BALLI KLOCKNER ASIA LTD v. SAHAVIRIYA STEEL INDUSTRIES PUBLIC CO LTD

HCCL25/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO.25 OF 2003

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

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

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

REASONS FOR JUDGMENT

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

1. On 6 June 2003 I dismissed the defendant's application to discharge the Mareva injunction granted by Stone J ex parte on 28 May 2003. I now give my reasons.

2. The defendant applied to discharge the Order on the grounds that :

(1) The plaintiff failed to make full and frank disclosure and/or

(2) the plaintiff has failed to show risk of dissipation.

3. The plaintiff entered into a series of contracts to purchase steel from the defendant, for onwards sale to buyers on the Mainland. There were three shipments. The first, in January 2003 was uneventful. The second was supposed to take place in March 2003. The letter of credit provided that it must take place in February or March. It is not in dispute that in fact, loading on to the ship at the defendant's port in Thailand was not completed until 4 April 2003.

4. It is further not in dispute that in order to make a valid presentation under the letter of credit, the defendant procured back-dated bills dated 31 March 2003 and thereby made a successful albeit wrongful presentation and was paid for the March shipment.

5. The plaintiff's buyers found out that the shipment was late and that the bills of lading were fraudulent. They applied for and obtained an injunction in China restraining the plaintiff from drawing down the letters of credit that it had received from them, on the basis that the bills of lading were fraudulently backdated. The plaintiff presumes that the commercial rationale behind this action is that the price of steel had dropped by 30-40% in the last few months.

6. There is a third shipment presently taking place. In order to pay for the shipment the plaintiff has asked its bankers to issue a letter of credit payable in Hong Kong.

7. The plaintiff sought to bring proceedings in respect of the losses it has suffered as a result of the backdated bills of lading which it says amount to US$2,012,182.10 and the Mareva injunction of the proceeds of the letters of credit. Stone J granted the injunction ex parte on 28 May 2003.

8. The plaintiff says that the defendant, in obtaining payment by the use of backdated bills, committed fraud and breach of contract. The defendant does not deny that the plaintiff has a good, arguable case. However it says that the plaintiff did not disclose to the Judge, and should have disclosed, that the defendant is a publicly listed company in Thailand, and has offered to re-take the goods but the parties are unable to reach an agreement because they cannot agree who would bear the freight charges for the return voyage to Thailand.

9. The plaintiff says that the previous conduct of the defendant shows an unacceptably low standard of commercial morality and that there is a danger that the defendant would not shrink from attempting to defeat the interests of the plaintiff under any judgment that might be obtained. He relies on Honsaico Trading Ltd v. Hong Yah Seng Co. Ltd [1990] 1 HKLR 235.

10. The defendant says that if the negotiations were relevant to the weighing operation which the court had to make in deciding whether or not to make the order. They are material and should be disclosed. As I understand it the plaintiff's position is that the negotiations had got nowhere. The defendant wanted to take back the goods but that the plaintiff should pay the freight for it. Once it got them, but only then, would it repay the money. This made no commercial sense; in effect the defendant was asking the plaintiff to bear the costs of its own fraud.

11. The plaintiff's position is also that the negotiations were aimed at settlement and were "without prejudice". In fact counsel indicated to Stone J, as the latter's note showed, that he had "without prejudice" documents, but was not in a position to waive the privilege. To a large extent, then, the argument on non-disclosure is weakened. But I think the most important thing is that the non-disclosure, if non-disclosure there was, was not material. The test is whether the material could have had a significant effect on the court's decision. The defendant had committed a fraud; it could be regarded as likely to try to defeat the plaintiff's interests in future. The fact that it had tried in a manner commercially quite unacceptable to make some amends, but not the amends it should have made, would not in my view have had any significant effect.

12. So far as the risk of dissipation goes, that is obvious. A fraud had been committed. The defendant was trying to get the plaintiff to pay for some of the cost of it, before it would give the money back. The defendant's conduct shows that there is an obvious danger that it would not shrink from attempting to defeat the interests of the plaintiff under any judgment that might be obtained.

13. I was therefore not satisfied that the plaintiff had failed to make full and frank disclosure or that it had failed to show a risk of dissipation.