwan as the port of loading. At 1313 hours on the same day, LL sent to FF an email making the same request. At 1340 hours, FF forwarded the same request to Lesley by email.  This chain of emails show how messages of CIC reached Toyoto HK.   

58.  On 24 December 2010, Lesley emailed to FF a copy of the revised version of the Subject L/C in accordance with the requested amendments. The email was also enclosed with an invoice purportedly issued by CIC to Toyota HK (correctly described) dated 26 December 2010 apparently bearing the chop of CIC. It should be noted that CIC denied having ever issued this invoice. 

59.  On 4 January 2011, Chen (and also Rebecca and LL) received an email from Tina. She informed them of the three proposed amendments of CIC to be made to the Subject L/C (collectively “the Last Amendments”). First, CIC wanted to delete the unit price of US$30.00. Second, CIC wanted to amend the quantity of the goods to be 170,000 pieces and finally they wished to insert a clause in the following terms: “more or less 10% in quantity is acceptable, but within the L/C amount” to Clause 47A (“the Clause”).  

60.  A copy of a cargo receipt dated 27 January 2010 was attached to the said email. It referred to the Subject L/C. The cargo receipt was purportedly issued by Toyota HK and the shipper was stated to CIC. It related to 170,000 pieces of LCD panels and made reference to the Commercial Invoices. It also contained the Clause.

61.  On the other hand, there is another document expressed to be a purchase order attaching to the said email issued by Shenzhen Sungworld Electronics Co. Ltd (“Sungworld”) to Shanghai TQ (“Sungworld PO”). It is a very bad copy and mostly illegible. It involved a total price of $1,054,000 and 34,000 pieces of a product with a unit price of US$ 31.

62.  Chen then forwarded the said email to Lesley and asked her to make the Last Amendments accordingly.

63.  On 5 January 2011, Lesley emailed Chen and FF to raise queries about the unit price and the quantity of the goods in the Subject L/C. She further asked for the amended contract and proforma invoice in light of the changes.

64.  At 1551 hours on the same day, Tiger emailed to Rebecca an unsigned copy of an invoice dated 26 December 2010 bearing the same numbers of the Commercial Invoices (but with a different date) and a contract dated 26 August 2010 between CIC and Toyota Shanghai written in English. Both documents were purportedly issued by CIC as seller and Toyota Shanghai as purchaser covering the sale of 170,000 pieces of LCD panels in the total amount of US$  3 million.

65.  At 1600 hours, Rebecca emailed Tiger and told him that the purchaser should be changed to Toyota HK.  She also asked for a scan of a stamp.

66.  Acting promptly, on 6 January 2011 at 1336 hours, Tiger sent an email to Rebecca enclosing a copy of the two documents revised as per the advice of Rebecca (“the Two Documents”). One was a contract purportedly issued by CIC for the sale of 170,000 pieces of LCD panels to Toyota HK dated 26 August 2010. The other one was an invoice issued by CIC for the purpose of the said contract dated 26 December 2010. Both of them purportedly bore the chop of CIC.  However in both of the Two Documents, Toyota HK was wrongly described as Toyota TsuSho (H.K.) Co. Ltd..

67.  On 7 January 2011, Rebecca emailed the Two Documents to Chen and asked that the letter of credit should be issued as soon as possible. Chen then forwarded the Two Documents to Lesley for her corresponding amendments to the letter of credit. In passing, it is noted that in the same email, Chen talked about another letter of credit to be issued by Lesley after the amendment made to the contract between Toyota Shanghai and Toyota HK in a separate transaction.

68.  Lesley soon replied to Chen and pointed out that the name of Toyota HK was wrongly printed in both of the Two Documents. She also asked for the contract between Toyota HK and Toyota Shanghai.

69.  Apparently Chen reverted to LL and at 1212 hours on the same day, LL sent to Chen and Rebecca an attachment and told them that the name of Toyota HK had been corrected.

70.  In the early afternoon of the same day, Chen emailed the corrected versions of the Two Documents to Lesley and they eventually became the Controversial Contract and the Controversial Invoice and their authenticity is in hot dispute.

71.  In the same email, Chen told Lesley that FF would send her the sale contract between Toyota HK and Toyota Shanghai later. Before long, FF did so and the unit price was stated to be US$ 17.71 giving rise to a profit margin of US$10,700.

72.  On 25 January 2011, FF emailed to Lesley a cargo receipt. It was dated 27 January 2010 and it referred to the Subject L/C. It was to be issued by Toyota HK and FF requested for the said cargo receipt to be signed for the amount of US$339,416 first for her client’s collection on the following day. The quantity of the LCD panels was not specified in the said cargo receipt.     

73.  On 31 January 2011, according to Chen, Rebecca told him that Shanghai TQ would not take delivery of the goods due to their defective quality. At 1651 hours, Chen emailed Lesley and told her not to sign the said cargo receipt.

74.  On the other hand, on the same day at 1836 hours, Fred sent to Lesley an email with a different cargo receipt attached. It turned out to be the Cargo Receipt. He asked her to sign and deliver the document to one Ms Fong at a particular address in Shatin and impressed that it had to be done within that evening. That Cargo Receipt was dated 29 December 2010 and it referred expressly to the Commercial Invoices. Lesley promptly replied that the signed Cargo Receipt would be delivered to Ms Fong at another place to be agreed with her instead of Shatin.

75.  Pursuant to the request, Lesley asked Mr Toshisugu Fujii, General Manager of Toyota HK, to issue the Cargo Receipt to CIC immediately. He signed the Cargo Receipt accordingly and caused the same to be delivered to Ms Fong at about 2000 hours outside a cinema at Ma On Shan.  It is remarkable that prior to the delivery of the Caro Receipt, neither Lesley nor Mr Fujii did anything to ascertain whether the two batches of goods under the Commercial Invoices had been actually received from CIC on 29 December 2010 as per the Cargo Receipt.

76.  Shortly afterwards, Lesley received a phone call from Chen and he repeated his earlier instruction in his email that the Cargo Receipt should not be signed. Lesley however missed that email and thus Ms Fong was given the signed Cargo Receipt.

77.  In the morning of the following day, i.e., 1 February 2011, Lesley emailed to Chen and reported that the Cargo Receipt had been signed and delivered to Ms Fong in the previous evening as per the request of Fred. Chen first mistook that the Cargo Receipt was delivered to FF having the same Chinese family name. Later he found that it was Ms Fong of CIC.

78.  In the afternoon at 1806 hours, Chen emailed to Lesley and asked her to get back the Cargo Receipt, failing which she should inform the advising bank to refuse payment. He stressed that the Cargo Receipt could not be accepted for the purpose of the Subject L/C.

79.  3 February 2011 was the Lunar New Year day and the 3-day public holiday started.

80.  On 10 February 2011, at 1021 hours, Lesley emailed Fred and requested him to cancel the Subject L/C with Hua Nan Commercial Bank Ltd. (“Hua Nan”); otherwise CIC would be involved in a commercial fraud.

81.  At 1352 hours, Fred sent an email to Lesley (“the 1352 Email”) and explained to her that CIC had already delivered cargo of US$ 2.5 million worth to Kirin, the sub-purchaser of Toyota HK. He asked Lesley how come CIC was involved in a commercial fraud under those circumstances when it duly presented the Subject L/C for payment.

82.  At 1405 hours, Lesley emailed Fred (cc Chen) and told him that Toyota HK had made enquires with Toyota Shanghai and they had talked to Kirin but were told that Kirin had not received the goods. She reasoned that if there had been delivery there must be a cargo receipt. She requested Fred to make enquires and provide Toyota HK with a copy of such a cargo receipt.

83.  At 1554 hours, Fred emailed to Lesley two documents containing the information of the receipt of goods by Kirin. They were two packing lists relating to the Commercial Invoices. It was stated in both packing lists that the 10.1 TFT-LCD cells were shipped to Da Tian International Company Limited (“Da Tian”) in Shatin, Hong Kong and both of the two packing lists bore the chop of Da Tian.

84.  At 1737 hours, Lesley replied to Fred by email and pointed out that the chop appearing in the packing lists did not belong to Kirin. She impressed upon Fred that it was a serious matter and asked Fred whether he conned her into handing over the Cargo Receipt to him.

85.  At 1750 hours, Rebecca sent Fred an email (“the 1750 Email”). She told him that she had received the packing lists of CIC. She pointed out that they did not prove the receipt of the goods thereunder by Shanghai TQ. She stressed that Shanghai TQ had never received such goods and had so confirmed with Toyota HK. She claimed that CIC’s conduct amounted to fraud. Alarmingly she said Shanghai TQ would require Toyota HK to stop payment pending the resolution of the quality issue of the goods by Shanghai TQ and CIC.

86.  At an unknown time, Fred replied to Rebecca by email and told her that CIC had sufficient proof of the fact that Kirin had taken delivery of those goods as required by the sale contract. Da Tian was the specified delivery agent of Kirin. Fred told Rebecca that having been threatened by legal language, he would transfer the matter for the legal department of CIC which would revert to her.

87.  On the other hand, Fred forwarded that email to Rebecca to Lesley at 1941 hours and asked her who Rebecca was. There was no prior correspondence between Fred and Rebecca or anyone of Shanghai TQ.

88.  On 11 February 2011, Lesley made a request to Da Tian to inspect the goods delivered by CIC but was told that the warehouse of Da Tian in fact housed a lot of the goods of CIC. Without the consent of CIC or the parent company of Da Tian, Da Tian could not accede to the request.

89.  Then Lesley turned to Fred and asked for an inspection of the goods in the warehouse of Da Tian. Fred refused by reason of his position that Kirin had already taken delivery of the same. However, subsequently Fred agreed to send his colleague one Mr Hu to go to Hong Kong to accompany Lesley to carry out the inspection demanded in the warehouse of Da Tian.

90.  On 14 February 2011, Mr Hu sent an email to Lesley and asked for the address of Da Tian for the purpose of making arrangement to meet her the following day. Lesley did so.

91.  On the other hand, at 1038 hours on the same day, Mr Hu emailed to Lesley and made it clear that (1) Da Tian had confirmed that Toyota HK should first procure the consent of Kirin since the goods had been already delivered to Kirin and (b) Da Tian was not under the control of CIC.

92.  From Fred, Lesley obtained the contact number of one Ms Li of Kirin and called her. However, she told Lesley that she did not know anything about the transaction between CIC and Kirin and would revert to her after enquires. When Lesley failed to reach her again, she called Fred and Fred told her that in fact Ms Li had left Kirin and referred her to Tina.

93.  Lesley then tried to reach Tina on her mobile phone but a man answering her call told her that it was his number and he had never heard about Toyota HK. He refused to reveal his identity to Lesley or tell her the contact information of Tina.  

94.  As a result, the intended inspection was called off due to the lack of authorization of Kirin. Further contacts with Fred turned out to be futile. Lastly, on 16 February 2011, Fujii instructed Lesley not to contact anyone of Kirin or CIC anymore.

CIC’s case

95.  Now I turn to the version of events of CIC detailing its dealings between CIC and Kirin. It is indeed straightforward and is mostly evidenced by documents including the emails explained above. No issue of authenticity arises from all these documents.

96.  CIC entered into two written sales agreement both dated 26 August 2010 with Kirin. One of them was the 2^nd Kirin Agreement printed on a piece of paper with the letterhead of Kirin. For unknown reason, it bore the same number with the Controversial Contract and had more or less the same format. The other one numbered PR2010062601 related to the sale of 30,000 pieces of 10.1” open cells  (“1^st Kirin Agreement”) and it looked very similar to the 2^nd Kirin Agreement in all respects.

97.  By the 1^st and 2^nd Kirin Agreements (collectively “the Kirin Agreements”), CIC in total agreed to supply 600,000 10.1” open cells to Kirin at the price of US$ 10,830,000, the unit price being US$ 19/piece. Fred signed both of them on behalf of CIC with a handwritten date of 30 August 2010 beside his signatures. The pleaded case of CIC is that Toyota HK paid the Sum to it for the Kirin Goods pursuant to the 2^nd Kirin Agreement.

98.  The material terms of the 2^nd Contract included a delivery schedule covering four batches of goods in each of the following months (“the Schedule”) and two payment terms. Under the payment terms, Kirin was required to pay the purchase price of the relevant batch of goods before they were delivered by CIC and to pay a sum of US$ 1 million as deposit (“the Deposit”).

99.  Fred explained that open cells were parts of LCD panels. They were LCD panels without backlight modules. He confirmed that he signed the Kirin Agreements and neither of them bore the chop of CIC.

100.  Kirin had difficulties in making payment in accordance with the Schedule and as a result, CIC could not deliver the open cells to Kirin pursuant to the Schedule. Fred prepared a table setting out the payments and delivery records relating to the Kirin Agreements and it is annexed (and subsequently amended) to his witness statement (“the Table”).

101.  According to the Table, only 131,459 pieces of open cells were shipped by 29 October 2010 whereas according to the Schedule, altogether 304,000 pieces should have been shipped in September (84,000) and October (220,000).

102.  CIC was under pressure to complete the delivery so that the Kirin Goods could be vacated from its factories and warehouses when they had reached their maximum capacity. CIC had no alternative but to accept that the Deposit should be applied to set off the purchase price of the open cells delivered. There can be found some emails exchanged between CIC and Kirin in September and October 2010 evidencing the problems of Kirin with its performance of the 2^nd Kirin Agreement. There is also an email of CIC sent by Fred to Berly (c.c. Carolyn) on 22 December 2010 at 1538 hours whereby Fred asked Berly whether it was possible for CIC to depart from the advance payment term of the 2^nd Kirin Agreement to release the goods to Kirin upon its promise to send an amended letter of credit to CIC without actual delivery of the same in view of the warehouse situation. One minute later, Ashiun refused and insisted on actual receipt of the amended letter of credit before delivery of the Kirin Goods.

103.  The unchallenged evidence is that Fred had a telephone conference with Tiger on 29 October 2010 to discuss the dire situation. Fred sent Tiger a confirmatory email in the afternoon to remind him that Kirin should send CIC a draft letter of credit for its approval for the payment of the goods to be delivered in November and December and also those remaining undelivered in October due to its non-payment.

104.  Fred said during the telephone conference, Tiger reassured him that Toyota was the financier of Kirin behind (背後的金主). Fred believed him as Toyota had indeed paid on behalf of Kirin by T/T as explained below.

105.  On 1 November 2010, at 1723 hours, Lulu sent an email to Fred with the caption being “L/C” (“Lulu Email”) and confirmed with Fred that on 27 October 2010 a sum of US$ 1,472,000.00 was remitted to CIC (the North Site account) (“the Remittance”) and asked Fred to check once again the situation. This was in reply to his enquiry made in the same morning. Lulu further talked about the delivery details concerning shipments in October and November and stated that out of the sum of US$ 2.89 million for the shipment in November, US$ 1.2 million should be paid within the 1^st to 5^th day of November whereas the remaining balance of US$ 1.69 million should be paid in cash by instalments with details of payment arrangement to be provided later. Lastly, she asked Fred to refer to a sample letter of credit.

106.  Fred was aware of the Remittance. On 27 October 2010, at  1612 hours, Kirin using the email address of Licrystal sent an email captioned “147.2 US$  北厂款水” with an attachment to Fred. The file name of the attachment was “US$ 147.2万水單北厂”. Unfortunately, this attachment is not produced as evidence. I understand 水單 to mean a document evidencing a remittance commonly known as remittance notice or bank slip.

107.  At 1934 hours, Fred emailed the attachment to his colleague and told her that it related to the Remittance of Kirin to the North Site. He asked her to transfer the amount received to the South Site so that by the end of that month the goods could be dispatched.  This was not done. Fred on 1 November 2010 found out from the Finance Department that the Remittance was not yet available and so he emailed Lulu to ask her to follow up this matter. In the afternoon, Lulu replied by the Lulu Email.

108.  On 3 November 2010, as shown by the internal emails of CIC, on 2^nd November 2010, CIC received the Remittance. At 0908 hours, Michael Chan emailed Fred and gave him the green light to prepare delivery as a result of the Remittance.

109.  On the other hand, at 1030 hours, Ashiun emailed a sample letter of credit to Fred. In the same email, Ashiun reminded Fred that any draft letter of credit to be issued to CIC should first be mailed to the Finance Department and the Export Department for their scrutiny of its contents with a view to revision of the letter of credit so as to facilitate shipment and receipt of payment.

110.  Minutes later, Fred emailed to Lulu a copy of the sample letter of credit and asked him to issue a letter of credit in accordance with the sample.

111.  On 4 November 2010, CIC issued an invoice no. WWFN10B0618 for 57,600 pieces of open cells at the price of US$ 1,094,400 and on 19 November another invoice no.WWFN10B3281 for 40,544 pieces of open cells at the price of US$ 770,336. The two batches of goods under these two invoices were only allowed to be delivered upon receipt of the Remittance and further payment made on behalf of Kirin.   

112.  On 2 December 2010, at 1026 hours, Tina emailed Fred and asked him to provide the company information of CIC urgently to enable Toyota to issue a letter of credit as soon as possible. Fred did so by email at 1348 hours with a copy given to Tiger. Carolyn was specified to be the contacting person

113.  On the same day, at 1653 hours, FF forwarded the information provided by Fred to Lesley.

114.  On 10 December 2010, at 1909 hours, Tina emailed to Fred to tell him that Kirin would on that day arrangement a payment of US$300,000 to the South Site and ask him to confirm receipt of the said payment.

115.  On 14 December 2010, at 1018 hours, one Ms Zeng of CIC by an email confirmed to Fred that CIC received two remittances from Licrystal in the total sum close to US$  300,000 (US$ 49,980 + 249,980).

116.  Fred then asked Tina whether the two remittances were made by Licrystal on behalf of Kirin and Tina replied in the positive.

117.  On 15 December 2010, at 1616 hours, Lesley emailed to FF and Chen a copy of the Subject L/C for CIC. The issue date shown that it was issued on the same day and the issuing bank was Mizuho Corporation Bank Ltd (“Mizuho”). The advising bank was Hua Nan. The Applicant was Toyota HK and the beneficiary was CIC. The amount specified was US$3 million and the goods covered were 100,000 pieces of LCD panels at US$30 each.

118.  At 1625 hours on the same day, FF forwarded the copy of the Subject L/C to LL. At 1655 hours, Tina somehow managed to email the same to Fred and told him that she would send to him a contract of “600K10.1 FOG”.

119.  Fred then forwarded the same to the Finance Department for their follow-up action. Ashiun first by her email on the same day at 1746 hours suggested two amendments.[4] Mainly she handled the Subject L/C with the assistance of Berly as shown in the internal emails. From then onwards, all of CIC, Kirin, Shanghai TQ, Toyota Shanghai and Toyota HK emailed to one another back and forth to amend the particulars of the Subject L/C (and the Cargo Receipt) until it was finalized on or about 12 January 2011.   

120.  I should add that CIC received a letter from Hua Nan dated 17 December 2010 which advised it about the Subject L/C. A copy of the Subject L/C was enclosed. Fred understood this was issued for the purpose of Kirin’s settlement of the open cells to be delivered in December notwithstanding the differences in the description, quantity and unit price of the Kirin Goods stated in the Subject L/C.

121.  Now I turn to CIC’s version of events relating to the Cargo Receipt. On 23 December 2010 at 1601 hours, Tina emailed a draft cargo receipt to Fred and asked him if it satisfied the requirements. She asked him when it should be dated and whether there were any amendments needed. Fred then passed it to Ashiun for her to follow up the matter.

122.  On 24 December 2010, at 1504 hours, Tina emailed Fred with a caption of “US$ 30万水單”. On the one hand, Tina asked Fred to confirm the receipt of the captioned remittance confirmation and indicate the quantity of open cells could be arranged for delivery. Also she asked whether the 13,000 pieces dispatched from Ningpo on 23 December could reach Hong Kong. She stated that altogether US$ 900,000 had been remitted to CIC within those two days and she urged CIC to arrange delivery of open cells again. Lastly she asked Fred to promptly confirm the Subject L/C and the Cargo Receipt so that Toyota could make arrangement.

123.  What happened on 29 December 2010 is particularly of note with some relevant documents issued on this date. First, a contract was made between Toyota Shanghai and HKTQ in respect of the sale of 100,000 pieces of LCD panels at the unit price of US$ 23.35 by the latter to the former (“the Toyota Shanghai Contract”). The port of shipment was specified to be Korea and the delivery date and port were respectively 30 June 2010 and Shanghai.

124.  Next, CIC issued to Toyota HK the two Commercial Invoices. The Commercial Invoices were included as conforming documents specified in the Subject L/C. The goods covered by the Commercial Invoices were LCD panels sold at a unit price of US$19. The one with the invoice number WWFN10C5464 covered 17,864 pieces of LCD panels to be shipped from Ningpo to Hong Kong. The other one with the invoice number WWFN10C5468 covered 113,679 pieces of LCD panels to be shipped in the same manner.

125.  Two corresponding packing lists were also issued by CIC to Toyota HK with express reference to the two Commercial Invoices. Two waybills issued by Softtrans Supply Chain Management Limited referring to the two Commercial Invoices evidenced the two shipments made pursuant thereto from Ningpo to Ocean Union International Logistics Co Ltd. (“Ocean Union”) in Shenzhen.

126.  Since that date, the internal emails of CIC show that Ashiun was seriously working on the contents of the Cargo Receipt with reference to the Commercial Invoices. She duly raised the discrepancy concerning the unit price of the LCD panels stated in the Subject L/C and that stated in the Commercial Invoices (US$30 v. US$ 19). Fred related her comments to Kirin.

127.  Eventually, Ashiun came up with a final draft Cargo Receipt for Toyota HK to sign. In the final draft, the numbers of LCD panels supplied under the Commercial Invoices were accurately specified and the actual delivery date was stated to be 29 December 2010. She emailed the final draft to Fred on 11 January 2011 at 1551 hours. Fred in turn forwarded the same to Tina and asked Kirin to cause the same to be signed and returned.

128.  From then onwards, by way of internal emails, Ashiun issued a few email chasers for the Cargo Receipt, raising her concern about the possible non-payment of the Subject L/C (both on the part of the advising bank and Toyota HK) due to delay. In her email dated 27 January 2011, she impressed Fred and other colleagues that the goods under the Commercial Invoices had already been dispatched but the Cargo Receipt was still not available. On the other hand, she mentioned about the quality issue relating to the goods (“the Disputed Goods”) supplied under another invoice numbered WWFD11132675 (“the Other Invoice”) involving the price of US$ 497,401.00.

129.  Albert Chou replied to her a few hours later that there existed certain quality problems with the open cell panels already delivered and Kirin probably cashed in on this as an excuse to delay payment. He firmly instructed that Fred should negotiate with Kirin concerning the quality issue and set the target time for the receipt of the Cargo Receipt to be 1500 hours the next day, i.e. 28 January 2011.

130.  In the circumstances narrated above, Fred obtained the signed Cargo Receipt from Lesley in the evening of 31 January 2011.

131.  With the Cargo Receipt, together with other conforming documents, CIC managed to obtain payment of US$ 2,499,317.00 under the Subject L/C on or about 1 February 2011 and CIC heard nothing from Toyota HK until 8 February 2011 when Ashiun received an email containing a demand to cancel the Subject L/C. She then sought the view of her colleagues including Fred and Albert Chou by her email at 1116 hours. She confirmed that the Subject L/C was for the sum of US$  3 million. She pointed out that insofar as the Sum covering the Commercial Invoices is concerned, there could not be cancellation whilst cancellation of the remaining part of US$ 500,683.00 involving the Other Invoice covering the Disputed Goods would be acceptable.

132.  4 minutes later, Fred replied by an email that the Kirin Goods had been delivered 1.5 months ago and the Subject L/C could not be cancelled insofar as the Sum was concerned.

133.  As mentioned, there were further protests raised by Toyota HK. To convince Toyota HK the receipt of the open cell panels by Kirin, Fred emailed to Lesley on 10 February 2011 two packing lists relating to the Commercial Invoices. It is shown in the packing lists that the goods under the Commercial Invoices had been shipped to Da Tian.

134.  Lastly, Fred explained to this court that Kirin only managed to pay US$ 900,000 as deposit pursuant to the Kirin Contract. The said sum is now being kept in a separate account pending the resolution of this action.

135.  For completeness, I should also mention certain documents signed between Kirin and CIC in respect of the alleged quality issue of the Kirin Goods.

136.  On 26 January 2011, Fred signed a memo with Kirin. In the memo, the complaints about the quality of the 10.1” open cells supplied by CIC and the remedial actions taken by Kirin were set out in detail. On the next day, Fred and Kirin signed another memo. Again, Kirin set out all the defects found in the open cells supplied by CIC and the response of CIC to such complaints was recorded.

137.  As mentioned, in his email dated 27 January 2011, Albert Chou also alerted Ashiun to the alleged quality issues of the open cells already been delivered to Kirin. He also mentioned that Fred had had a meeting with Kirin to pacify it. He said Fred would meet Kirin again in that afternoon and would be prepared to cancel the order in respect of about 4 to 5 thousands pieces with a view to a quick settlement.

138.  On 29 January 2011, altogether 4 Chinese documents were signed between Shawn Hu on behalf of CIC and Kirin. They were entitled respectively 退貨承諾書, 不良品確認書, 品質異常處理方案, 品質異常檢討 (“the Chinese Documents”). Fred told this court that CIC does not really agree to their contents and Shawn Hu signed them reluctantly under duress. Since quality issues of the Kirin Goods form no part of the respective pleaded cases of Toyota HK and CIC and they cannot affect CIC’s right to draw down the Subject L/C, I need not go into the contents of these documents in depth. Suffice it for me to point out that the subject matters of these documents were the 10.1” open cells supplied under the Kirin Agreement and Kirin did not complain about non-delivery of the same at all. In addition, there is no evidence that Kirin had ever returned any of the Kirin Goods to CIC pursuant to any agreement between them.

Analysis

General Observations

139.  Stripped of legal niceties arising from the pleadings of the parties, the essential task to be undertaken by this court is to find out under whether the Purported Contract was concluded between Toyota HK and under what circumstances CIC obtained the Cargo Receipt from Toyota HK and hence drew down the Subject L/C. After making all such material factual findings in light of all the evidence, this court would be in a position to determine whether as a matter of law, Toyota HK is entitled to a refund of the same by CIC as claimed or that CIC is entitled to retain the Sum against the restitutionary claim of Toyota HK.

140.  Mr Chang, together with Mr Yu, for CIC, in his written closing submissions succinctly outlines the two competing case theories of Toyota HK and CIC. The case of Toyota HK as against CIC is, in a nutshell, that it deceived Lesley into handing over the Cargo Receipt to it and obtained the Sum by drawing down the Subject L/C without actual delivery of the Contracted Goods to Toyota HK under the Purported Contract.

141.  On the other hand, the case of CIC is that both Toyota HK and CIC were misled by Kirin. Kirin conned Toyota HK into issuing the Subject L/C to pay CIC for the Kirin Goods on its behalf when it was unable to do so. Kirin’s inability to pay was owing to the refusal of its ultimate purchaser to pay and instead it raised quality issues. At the same time, Kirin misrepresented to CIC that Toyota HK was its financier and paid CIC for the Kirin Goods pursuant to a long standing triparte arrangement.

142.  I have referred to a large number of emails exchanged among Toyota HK, Kirin, Toyota Shanghai and CIC and those internal emails of CIC. These contemporaneous emails are capable of giving a clear picture of what actually transpired at least between the parties and render a lot of assistance to this court in the fact-finding exercise.

143.  It should be noted that there are some other emails the senders and the recipients of which not taking any part in these proceedings such as Sungworld. Without their tested testimony, I am reluctant to attach any weights to the contents of such emails.

144.  Apart from such documentary evidence, I have heard the oral testimony of Lesley, Chen, Fujii and Lam Chi Wai (“Lam”) who is the Deputy General Manager of Risk Management Department on behalf of Toyota HK and Ashiun, Fred and Kristen Tsai (“Tsai”) on behalf of CIC. All of these factual witnesses struck me as honest witnesses trying their best to tell this court what they believe to be the truthful account.

145.  In particular I am impressed with Ashiun and Fred as witnesses and their factual evidence relating to the key issues. Bearing in mind the primary allegations against CIC and the debate about the contested documents allegedly signed by Fred, I paid close attention to their oral testimony and had a good observation of them. Both of them appeared to be straightforward and were able to inspire this court with confidence in their evidence. Coupled with the fact that their evidence did not deviate from the contemporaneous documentary evidence in any material aspects, I have no hesitation in accepting their evidence.

146.  In assessing the credibility of Fred, I cannot ignore the fact that he has already left the employment of CIC. Nevertheless, he came all the way to this jurisdiction and did not shy away from testifying for CIC despite all the serious allegations made against him personally. Though he himself is not a party to this action, Toyota HK literally alleges fraud against him. Having heard his evidence, I do not have any suspicion about his integrity at all. In particular, I believe that his denial of certain purported signatures of his is genuine.

147.  I shall deal with the major criticisms in greater detail below but I can first point out my general observations about the evidence of Ashiun and Fred, which has to be scrutinized against its factual matrix. Ashiun works in the Finance Department and she struck me to be a conservative person. She was very cautious in her testimony and neither said nor accepted anything that she was not sure. She often made it clear that her duty was confined to the financial side of the Kirin Agreements and to ensure that CIC could produce the conforming documents to obtain the Sum under the Subject L/C. She was not involved in the dealings with Kirin and follow-up work relating to the Kirin Agreements including the delivery obligations thereunder. I accept that it was not her duty to follow up the Kirin Agreements.

148.  I have two points to make about Fred. Fred was a salesperson concluding the Kirin Agreements on behalf of CIC. He dealt with Kirin. When Kirin appeared to have difficulties in fulfilling its payment obligations thereunder, Fred was duly concerned and anxious to ensure that it could complete the Kirin Agreements and make the full payment under the same in the end. On the other hand, he was under immense pressure about the warehouse capacity and had to make sure that the Kirin Goods manufactured could be dispatched.  With the delay in payment by Kirin, the warehouse capacity became an issue.

149.  Under these circumstances, once Fed was informed that Kirin managed to procure Toyota HK to issue the Subject L/C in favour of CIC for the total sum of US$ 3 million to pay for the Kirin Goods, he understandably tried to draw down the maximum amount from the Subject L/C as soon as possible so as to reap all the fruits of the Kirin Agreements.

150.  On the other hand, he has already left CIC and he certainly required the assistance of CIC to recall the details of the material transactions. He needed all the contemporaneous documents to be provided by CIC so as to bring back or reinforce the memories about such dealings. I do not find that there is anything untoward about any assistance given to Fred by CIC to refresh his memories.   

151.  Whilst there are a number of figures popping up in the documents, this court is not really concerned about dollars and cents. I am not troubled by the mistakes made by the witnesses about figures. Obviously, the core factual issues here do not really concern precise accounting. Credibility of witnesses is of crucial importance and undisputed contemporaneous documents including emails are telling.    

Rebecca’s evidence

152.  Whilst I am impressed with the evidence of Ashiun and Fred, the same cannot be said about the evidence of Rebecca. Rebecca made a witness statement (“the Statement”) and had been included as a witness of Toyota HK. In the middle of the trial, Toyota HK made an application to adduce the Statement as hearsay evidence in view of her medical condition.

153.  I find it convenient now to briefly explain why I allowed the application and yet I conclude that I can hardly attach any weight the contents of her witness statement.

154.  Toyota HK relied on the 3^rd Affirmation of Lee Chi Fan to support its application. By the said affirmation, Mr Lee, who was a consultant of the solicitors for Toyota HK, sought to explain why Rebecca was unable to travel to Hong Kong and testify for Toyota HK.

155.  Briefly stated, Rebecca was said to have suffered an acute appendicitis and was hospitalized in the 8^th Shanghai People’s Hospital (上海市第八民醫院) (“the Hospital”) from 8 March 2015 to 16 March 2015. Mr Lee visited Rebecca in the morning of 16 March 2015 in the Hospital. He talked to Dr Qian who was the treating doctor of Rebecca and understood that her condition was stable albeit that she was still suffering from some sustained mild fever and abdominal pain. She refused to undergo appendectomy and was discharged from the Hospital on the same day nevertheless due to the shortage of beds and her stable condition.

156.  There were two documents exhibited to the said affirmation. Both of them were issued by the Hospital. They nevertheless said nothing about the seriousness of the illness of Rebecca.

157.  Mr Lee concluded that according to his observation and the opinion of Dr Qian, Rebecca was too ill and weak to travel to Hong Kong for the purpose of this trial.

158.  The application was hotly contested. At the end, I acceded to the application In reaching my conclusion, I bear in mind the relevant principles expounded by Lam J (as he then was) in Vivien Cheung v Centaline [2004] 1 HKC. 692 and DHCJ Lam (as he then was) in High Fashion v Ng Siu Tong [2004] 1 HKLRD 928. I find them a useful guide as to how the unfettered discretion under section 47 of the Evidence Ordinance should be exercised. Such principles are agreeable to both parties.

159.  In the first place, though I am not convinced that Rebecca was critically ill, I accept that Rebecca had genuine health issues rendering it undesirable for her to travel to Hong Kong to testify.

160.  Rebecca identifies herself to be the executive director of both Shanghai TQ and HKTQ in the Statement. Many controversial documents were sent by LL on behalf of Shanghai TQ and HKTQ via email to the Toyota Shanghai and Toyota HK and Rebecca was very often one of the recipients. Her evidence is highly relevant especially she claims to deal with the ultimate customer of the Kirin Goods.  She must be in the know. She is also in the position to explain the tripartie trade arrangement among the Toyota Group, HKTQ/Shanghai TQ and their end purchasers. I am very much interested in what she said about the material transactions.

161.  I am well aware of the contentious nature of the contents of the Statement and the potential prejudice that would be caused to CIC if it is deprived of the chance to test her evidence by cross-examination. It would be helpful to this court if her evidence could be made available for close scrutiny. I have also taken into account the matters set out in section 49 of the Evidence Ordinance. My overriding consideration is very much the relevance of her evidence. I do not think it is in the interests of justice to exclude the Statement merely because the maker is unable to testify due to her medical condition. I also agree that video-link cross-examination and an adjournment might not be feasible in view of the uncertain medical condition of Rebecca. I should make it clear that I do not accept the complaint made on behalf of Toyota HK that CIC should make an application for cross-examination by video link. It is the primary obligation of Toyota HK to make available all its witness to testify in open court. 

162.  Now I turn to the Statement. Broadly speaking, it contains the following major allegations as identified by CIC. First, all of Tiger, Licrystal and Kirin acted as the agent of CIC in its negotiation with Shanghai TQ/HKTQ and they themselves were not actual purchasers of the Contracted Goods. There was no contractual relationship between any of them with Shanghai TQ/HKTQ.

163.  Second, Rebecca claims that Sungworld was the ultimate customer in respect of the Contracted Goods pursuant to its order placed with Shanghai TQ/HKTQ and Shanghai TQ intended to purchase the Contracted Goods from CIC through its agents Tiger, Licrystal and Kirin with a view to a resale to Sungworld. The purchase was financed by Toyota HK by way of a letter of credit and Toyota HK had previously assisted Shanghai TQ in its other purchases of LCD products. Sungworld first orally reached an agreement with Shanghai TQ to purchase an unspecified number of 10.1 LCD monitors orally at an unidentified price in November 2010 (“the Sungworld Agreement”). Then on 4 January 2011 it issued a purchase order (“Sungworld PO”) to Shanghai TQ for the purpose of the said agreement.

164.  Third, HKTQ did not receive any of the Contracted Goods from CIC because, as informed by Tiger on 31 January 2011, CIC had arranged to take all the Contracted Goods back from its warehouse in Hong Kong due to quality issues. She stresses that according to Tiger, the Kirin Goods stored at the warehouse of Kirin and Licrystal at Da Tian were different from the Contracted Goods and they also had quality problems. Curiously enough she was able to produce the Chinese Documents, to which only Kirin and CIC were privy.

165.  Fourth, as a result of the non-delivery of the Contracted Goods, HKTQ had to turn to other suppliers to fulfill its contract with Sungworld belatedly and it had to pay Sungworld a sum of compensation of RMB150,000 as its contribution of the wasted mould charge due to late delivery.

166.  I am unable to attach any weight to these allegations in the Statement.  To start with, as explained in the introductory part of the Judgment and evidenced by the company records in the public domain, Rebecca is closely connected to HKTQ, Shanghai TQ and Most Ocean. Most Ocean and Tiger were the equal shareholders of Kirin and directors of Kirin as at July 2011. Rebecca was the director of Most Ocean. Most Ocean was also the sole shareholder of HKTQ. Kirin and Shanghai TQ shared a common founder. The inter-relationship among these entities is obvious.  

167.  Rebecca mentions none of these ties in the Statement. Alarmingly, she asserts that according to her understanding, Kirin was the agent of CIC. It is difficult to accept that she actually had such an understanding given her own connection with Kirin through Most Ocean. She seemingly had access to the documents of Kirin. Her explanation was not believable. She could have provided much more cogent evidence to support her allegation of the agency relationship between Kirin and CIC.

168.  The thrust of her evidence is that Shanghai TQ and/or HKTQ acquired the Contracted Goods from CIC through the arrangement of Kirin assisted by the finance of Toyota HK by the Subject L/C but CIC drew down the Subject L/C without delivery of the Contracted Goods. However, the Statement raises more questions than answers and is contradicted by or inconsistent with contemporaneous documents.

169.  The alleged sale of the Contracted Goods to Sungworld is not supported by credible evidence. Despite the glaring lack of important particulars of the Sungworld Agreement orally concluded in November 2010, Rebecca alleges that Tiger told her that CIC was willing to sell the Contracted Goods to her at a unit price of US$20. Later CIC raised the unit price to US$30 in early December. The Subject L/C in favour of CIC was issued in December 2010. The Sungworld PO only came into existence in early January 2011. The specified quantity with a unit price of US$31 was 34,000 and not 100,000 as alleged by Rebecca.

170.  Further, I cannot believe that Rebecca would accept a sudden rise of 50% in the unit price of the Contracted Goods which must mean a reduction of sale profit. It also cannot be overlooked that according to the 1449 Email, it was Toyota Shanghai and not CIC which instructed Shanghai TQ to change the unit price from US$20 to US$30. It took only three hours for Shanghai TQ to amend the unit price appearing in two sales documents. This is totally contradictory to Rebecca’s account relating to the price reduction and yet she said nothing about the 1449 Email. 

171.  On the other hand, I accept Mr Chang’s submission that Rebecca, without any excuse, failed to provide any contract signed between Shanghai TQ/HKTQ with Toyota HK/Shanghai and Sungworld to prove that the Contracted Goods were to be sub-sold to Sungworld and hence the Purported Contract did exist for the purchase of the Contracted Goods by Toyota HK from CIC. Most of her allegations are not supported by credible trade documents. I cannot accept her lame excuse that LL had left the employment and thus all such supporting documents could not be traced.

172.  Rebecca made a contrived effort to make this court believe that the Kirin Goods arriving in Da Tian warehouse did not form any part of the Contracted Goods. She said that CIC had made arrangement to get back the Contracted Goods upon its admission to their quality problems.  In this connection, she relied on the oral explanation of Tiger. I cannot attach any weight to this multiple hearsay evidence with both Rebecca and Tiger has every motive to be economical about the truth. Further, I do not lose sight of the evidence of Chen that Rebecca actually told him that Shanghai TQ and HKTQ would not take delivery of the Contracted Goods because of quality issues and not that they would not be delivered by CIC at all.

173.  Indeed in her 1750 Email, she did talk about the quality issue. She said the payment by the Subject L/C should be suspended pending resolution of the quality issues by HKTQ and CIC. If she had not received any goods from CIC at all, there is no reason why she said this.

174.  Moreover, Rebecca sent the 1750 Email more than a week after Tiger had allegedly told her the status of the Contracted Goods. There is no reason why she did not refer to the words of Tiger to confront Fred at all. She should have told Fred not to rely on the packing lists to prove delivery since the Contracted Goods had already been returned to CIC and the Kirin Goods delivered under the packing lists had nothing to do with Shanghai TQ or Toyota. She made no mention about Kirin, the alleged agent of CIC at all.

175.  On the other hand, Rebecca’s own evidence rebuts the alleged compensation paid to Sungworld. The email she produced showed that the sum of RMB 150,000 paid to Sungworld was not compensatory in nature at all. It was the contribution of Shanghai TQ to the mould charge in the sum of RMB300,000 for long-term cooperation in the future.

176.  For the reasons given above, I am unable to accept all of the allegations in the Statement. They are not borne out by documentary evidence and are riddled with inconsistencies. Not only does the Statement fail to assist the primary case of Toyota HK, it makes this court be even more convinced that Kirin, HKTQ and Shanghai TQ were in fact closely connected and involved in the material transactions and they deliberately withhold the true picture from this court. Kirin’s silence in these proceedings is just deafening. I have no reason to have any faith in their bona fide in the material transactions.

Authenticity issue

177.  Now I move on to the authenticity issue. I should bear in mind the following established principles before turning to the disputed documents.

178.  The onus is on those parties who produced the documents and asserted their validity to prove that they are genuine: Pacific Electric Wire & Cable v Texan Management Ltd, unreported, CACV 90/2012, 17.9.2013 per Kwan JA at §61 applying Club Deluxe Ltd v Club Metropolitan Ltd [1995] 2 HKLR 69 at 82 and 88.  This is their legal burden that remains with them throughout.

179.  The parties alleging that such documents are forgeries bear the evidential burden of adducing evidence sufficiently cogent and probative to raise and substantiate their allegation of forgery: §180 of Nina Kung v Wang Din Shin [2005] 8 HKCFAR 387. Where allegations of forgery are made, the courts rightly demand a standard of proof commensurate with the seriousness of the allegations and evidence to a very high standard of cogency is necessary to justify a finding of forgery: per Lord Scott at §626.

180.  It is imperative to understand the nature of handwriting expert evidence and the following dicta in Nina Wang v Wang Din Shin, supra, are apposite. Chan PJ pointed out that handwriting analysis was not an exact science and the opinion of a handwriting expert, however objective, was inherently less precise than a conclusion based on the results of a scientific analysis and its acceptability depended very much on how sound and convincing the reasons for his opinion were: §20.

181.  Riberiro PJ also observed that “handwriting evidence is necessarily of a lower order of cogency than direct evidence of execution”.

182.  All the 11 disputed documents here are alleged to have been issued by CIC. Except the Controversial Contract and the Controversial Invoice purportedly bearing a chop of CIC without any signatures, all of them were allegedly signed by Fred. No one witnessed how these disputed documents were signed and Fred denies categorically having signed any of them. The parties’ handwriting experts studied these nine purported signatures of Fred against the specimen signatures of Fred. Whilst Mr Leung, the expert of CIC, concludes that they were probably not made by Fred, Mr Sperry, the expert of Toyota HK concludes that no conclusive finding can be made due to the limitations of the comparison exercise including the poor quality and small number of controlled signatures of Fred provided by CIC.

183.  At the trial, with the consent of the parties, this court first received their expert evidence before the factual witnesses testified. On the authenticity issue, this court pays particular attention to Fred’s testimony and the evidence relating to the circumstances under which these disputed documents came into being.

184.  Such disputed documents, apart from the Controversial Contract and the Controversial Invoice, which allegedly evidenced the Purported Contract underpinning the primary case of Toyota HK, include 9 more documents. They are as follows:

    (1)     the 1^st Contract,

    (2)     the 1^st Disputed Proforma Invoice,

    (3)     the 2^nd Contract,

    (4)     the 2^nd Disputed Proforma Invoice,

    (5)     the 3^rd Contract,

    (6)     the 3^rd Disputed Proforma Invoice,

    (7)     A contract dated 18 October 2010 made between Innolux and Toyota Shanghai in respect of 40,000 pieces of 15.6” LCD panels purportedly bearing the signature of Fred beside a handwritten date of 10/20 (“Additional Document A”),

    (8)     A contract dated 18 October 2010 made between CIC and Toyota Shanghai in respect of 40,000 pieces of 15.6” LCD panels purportedly bearing the signature of Fred beside a handwritten date of 10/25 (“Additional Document B”),

    (9)     A proforma invoice bearing the same date and same details appearing in Additional Document B purportedly issued by CIC to Toyota Shanghai printed in English bearing the disputed signature of Fred beside a handwritten date of October 25 (“Additional Document C”).

185.  The first six of them are set out in the Schedule to the Amended Statement of Claim and the Additional Documents are pleaded in the Amended Reply[5]. Toyota HK relies on the first six documents in its plea that CIC induced its mistaken belief that a contractual relationship subsisted between them and procured it to issue the Subject L/C by producing such documents to it.

186.  For the three Additional Documents, the pleaded case of Toyota HK is that in October and November 2010, it concluded a sale with CIC and hence made the Remittance. Accordingly Toyota HK received such goods from CIC. There is however little evidence covering these documents and how they came into the possession of Toyota HK.  Chen accepted that Toyota Shanghai received these documents from either Rebecca or LL and not from Innolux or CIC. He also accepted that he had no direct dealing with Innolux or CIC with regard to the transaction purportedly evidenced by the Additional Documents (“the Transaction”). He had no personal knowledge of the origin of the goods for which the Remittance was paid and he was merely informed by Rebecca that CIC was the supplier. There is no other evidence proving the involvement of CIC in the Transaction.

187.  At the outset, it is important to make it clear that I am impressed by the credible evidence of Fred that he did not append his signature on any of the disputed documents on behalf of CIC and/or that chops appearing in neither of the Controversial Contract and the Controversial Invoice were merely forgeries.

188.  I first deal with the Controversial Contract and the Controversial Invoice. I agree with Fred’s observation that these two documents were mere low-quality forgeries. The company name of CIC appearing in each of these two documents was inexplicably misspelt. I cannot accept that on the balance of probabilities CIC ever used the same defective chop in its international trade.

189.  It should be recalled that in the afternoon of 5 January 2011, Tina emailed the unstamped versions of these two documents to Rebecca having Toyota Shanghai instead of Toyota HK as buyers. Within less than 24 hours, Tina managed to change the identity of the buyers in these two documents and have them stamped with the purported chop of CIC. When they reached Lesley and upon her identification of the misprint of the name of Toyota HK in the morning of 7 January 2011, less than two hours LL had them corrected. Before long, Chen managed to email the finalized versions with the purported chops of CIC to Lesley.

190.  There is no evidence of CIC’s involvement in the production of these two documents at all. In the midst of the avalanche of emails, there is not a single one showing that CIC was ever consulted or engaged in the process. Quite obviously Kirin and Shanghai TQ/HKTQ took an active part in their creation on their own.

191.  The Controversial Contract was in a near-identical format with that of the Kirin Agreements albeit they were printed in different languages. In addition, the Controversial Contract had the exactly the same number with that of the 2^nd Kirin Agreement. These cannot be sheer coincidences. I believe that it is a reasonable conclusion that Kirin was, to say the least, heavily involved in the creation of these two documents without the knowledge or authority of CIC.

192.  By the same token, I cannot accept that any of the disputed documents and the Additional Documents bore the genuine signature of Fred. I took into account of how all these disputed documents came into being and I need not recite the history here. LL sent them to Chen and/or FF by email without any evidence of the involvement of CIC. There is in particular no evidence that CIC ever sent these document to LL or anyone at all.

193.  I cannot accept that Fred would ever sign a contract or a proforma invoice on behalf of CIC for the total contractual amount of US$ 2 million without any particulars of the quantity and the unit price of the contracted goods as in the 1^st Contract and the 1^st Disputed Proforma Invoice.

194.  The unexplained 50% rise of the unit price in the 3^rd Contract is alarmingly indeed. I can no evidence that CIC has ever suggested or shown any knowledge of such an extraordinary change in the contractual price.

195.  There is no reason why CIC found it necessary to enter into the 1^st, 2^nd and 3^rd Contracts and hence issue the 1^st, 2^nd and 3^rd Disputed Proforma Invoices after having entered into the Kirin Agreements in respect of the same goods. There is no reason why CIC would accept that a false unit price should be stated in its contracts/invoices.

196.  For these documents, I cannot see any discussion of the same between Shanghai TQ/ HKTQ with CIC. Fred even asked Lesley who Rebecca was on 10 February 2011. I cannot believe that CIC ever worked hand in hand with Shanghai TQ/ HKTQ to produce all these disputed documents to deceive Toyota HK to issue the Subject L/C to pay for the Kirin Goods. Kirin looks guilty of forgery in all the circumstances. I am fully convinced that Fred’s signatures on them were forgeries.

197.  For the similar reasons, in the absence of any evidence of CIC’s handling of the Additional Documents and the Transaction, I cannot accept that Fred has ever signed any of them. I accept Fred’s evidence that Innolux already ceased to exist in October 2010 and could not have executed the Additional Documents A and B. I also find Fred’s observations of the various typographical errors in these documents to be valid. I do not accept that these documents were originated from CIC.

198.  On the other hand, there is incontrovertible evidence that the Remittance was made to pay for the Kirin Goods and not for the other products specified in the Additional Documents. How Kirin managed to cause Toyota Shanghai to make the Remittance to pay CIC on its behalf is not really the issue. 

199.  Hence, I can make the factual conclusion that CIC has well discharged the evidential burden in respect of its accusation of forgery and I can conclude that all of the 11 disputed documents including the Controversial Contract and the Controversial Invoice were forgeries and were produced without the consent and authority of CIC. They as a matter of law cannot be binding on CIC. The primary contractual claim of Toyota HK must fail as a result.

200.  In reaching the foregoing conclusion, I have not disregarded the expert evidence. In the particular circumstances of this matter, their evidence is not of much assistance. The differences between those purported signatures and the specimen signatures are quite discernible even to a layman and hardly need elaboration here. Such differences are apparent even though all of the dubious signatures and most of the controlled signatures were merely printed copies made out of electronic files. Mr Sperry had no disagreement on these differences set out in the report of Mr Leung. On these differences, I accept Mr Leung’s conclusion that the disputed signatures were probably not made by Fred on the basis of his handwriting comparisons.

201.  I am of the view that Mr Sperry has exaggerated the difficulties posed by the limitations. He even cast doubt on the authenticity of the specimen signatures of Fred in the absence of witnesses eyeballing his creation of them. This doubt is unjustified in all the circumstances and can easily be removed or confirmed. This speculative approach is not helpful to the court. In any event, he himself cannot be sure of the authenticity of the disputed documents because of the inherent limitation of the exercise.

Attack on the credibility of Fred

202.  I have considered all those criticisms of the evidence of Fred and Ashiun skillfully advanced by Mr Chong appearing for Toyota HK together with Ms Wong. None of them, singularly or cumulatively, can undermine their overall creditability. The overall effect of their evidence cannot drive me anywhere near the conclusion, on balance of probabilities, that they took part in a fraud to obtain the Sum under the Subject L/C from Toyota HK.

203.  I now deal with the major attacks launched by Mr Chong on the creditability of Fred and Ashiun only. Quite rightly, he picked up the mistakes made by Fred about the sale condition reflected in the Table. However, as explained about, such mistakes in my view are understandable given the time lapse and his departure from CIC and do not affect my confidence in the truthfulness and reliability of his testimony in respect of the core issues in this action. I would add that his immediate reaction to the allegation of fraud in the 1352 Email and his explanation given to Lam and Fujii with reference to the Kirin Agreements at their meeting on 1 March 2011 were consistent with the case of CIC.

204.  I do not find it significant that CIC did not seek to correct the quantities and unit price stated in the Subject L/C at an earlier stage after CIC received it on 15 December 2010. Mr Chong contends that it was only after the December shipment that CIC started to be concerned about such particulars in the Subject L/C.

205.  I see no substance in this complaint. In fact CIC suggested certain amendments to be made to the terms in the Subject L/C on the same day.

206.  The undisputed evidence shows the Subject L/C was issued by Toyota HK without any negotiation about its terms with CIC. Fred made it clear that the sample L/C given to Toyota HK was just a sample and not a draft though Lesley had made certain changes in the sample.[6] All the terms in the sample relating to the sale thereunder including the three different unit prices were for reference only and had no bearing on the agreed terms of Kirin and CIC at all. As indicated by Fred in his email on 16 December 2010, the terms of the Subject L/C called for amendments. These details could be, and indeed, were amended and finalized anyway in accordance with the actual situation. The Cargo Receipt and the packing lists had to be available before the Subject L/C could be drawn down in any event. I do not find it relevant that the amendments with regard to such particulars were not sought earlier. The current exercise is anything but a job performance appraisal here.

207.  Though Fred and Ashiun seemed to shift to each other the responsibility of ensuring that the particulars of the Subject L/C were consistent with those of the 2^nd Kirin Agreement (and not the Purported Contract as contended by Mr Chong), this does not alter the fact that ultimately this was done before CIC’s presentation of the Subject L/C to the advising bank. In passing, I note that in an email Ashiun stressed that the terms of the Subject L/C must be approved by Berly and her and I do not think her credibility can be undermined by her answers given under cross-examination.

208.  The fact that the Kirin Goods were described as LCD panels in the Subject L/C and not open cells do not cause me any concern at all. As accepted by Rebecca, open cells are semi-finished products of LCD panels in that they lack the backlight. I can accept that very loosely LCD panels can be an apt description of open cells, especially for the practical purposes of CIC and Toyota. It is understandable that CIC did not find it to be of absolute necessity to change the product description to open cells in the Subject L/C. So long as the conforming documents including the packing lists and the Cargo Receipt also adopted the same description, which was something that CIC and Toyota HK could ensure, CIC could draw down the Subject L/C.  For completeness, in the packing lists, the products were described as TFT-LCD cell.

209.  There is no evidence of any complaint by Kirin that LCD panels instead of open cells should be supplied to them. Kirin never demanded CIC to replace the open cells with LCD panels. Clearly the subject matter of the Kirin Agreements was open cells and the Subject L/C was made to pay for them.

210.  I cannot agree that Fred should not demand the Cargo Receipt in light of the settlement reached by CIC and Kirin over the quality issues of the Kirin Goods. First this criticism must be made on the basis that the Subject L/C was intended by Kirin and CIC to pay for the Kirin Goods (open cells) under the Kirin Agreement (and not the Purported Contract). Second, the fact that CIC agree to take back defective portions of the Kirin Goods does not mean that it should not be entitled to draw down the Subject L/C by presenting the conforming documents.   There is no evidence that Kirin had returned any of the Kirin Goods to CIC after it accepted delivery of the same by its agent Da Tian.

211.  Of course with the benefit of hindsight, Fred could have done this and that to maximize the financial interests of CIC. His failure to have done, however, cannot alter the fact that the Subject L/C was intended by Kirin and CIC to discharge Kirin’s liability under the 2^nd Kirin Agreement, which was amply borne out by overwhelming documentary evidence including Fred’s email to Tiger sent on 29 October at 1715 hours chasing him for a letter of credit to expedite the delivery of the Kirin Goods.

212.  Mr Chong further complains that Fred was a deceitful person and he failed to produce all the relevant documents to show the performance of the Kirin Agreements by both CIC and Kirin. I cannot agree with him.

213.  To a certain extent, I am frustrated by the incomplete disclosure of CIC. Sometimes the attachments to the emails it produced were not made available to this court though they appeared to be relevant. But the same complaint, though to a lesser degree, can be made about Toyota HK too. That said, I do not agree that it is necessary for CIC to show all the documents relating to the performance of the Kirin Agreements shown in the Table. Toyota HK has never sought discovery of the same, either.

 Factual findings on core issues

214.  As a matter of inherent probability, I cannot lightly accept the allegation of Toyota HK that CIC would commit any fraud on its purchasers and unscrupulously extract from them purchase price without actual delivery of goods. It has a strong commercial standing and it carries on bona fide business worldwide. After hearing the witnesses of CIC and reviewing the documentary evidence, I have little hesitation in rejecting all the allegations made by Toyota HK against CIC.   

215.  If CIC was ever minded to defraud Toyota HK by the use of forged documents to make payment to it by the Subject L/C without having made any delivery to Kirin, I see no reason why CIC did not try to draw down the entire US$3 million under the Subject L/C and instead was happy with the Sum. It could easily be done by the provision of false information in the Commercial Invoices and its packing lists, which Toyota HK would not verify anyway.

216.  Brushing aside the pleaded case of Toyota HK for the time being, I first deal with the case of CIC (both its defence and counterclaim against Toyota HK). In doing so, as shown above, I have already taken into all the evidence adduced by the parties. I summarise my major factual findings which in my view have been borne out by the evidence of CIC:

    (1)     The Kirin Agreements was actually made between CIC and Kirin. There is no issue of their authenticity at all. Kirin was never the agent of CIC in respect of the Purported Contract or any other contracts.

    (2) On the other hand, having concluded that both the Controversial Contract and the Controversial Invoice were forgeries, I accept the evidence of CIC and reject the primary case of Toyota HK that CIC had ever entered into the Purported Contract with it. I nevertheless am convinced that Toyota HK genuinely believed that the Purported Contract was concluded between it and CIC.

    (3)     After showing financial difficulties in meeting the payment obligations under the Kirin Agreements as evidenced by emails, Tiger on 29 October 2010 told Fred in a telephone conference that Toyota HK was the financier of Kirin and was going to pay CIC for the Kirin Goods to be delivered in November and December 2010 (and those remaining undelivered in October) under the Kirin Agreements by a letter of credit.

    (4)     The Remittance was indeed made by Toyota HK/Toyota Shanghai to CIC to settle the purchase price of those Kirin Goods on behalf of Kirin. At least Kirin caused CIC to believe that it was the case. I accept the evidence of Fred in this regard and the internal emails of CIC provide support to his contention. Kirin also expressly mentioned the Remittance in its payment proposal relating to the Kirin Goods. As a result, CIC delivered part of the Kirin Goods in two batches upon receipt of the Remittance and a later payment of US$ 300,000. Accordingly CIC issued the two invoices dated 4 November 2010 (US$ 1,094,400) and 19 November 2010 (US$ 770,336). I accept the evidence of Fred that while the Remittance was only enough to cover the Kirin Goods under the former invoice, upon receipt of the later payment CIC agreed to deliver those Kirin Goods under the latter invoice.

    (5) On the other hand, I cannot accept the evidence of Chen that the Remittance was instead made to settle the Transactions purportedly evidenced by the Additional Documents.

    (6)     I conclude that the Additional Documents were forged documents. There is no other evidence proving the involvement of CIC in the Transaction. I can also conclude that the Transaction was merely a sham.

    (7)     In light of the Remittance and the representation of Tiger, I accept that CIC (and Fred) genuinely believed that Toyota HK was the financier of Kirin in respect of such undelivered Kirin Goods under the Kirin Agreements. Whether Toyota HK agreed with Kirin to be its financier or it intended to enter into a binding sale agreement with CIC and itself is another matter. Toyota HK might be mistaken but CIC should not be held responsible for its mistake.

    (8)     Toyoya HK applied to Mizuho for the Subject L/C in favour of CIC. The Letter of Credit was issued on 15 December 2010. Under the Subject L/C, partial shipments were expressly allowed. It expired on 6 March 2011. Thereafter, the Finance Department (mainly through Ashiun) and the Logistics Department (mainly through Berly) of CIC seriously suggested amendments to the Subject L/C via Kirin so as to conform with the actual performance of the Kirin Agreements. Such amendments were made for genuine business purposes.

    (9)     CIC shipped the Kirin Goods paid by the Subject L C through Ocean Union from Ningpo and they were eventually collected by Da Tian, the agent of Kirin. The two SoftTrans waybills, the authenticity of which is not in dispute, provide solid proof of these shipments.

    (10)   Da Tian took delivery of these two shipments on behalf of Kirin shipped on 29 December 2010, as evidenced by the Packing Lists bearing the chop of Da Tian. I accept that the Packing Lists were used by CIC as delivery orders and they suffice to prove the actual receipt of the two shipments by Kirin through Da Tian. The email exchanged between Ocean Union and Kirin on 5 January 2011 could further show that Kirin arranged transportation to take delivery of the Kirin Goods stored in the warehouse of Ocean Union. There is no contrary evidence to suggest that Kirin had not actually taken delivery. Indeed, it is common ground that Kirin raised complaint about the quality of the Kirin Goods delivered.

    (11)   For the negotiation of the Subject L/C, CIC duly issued the Commercial Invoices and the Packing Lists. These were genuine commercial documents evidencing the actual performance of CIC of its contractual duties under the Kirin Agreements.

    (12)   Then Fred turned to Toyota HK for the Cargo Receipt, the contents of which were consistent with the Commercial Invoices and the Packing Lists in every respects and clearly reflected a bona fide commercial transaction. CIC required the Cargo Receipt to obtain the contracted price for the two shipments duly delivered pursuant to the Kirin Agreements and in particular the 2^nd Kirin Agreement. CIC was aware of the 35-day time limit for presentation of conforming documents. I cannot accept that Fred ever fraudulently or otherwise induced Toyota HK to hand over the Cargo Receipt in advance in the absence of actual delivery of the Kirin Goods under the Kirin Agreements.

    (13)   I refuse to accept any allegation of inducement or misrepresentation against Fred and CIC in relation to the Cargo Receipt. I do not accept that Toyota HK was ever misled that the Kirin Goods were to be delivered to it directly and not Da Tian or any other persons designated by Kirin. It is in its own evidence that it made enquiries with Toyota Shanghai to see whether Kirin had received the Kirin Goods on 10 February 2011. Further, there is no evidence that Toyota HK ever demanded CIC to deliver the goods under the Subject L/C to it itself or its designated entities. Clearly Toyota HK expected that such goods had been delivered to Kirin.

    (14)   I do not accept that any quality issues raised by Kirin could prevent CIC from obtaining payments under the Subject L/C so long as it could present all the conforming documents to Hua Nan.

    (15)   I do not accept that CIC had already been paid for such Kirin Goods by the remittance of US$900,000 in December 2010 and hence was not entitled to the Sum under the Subject L/C. The email of Kirin dated 24 December 2010 makes it clear that Kirin intended the remittance to cover other goods in addition to those covered by the Subject L/C. I accept Fred’s evidence that the Deposit was still outstanding at that time and CIC rightly refused to treat the remittance to be anything but a partial payment of the Deposit. All previous payments made by Kirin went towards the actual purchase price of those Kirin Goods delivered.  

    (16)   In the premises, CIC provided good consideration to Kirin for the Sum paid on its behalf by its due performance of the 2^nd Kirin Agreement. CIC changed its position in good faith by its delivery of the Kirin Goods in late December 2010 in genuine anticipation of the payment of the Sum under the Subject L/C.

    (17)   I accept that CIC was not aware of, let alone purporting to perform, the Purported Contract at all. CIC never made any representations, fraudulent or otherwise, relating to or based on the Purported Contract. I am convinced that Toyota HK genuinely made a mistake and issued the Subject L/C to perform the Purported Contract and not the Kirin Agreements. However, CIC did not have any knowledge, actual or constructive, of the mistake when it drew down the Subject L/C. I am unable to detect any unjust element in the receipt of the Sum by CIC under the Subject L/C.

    (18)   I accept Mr Chang’s submission that Toyota HK had itself and Toyota Shanghai to blame for the mistake. In its own evidence, Rebecca only told Chen about her intended transaction with CIC in November 2010. There is no reason why it could accept the Controversial Contract to be dated 26 August 2010. At the very least it should make enquiries with CIC directly. Further, the way the Controversial Contract and the Controversial Invoice were finalized should cause serious doubt about the bona fide of the transactions. The substantial rise in the unit price and unexplained change in the quantity of the goods in the circumstances cannot be a usual occurrence in the commercial world and Toyota HK should have made some investigations.  

    (19) Kirin was responsible for the production of all the forged documents. It practiced fraud on Toyota HK so that Toyota HK was induced to discharge its liability under the Kirin Agreements by the Subject L/C. CIC took no part in and had no knowledge of the fraud. 

217.  Indeed, CIC’s version of events is well supported by contemporaneous documents, in particular, its internal emails. I cannot believe that all the emails exchanged between Ashiun and Fred and those sent by Albert Chou concerning the terms of the Subject L/C and the urgency of the Cargo Receipt were not genuinely made and they merely orchestrated their effort to produce such emails for the sake of such a massive concoction, particularly having heard their live evidence. All of such emails together with the emails exchanged between CIC and Kirin regarding the amendments to the draft terms of the Subject L/C plainly display the forthright attitude of CIC. CIC acted conscientiously and properly to perform the Kirin Agreements and I am unable to detect any untoward conduct of CIC up till the moment it received the Cargo Receipt and drew down the Sum out of the Subject L/C.

Legal analysis

218.  With the foregoing factual findings, the crux of the defence of the counterclaim of CIC is made out. The contractual claim of Toyota HK must fail due to my conclusion against the existence of the Purported Contract.

219.  The pleas of fraud and misrepresentation are unsustainable as well and must be rejected.

220.  In regard to the restitutionary claim based on the pleas of mistake, total failure of consideration and money had and received, by reason of the bona fide change of position on the part of CIC, it falls to be dismissed.

221.  To succeed in a claim for restitution, the court has to be satisfied that the defendant was unjustly enriched at the plaintiff’s expense and there were no applicable defences: Shanghai Tongi Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 per Ribeiro PJ at §66.

222.  CIC here obtained the Sum at the expense of Toyota HK. However, as I have found, there is no unjust element by reason of the bona fide change of position of CIC. CIC changed its position by its delivery of the Kirin Goods in late December 2010 to Da Tian pursuant to the Kirin Agreements in anticipation of payment under the Subject L/C made on behalf of Kirin.

223.  Mr Chang very helpfully invites this court’s attention to the following passage in the decision of the Privy Council in Dextra Bank v Bank of Jamaica [2002] 1 All ER (Comm) 1193 at §38:

“Their Lordships confess that they find that reply unconvincing. Here what is in issue is the justice or injustice of enforcing a restitutionary claim in respect of a benefit conferred. In that context, it is difficult to see what relevant distinction can be drawn between (1) a case in which the defendant expends on some extraordinary expenditure all or part of a sum of money which he has received from the plaintiff, and (2) one in which the defendant incurs such expenditure in the expectation that he will receive the sum of money from the plaintiff, which he does in fact receive. Since ex hypothesi the defendant will in fact have received the expected payment, there is no question of the defendant using the defence of change of position to enforce, directly or indirectly, a claim to that money. It is surely no abuse of language to say, in the second case as in the first, that the defendant has incurred the expenditure in reliance on the plaintiff's payment or, as is sometimes said, on the faith of the payment. It is true that, in the second case, the defendant relied on the payment being made to him in the future (as well as relying on such payment, when made, being a valid payment); but, provided that his change of position was in good faith, it should provide, pro tanto at least, a good defence because it would be inequitable to require the defendant to make restitution, or to make restitution in full. In particular it does not, in their Lordships' opinion, assist to rationalise the defence of change of position as concerned to protect security of receipts and then to derive from that rationalisation a limitation on the defence. The defence should be regarded as founded on a principle of justice designed to protect the defendant from a claim to restitution in respect of a benefit received by him in circumstances in which it would be inequitable to pursue that claim, or to pursue it in full. In any event, since (as previously stated) the context of a restitutionary action requires that the expected payment has in any event been received by the defendant, giving effect to “anticipatory reliance” in that context will indeed operate to protect the security of an actual receipt.” (emphasis supplied)

224.  It is also held by the Privy Council in Dextra v Bank that there is no need to make a comparison of the relative fault of the parties’ fault to determine whether the defence of change of position is available to a defendant: see §45.

225.  Hence it is clear that CIC can rely on its anticipatory reliance to resist Toyota HK’s claim for restitution.

226.  I have gone through the relief sought in the Amended Counterclaim. I have problems with only two of the declarations sought. First, I am not minded to grant the declaration set out in §3 that at all material times Toyota HK was an intermediary helping Kirin to finance the purchase of the Kirin Goods from CIC. I am not so convinced on the balance of probabilities on the evidence.

227.  Second, I am of the view that the declaration set out in §4A that CIC was entitled to negotiate the Subject L/C for obtaining payments of the Kirin Goods sold by it is unnecessary, particularly in view of all other declarations which I would grant in favour of CIC. 

228.  In regard to the claim of Toyota HK against Kirin, Kirin simply has ignored these proceedings and this court is entitled to draw adverse inferences against it. In any event, Toyota HK’s claim of fraud/fraudulent misrepresentation is emphatically made out by the evidence. This court is not sure about the level of participation of HKTQ and/or Shanghai TQ but it is unnecessary for this court to make any speculation here.

229.  Before I leave this matter, I should very briefly deal with the major legal arguments of Mr Chong only though I have considered them all. Whilst he does not press very hard on the authenticity of the Controversial Contract and the Controversial Invoice, which is a realistic approach, nevertheless, he does not wish to let go the contractual claim and still urges this court to make a finding of an implied contract and/or CIC’s estoppel of the existence of the Purported Contract by conduct.

230.  I cannot accept his submission. This is not a course open to this court. The plea of an implied contract is not pleaded whereas on the factual findings I have made, there can be no such estoppel on the part of CIC. It was not aware of the Purported Contract at all to start with.

231.  Mr Chong relies heavily on the Commercial Invoices, which were the only genuine documents of the Purported Contractual Documents. He relies on the observation of Le Pichon J (as she then was) in Montgomery Ward & Co. Inc v Evergo Trading Co Ltd & Anor [1997] HKLRD 1047 at p.1061C to support his submission that a commercial invoice is an important contractual document indicating a contractual relationship though he also accepts the proposition that a commercial invoice per se is not a contract: Allan v Lake (1852) 18 QB 560.

322.  I can readily accept the correctness of his submission. However, the Commercial Invoices here were very different and they were created for a specific purpose, namely, for CIC’s drawing down of the Subject L/C. They were one of the specified conforming documents, which tellingly did not include any contract between CIC and Toyota HK. On the part of CIC, they were issued for the purpose of the Kirin Agreement only. In drawing down the Subject L/C, CIC was only involved in two contracts. First, there was a contract between Hua Nan and CIC to the effect that the Subject L/C would be paid and accepted by Hua Nan against the conforming documents. Second, the Kirin Agreements obliged Kirin to pay CIC against its fulfilment of its delivery obligation. It is not necessary for CIC to have any contractual relationship with the financier of Kirin or anyone who paid willingly or unwillingly on its behalf.

233.  Mr Chong further submits that by issuing the Commercial Invoices to Toyota HK and presenting the Subject L/C for payment, the underlying contract can be changed in accordance with the terms of the Commercial Invoices and/or the Subject L/C. In this regard, he relies on WJ Allan & Co Ltd  v El Nasr Export and Import Co. [1972] 2 Q.B. 189. In that case, the Court of Appeal held that the sellers by accepting payment under a sterling letter of credit had irrevocably waived their right to be paid in Kenyan currency under the underlying sale contract.

234.  It is very obvious that the present case is very different. What Toyota HK is seeking is not just a variation of the terms of the underlying contract in light of the presentation of the Subject L/C by CIC and the issue of the Commercial Invoices. It is asking this court to create a new contract between CIC and Toyota HK in accordance with the terms of the Commercial Invoices. I cannot accept this submission.

235.  Lastly, Mr Chong complains about the lack of pleaded claim in fraud against Shanghai TQ and HKTQ when CIC made such allegations in the trial. He submits that this is unfair. I fail to see the merit of this argument. In order to succeed in its defence and counterclaim, CIC does not have to rely on any claim against Shanghai TQ and HKTQ. However, in the course of proving its allegation of fraud of Kirin, of course CIC might adduce evidence to implicate any parties acting in collusion with Kirin.  It is also clear that the factual findings in this action do not bind non-parties.

Conclusion and Dispositions

236.  For all the foregoing reasons given, I dismiss the claim of Toyota HK against CIC and allow the counterclaim of CIC save the two declarations as discussed above.

237.  On the other hand, I enter judgment against Kirin in favour of Toyota HK. I further order that Kirin must pay CIC damages for fraud and fraudulent misrepresentation in the like amount of the Sum.

238.  Kirin must pay Toyota HK its costs of this action including the costs of its successful application to adduce the Statement on an indemnity basis, to be taxed if not agreed, due to my finding of fraud.

239.  It is only reasonable for Toyota HK to sue both CIC and Kirin owing to the forged documents. CIC is a necessary party. In the premises, I think a Sanderson order is appropriate. CIC’s costs of this action should be borne by Kirin on an indemnity basis, to be taxed if not agreed.

240.  These costs orders are made on a nisi basis.

241.  I am concerned about the sum of US$900,000 in the possession of CIC. Fred admitted that it belongs to Kirin. The parties may be able to lay their hands on the said amount for execution of this judgment. I invite both parties to file and exchange written submissions on the deposition of the said amount within 35 days from the date hereof.

242.  Last but not least, I thank all counsel involved for their excellent oral and written submissions. I am sure that they put in enormous efforts in this matter and this court has been ably assisted.

[1] no. PR2010082602

[2] nos. WWFN 10C5464/WWFN 10C5468

[3] nos. WWFN 10C5464/WWFN 10C5468

[4] It is submitted on behalf of Toyota HK that CIC only started to seek amendments of the Subject L/C after the shipment made on 29 December 2010. This submission is wrong factually in light of the contemporaneous emails of CIC.

[5] §7 in reply to §11 of the Amended Defence and Counterclaim.

[6] In his email to Kirin dated 10 December 2010 sent at 1151 hours.